Case Study One Part A All Black Pty Ltd (All Black) carries on a retail fashion clothing business in Brisbane, Australia and a similar retail fashion clothing business in Auckland, New Zealand. The...

ANSWERS
CASE STUDY ONE:
PART A
ANS 1. The information needed to understand the residential status of an individual when he
leaves Australia are as follows:
1. How long is a person staying away from Australia.
2. Whether he will be returning to Australia during this period, and if yes the frequency of
his return.
3. The kind of accommodation the person will have on his stay away from Australia.
4. The reasons for leaving Australia and the activities to be done during that stay.
5. Whether any kind of connection will be retained with Australia after his leave.
To test the residential status of an individual there are two tests the primary tests and the
statutory tests. If a person fails the primary test then we should think about the statutory test and
not vice versa. The primary test would be that a person will be considered as resident if he
esides in Australia by the common meaning of the word. If not then clearing any of the three
statutory test would make a person resident individual.
Test When To Apply
Resides Primary test – if a person resides in Australia
according to the ordinary meaning of the word,
the other three tests are not needed
Domicile
Statutory tests – if primary test is not satisfied
then any clearing any of the three statutory test
would render an individual a resident
183 day rule
Superannuation
In this situation we can see that Nicholas is a Resident of Australia since he passes the domicile
test. Although he fails the 183 rule test and the Superannuation Test but clears the domicile test.
Since as per the domicile test he has left Australia but does not have an intention to establish an
abode overseas. His family members are still living in Australia proving he has no intention of
leaving Australia and permanently residing overseas. He is of Australian origin and has a
permanent home in Australia where his family stays i.e. Brisbane also Australia is his domicile
y birth and does not have a permanent place of abode a
oad. We can say that he does not have
a permanent place of abode a
oad since he does not have an established home overseas and is
living in the mining place of the site, he visits Australia to utmost 12 weeks a year, and he has
family ties in Australia. Thus he clears the domicile test and he is a resident of Australia.
ANS 2:
A company is considered to be a resident of Australia if:
 it is incorporated in Australia, or
 if not incorporated in Australia it ca
ies on business in Australia and has either
 its central management and control in Australia
 It’s voting power controlled by shareholders who are residents of Australia.
From the present case we can see that All Black Pty Ltd. Is a company which is incorporated in
New Zealand thus missing the first criteria to become an Australian Resident. However it
operates in Australia but its strategic meetings and annual general meetings are held in Noumea
and not in Australia. However the third criteria of having 51% shareholders being an Australian
Resident are fulfilled. The voting power of All Black which is controlled by shareholders
holding at least 51% of the controlling stake is held by residents of Australia. Nicholas who has
2% stake in the company is a resident individual of Australia as we have found out above, and
49% of the stake is held by Daniel Pty. Ltd which is a resident Australian Company, thus making
it 51%.
Thus, we can say that ALL BLACK is a resident Australian Company since it ca
ies on business
operation in Australia and 51% of the stake of the company is held by residents of Australia.
PART B:
As per the taxation rules of Australia, there are concessions given to small business entity. An
entity is not required to value its stock at the end of the year if the estimated difference between
the value of its opening stock and closing stock is less than $5000. If the difference in value is
more than $ 5000 or if the entity chooses to value its stock, (which is done keeping in mind the
volume of stock and the value of stock) then ordinary trading rules apply in estimating the
assessable income from business. Using a simple method of stock take would mean that the
opening stock value and the closing stock value are taken to be the same thus not affecting the
assessable income. However as said earlier if situations are as mentioned earlier than ordinary
stock taking rules are followed for calculating the assessable income. As per the ordinary trading
stock rules if the value of closing stock is more than the values of opening stock then the
difference are added to the assessable income of the bushiness firm. However if the value of
closing stock is less as compared to opening stock then the different is allowed as deduction from
the assessable income.
The Business Income of Kate under three different valuation methods of Stock can be found out
y the following formula:
Sale+ Closing Stock- (Purchases +Opening Stock+ Freight and Insurance on Stock)
Calculation of Business Income of KATE under different Valuation
Method:
(fig in $)
Opening Stock 46000
Purchases 260000
Freight and Insurance on Stock 13500
Sale of Stock 543000
a) Closing Stock at Cost: 52000
Assessable Business Income 275500
b) Closing Stock at Replacement Price: 56000
Assessable Business Income 279500
c) Closing Stock at Market Price 105000
Assessable Business Income 328500
From the above we can see that Kate is having the lowest business income which is taxable for
the year ending 30
th
June 2013 under the method of valuing stock at cost price, i.e. $ 275500.
Thus we can see from the above scenario that the difference in value of closing stock and
opening stock is ($52000-$46000) = $6000, thus ordinary trading rules are to be applied and
usiness income is calculated as $ 275500.
PART C:
Income which is sourced in Australia are assessed for taxation purposes and foreign residents
who comes to Australia entertainment or sports activities falls under the PAYG (pay as you go)
criteria. According to this rule any person who has come to Australia for sports activities which
include
 individual sports (for example, golf, tennis, surfing, triathlon or cycling)
 team sports where team members are not employees (for example, cricket, rugby league, rugby
union, soccer or netball)
 athletics
 Other activities (for example, motor racing, cycling or horse racing).
Any income which is generated during their stay in Australia is assessable in Australia. However
the country has come into tax treaty agreements with more than 40 nations to avoid Double
Taxation for the income which is generated. For claiming relief from Double Taxation a
sportsperson or entertainer must file their returns duly mentioning tax treat numbers, the
applicable tax treaty in returns. The FRW is not restricted to sportsman but also to the sporting or
entertainment group, organizing such event. The payments which are subjected to FRW also
include:
 expense reimbursements
 fees received for giving a speech or sports commentary
 Non-cash benefits including the value of significant prizes received, such as a motor vehicle or
holiday.
 award for player of the series
 bonuses
 endorsement fees
 match payments
 performance fees
 appearance payments
 preparation fees
 sponsorship
Thus from the above guidelines we can see that Daniela, who is a non resident coming to
Australia for playing tennis, falls under the above mentioned category and any income which is
generated during her visit needs to fall under FRW. Any match payments, prize money or even
non cash benefits received during this period is assessable. Even the expenses which are
eimbursed for Daniela will be falling under the total assessable income and thus some tax will
e withhold by Australian Government before she leaves the country. From the given case we
can see that Daniela has received the following cash and non cash payments from the group
Tennis Australia during her stay:
1. Prize Money of $ 125000
2. Accommodation Benefit of $ 2800
3. Training Facilities of $ 5000
4. Transportation Expenses of $ 2600
Thus the total assessable income for Daniela for the year ended 30
th
June 2013 would be $
135400.
PART D:
Salary sacrificing a
angement is an agreement between the employer and the employee to
package the total remuneration into two parts as salary earned and as salary sacrificed during the
year. An employee can enter into an agreement with the employer wherein the employee agrees
to forego part of his future salary or wage for the employer providing those in kind of similar
value. This is done in order to reduce the tax burden. The salary sacrificed can be divided into
Fringe Benefits, Exempt Benefits and Superannuation Benefits.
Common fringe benefits include: cars, property, or expense payment (for example payment of
school fees, child care costs, home phone costs etc.)
As per the Australian assessment tax act , when any amount is received by an assessee as
maintenance expense from former partner in order to support a dependent child then such
amount will not be assessed as ordinary income (SSAct section 8(1)-'ordinary income') under the
income test category. It is perhaps considered for the calculation of maintenance income test for
the purpose of allocation of FTB Part A .
Family...