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Advise angelina and bradley on capital gains tax consequence
Course:- Taxation
Reference No.:- EM13718817




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Question 1 :

Fred, an executive of a British corporation specialising in management consultancy, comes to Australia to set up a branch of his company. Although the length of his stay is not certain, he leases a residence in Melbourne for 12 months. His wife accompanies him on the trip but his teenage sons, having just commenced college, stay in London. Fred rents out the family home. Apart from the absence of his children, Fred's daily behaviour is relatively similar to his behaviour before entering Australia. As well as the rent on the UK property, Fred earns interest from investments he has in France. Because of ill health Fred returns to the UK 11 months after arriving in Australia.

Requirement

Discuss whether Fred is a resident of Australia for taxation purposes.

Question 2:

Explain why the receipts in Egerton-Warburton & Ors v DFC of T (1934) 51 CLR 568 were assessable, but the receipts in IRC v Ramsay (1935) 1 All ER 847 were treated as capital amounts.

Question 3:

Angelina is married to Bradley. They each have two houses: ‘house A' and ‘house B'. Angelina and Bradley each own a 50% interest in house A. Bradley owns an 80% interest in house B and Angelina owns a 20% interest in house B. As Angelina and Bradley are both busy actors who lead their own lives, they quite often live apart. This year the sold both house A and house B. Angelina wants to nominate house A as her main residence and Bradley wants to nominate house B as his main residence. Advise Angelina and Bradley as to how the main residence exemption will apply to them assuming that (ignoring the exemption) a capital gain of $1m was made on the sale of each house.

REQUIRED:

Advise Angelina and Bradley on the capital gains tax consequences regarding the abovementioned transactions for the 2014/2015 income year.

Answered:-

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As per Section 6(1) of ITTA 1936, a person has to comply with certain condition in order to be treated as the citizen of the Australia. The rate of Taxation and exemption provided under various sections depends upon the circumstances and status of the Individual.

As per Australia Income Tax there are four test which check the Individual residential status, these are:
1. Superannuation Test:
2. 183 days:
3. Domicile Test:
4. Reside Test:

In the given situation the arrival of Mr. Fred from UK in Australia is for 11 months after which he left Australia for health issues. The person had leased house at Australia would not be considered as the permanent residence of the country on the basis of the stay on the leased spaced. Therefore it can be said that the residence rule of domicile and the residence test would not be considered for the case here of Mr Fred. The thing that can be seen that the period of stay of Mr Fred is 11 months which are more than 183 days hence they be considered as the residence of the country Australia and hence would be taxed as per the rule of the country Australia for all the income that are accruing to Fred during the tax assessment year




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