Wood Press Machinery - Is the Payment of $45,000 over 12 Months to the Owner of the New Building Is Classified as an Ordinary Assessable Income?

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In conclusion, under section 15.5 of income from business under leasing, income from the sale of the cars that were leased are classified as ordinary assessable income as it is capital in nature which the income will also be taxable.

Question 4

Is the income earned by Rosie taxable by the Australian authorities?

Assessable income is defined as consisting of ordinary income and statutory income, but does not include ordinary income or statutory income which is exempt income or non-assessable non-exempt income (S6-1,S6-15 ITAA97)[14].

As in the case of Rosie the income that she get from the sale of her house is categorized under section 15.7 income for property[15] where the profit made from the sale of property is not ordinarily of income nature. This can be explained in the case of Foley v Fletcher (1858) 157 ER 678[16], where it was held that the land sold for instalments payable every 6 months are not assessable when received as it had only separated with capital asset which was payable over a fixed time period. The money Rosie invested and gained from it is categorized under section 15.6 income from profit making schemes[17] where the process of gaining the profit is contemplated by the tax payer. This can be explained in the case of Moana Sand Pty Ltd v FC of T 88 ATC 4897[18], where the tax payer acquired a beachside land for business, it then subdivide the land and sold to related parties where eventually the coast protection board approved it, resulting in profit. It was held that the profit gained came from an isolated transaction where it is income of nature where the land was sold. Thus it fulfilled its ultimate goal to make profit. As in the case of Rosie she received $20,000 per annum from those investment which is income of nature.

As she had moved around various places and stayed for 6 months each at 1 location which is classified under section 6(1) ITAA 36[19] where the domicile and permanent place of abode test applies which can be explained in the case of FC of T v Applegate 79 STC 4307[20]. Where an Australia lawyer was posted to an overseas office, he will be posted to an overseas office, he will be there for a long time and gave up all lease and assets and took his wife together. It was held that the lawyer has a permanent place of abode outside Australia eventhough he will return. As in the case of Rosie her permanent place of abode consists of 3 places which is Italy, England and Greece where she stayed there 6 months each and also abandoned her residence and the place of abode in Australia and establishment of home outside of Australia under IT 2650[21].

Ms Rosie also qualified for the 183 days test where she has spent more than 183 days in each of the countries she went to. This can be explained in the case S19 85 ATC 225[22] where the tax payer accepted the job for a 2 year posting to overseas which he left with his families, it was held that even he spend 183 day in Australia, he was more than 183 day outside of Australia which his place of abode is outside of Australia. As in the case of Ms Rosie she spends more than 183 days in the 3 countries which makes her a non-resident of Australia where she will be paying taxes in other countries.

The income of $12,000 worth of paintings she received from the sales of paintings and the estimated sales of paintings from the exhibition are classified under section 15.4 income from personal exertion[23], that is reward for service. This can be explained in the case of Brent v FC of T 71 ATC 4195[24]. Where the wife of the convicted received payments by granting access to the media company to publish her life story. It was held that the money she received was income in nature and was rewarded for her services accordingly thus the income is taxable and assessable.

In conclusion, the income that Ms Rosie earned is not taxable by the Australian authorities as according to the residency test under S6(1) ITAA 36 on domicile and permanent abode test and the 183 days test, Ms Rosie passed it where it is a prove that she is a non-resident. Next is the income she earned is all outside of the country where the tax is paid in the country she is living in as Australia has a double taxation agreement where she only needs to pay the tax once.

Bibliography

A Articles/Books/Reports

Barkoczy, S 2013, Foundations of taxation law 5th edition, CCH, Australia

B Cases

Adelaide fruit and produce exchange Co Ltd v DFC of T (1932) 2 ATD 1

Brent v FC of T 71 ATC 4195

Eisner v Macomber (1920) 252 US 189

FC of T v Applegate 79 STC 4307

FC of T v Cooling 90 ATC 4472

FC of T v GKN Kwikform Services Pty Ltd 91 ATC 4336

FC of T v Hyteco Hiring Pty Ltd 92 ATC 4694

Foley v Fletcher (1858) 157 ER 678

Moana Sand Pty Ltd v FC of T 88 ATC 4897

S19 85 ATC 225

Scott v FC of T (1966) 117 CLR 514

C Sections

Section 15.2

Section 15.4

Section 15.5

Section