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Taxation 2 Assignment T1 2018 Question 1 (10 marks) With reference to the UK Australia Double Tax Agreement explain: a) the meaning of the term Permanent Establishment. b) how the business profits of...

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Taxation 2 Assignment T1 2018

Question 1 (10 marks)

With reference to the UK Australia Double Tax Agreement explain:

a) the meaning of the term Permanent Establishment.

b) how the business profits of an enterprise incorporated in the UK are taxed in Australia.

c) whether contracts made through an independent agent would result in a Permanent Establishment

Question 2 (10 marks)

Andrew McSwington is a highly regarded MLB prospect. During the American off season he first travelled to Mexico to play in the Fall League for 2 months and then decides to come to Australia and play in the Australian Baseball League in December, January and February to play for the Adelaide Chomp. He signs the contract stipulating he is to be paid $45 000 for the 3 months in Adelaide and joins the team shortly after. The contract states he is to be paid monthly into a bank account in the Turks and Caicos Islands

Andrew is impressed with Australia and decides to purchase a home unit at Glenelg. His plan is to use it as a base during the home and away series and rent it out for the remainder of the income year.

Discuss:

  • Whether Andrew is liable for taxation on the $45000 for his baseball skills
  • Whether Andrew is liable for tax on the rental income received during the balance of the year

Question 3 (10 marks)

Explain how the principle from the Myer Emporium v FCT case is used to determine whether a receipt is assessable as ordinary income or as a capital gain. Illustrate the principle with reference to relevant case law.

Question 4 (15 marks)

a) With reference to Softwood Pulp and Paper v FCT 1976 explain whether a deduction is available for interest paid on a loan during the preparatory stages of a business.

In your opinion when would a business advance from a preparatory stage?

b) With reference to Ronpibon Tin NL v. Federal Commissioner of Taxation XXXXXXXXXXCLR 47 explain the importance of the ‘incidental and relevant test” in determining whether interest paid on loans in deductible.

c) With reference to FC of T v. Brown 99 ATC 4600; XXXXXXXXXXATR 1 explain whether interest paid on loans can be deductible after business activities have stopped

Question 5 (15 marks)

With reference to at least three (3) different sources and the indicators of good tax policy explain whether or not you think the 50% general discount for individuals on the disposal of CGT assets is good tax policy.

Answered Same Day Apr 17, 2020 LAW6001 Torrens University Australia

Solution

Pulkit answered on Apr 28 2020
150 Votes
Question 1
As per the UK Australia Double Tax Agreement
Part a
Permanent Establishment: The concern which intends to ca
y whether wholly or partially business from the place of business fixed at one place is called permanent establishment. It includes the place of management of the business of the concern,
anch, office, factory, workshop, mine, agricultural or any other property.
An enterprise in order to have a permanent establishment and ca
y its business in a Contracting State needs to fulfill any one(a) it ca
ies out any activity which is ca
ied as a part of the business of the undertaking and also it undertakes activities in relation to the business in that State for more than 12 months; (b) it maintains all necessary equipment needed for conduct of business or otherwise for more than 12 months within that other State or (c) a person manufactures or produces the goods by acting as agent on behalf of other state’s enterprise.
An enterprise cannot have a permanent establishment just because of: (a) it maintains a place of business of fixed nature for conducting the business of the concern (b) it uses the facilities for the purpose of storage or delivery of goods in the regular business; (c) ca
y out the processing of the stock of goods belonging to itself by another enterprise (d) maintaining the goods in stock useful for storage or delivery of goods (e) the maintenance of a place of business which is of fixed nature for purchasing of goods.
Part b
The profits arising of an enterprise in its state of establishment shall be taxable only in the State of the enterprise. If the enterprise ca
ies on business through the other fixed place of business then the profits of the enterprise may be taxed in the other State where the permanent establishment situated but only to such amount which attributes to that place of business situated in other state. Here the method of taxing the amount of profit will be the same as if any other enterprise would have gained profit in conducting the business in that state. In calculating the amount of profits of a permanent establishment expenses which are incu
ed for the purposes of the permanent establishment shall be allowed as deductions. These expenses shall include executive and general administrative expenses incu
ed whether in the state itself in which the permanent establishment is situated or at other place.
Part c
Permanent establishment may be defined as a place of business for conducting or ca
ying out activities of the business as a whole or in parts. An enterprise ca
ying on the business in the ordinary course through using the services of other independent agents in the name of a
oker, general commission agent shall not be deemed to have a permanent establishment in the state.
Question 2
Issue: In the given case Andrew McSwington regarded as MLB prospect during the American off season travelled to Mexico to play for 2 months and then again he decided to come to Australia and play in December, January and Fe
uary for the Adelaide Chomp for which he be paid $45 000 and he joins the team shortly after. He is paid on monthly basis. Andrew is impressed with Australia and decides to purchase a home unit at Glenelg. He plans to stay there during the home and away series and rent it out for the remainder of the income year. His taxability as to the contract amount and also rental income is to be find out.
Rule: To find out the taxability of a person the residential status is to be find out whether he is an Australian or foreigner. Firstly it is to be find out whether a person is in Australia for working holiday or for other purpose. If a person is in Australia for working holiday than the residency status need to be work out in the following manner:
To be an Australian resident any one condition need to be meet out:
· His living and working pattern in Australia demonstrate his intention of making Australia his home. O
· He lives in Australia for more than six months in an income year and he do not have any other place of residence in other country. And he intends to buy a house in Australia.
Most of the people having working and holiday visas do not intend to stay in Australia meaning would stay in Australia only for the purpose of work or holiday and then would return after completion of the same. For others there is a change in the behaviour of the individuals towards the culture and their way of living or their behaviour depicts their intention of making Australia their home. One cannot be an Australian resident just because one is staying in Australia on a rented property for a period of...
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