BLO 2206 TAXATION LAW & PRACTICE:

CASE STUDY ASSIGNMENT

By

Yee Suet Yen

4511398
LECTURER
Mr. David Parker
TUTORIAL:
Tuesday, 10AM 11AM
SUBMISSION DATE:
21 September 2016

Introduction
According to Income Tax Assessment Act 1997, taxable income can be
defined as the excess amount which is calculated whereby the deductions
are withdrawn from assessable income. According to Section 6-5 and Section
6-10, assessable income contains ordinary income and also other amount
that are not ordinary income.
The following paragraphs below are theoretical analysis of concepts and
elements which is related to ordinary income. Besides that, it also shows the
different types of income and how it is applied to the legislation from the
scenarios showed below.

Personal Service Income/Business

The first issue is whether Stephanies income from her own company, Rogan
Advertising Pty Ltd, on the suggestion of Greater Union Advertisers Pty Ltd, is
deemed as a personal services income or a business.
According to Section 6-5 ITAA 1997, there are three categories of income
activity. This includes personal services income, business income and also
property income. Under personal service income, there are two tests which
are, salary or wages and also personal services business. Furthermore, under
business income there are four tests to identify which includes profit motive,
system and an organization, regularity of activity and also having business
records. Lastly there are two issues to distinguish under property income
which is the payment from premium and also the difference of Royalty
Payments.
In the case of Stephanie Rogan, Rogan Advertising Pty Ltd is set up by her
but under the suggestion of her ex company, Greater Union Advertisers Pty
Ltd, so that work of small nature is given to her instead of a big firm like
Greater Union. Hence, it is not considered as a business as this does not
satisfy the business test in having a system and organization. There is also
no proof of a business record and the work given by Greater Union
Advertisers Pty Ltd does not have a regularity of activity. As for a personal
service income, it satisfies the criteria of a salary or a wage which is given by
Greater Union and also it involves providing services as an advertising
company.
PG147 TB

Residency and Source

Second issue is whether Stephanie Rogan is a resident of Australia and the
basis of government having the right to tax based on Stephanies residency
status.
According to s6(1) ITAA 1936, the meaning of resident or resident of Australia
is regarding to a person, besides a company, it also included a persons
domicile that is in Australia. Furthermore, a company that are or not
incorporated in Australia, that carries on business in Australia has both
central management and control in Australia, or their voting power are
controlled Australia resident shareholders. Moreover, under s6-5(2) ITAA
1997, assessable income that includes ordinary income that derived either
directly or indirectly from all sources during the financial year are subjected
to Australian resident.
Therefore, in the case of Stephanie Rogan, Rogan Advertising company has
taken up the offer from Greater Union to live in Brazil for a year to make a
series of advertisements for the 2016 Olympic games. Hence, Stephanie and
her husband left on the 26 June 2015 and returned at the end of the 2016.
Rogan Advertising company is incorporated in Australia, therefore all sources
of income that were derived from Brazil are subject to assessable income.
Also Stephanie and her husband doesnt apply to TR98/17 because they only
had temporary stay in Brazil and they are still Australian residents.

Anti-Avoidance/Alienation Income/Unfranked Dividend

Third issue is whether Stephanies income splitting of $80,000 with her
husband, Ronald is it under Anti-Avoidance also, alienation income.
According to s23.160 Div 86 ITAA 1997, Anti-Avoidance is to prevent
personal services income by splitting through entities such as company, trust
or partnership. By avoid paying tax of an individual taxpayer on their salaries
at the marginal tax rate that was earned through their salary or wages above
$87,000.
Furthermore, under s318(1) ITAA 1936, a person carries the meaning of a
relative of the primary entity also, it is also a partnership which the person is
with the primary entity. Additionally, trustee of primary entity is the spouse
or the child of the partner. Therefore, under s102A(1) ITAA 1936, alienation
income means it is associated with a person.
Lastly, under s6(1) ITAA 1936, the meaning of dividend is any distribution in
money term or property that a company makes as well as the amount that is
credited by the company to their shareholders. A dividend that is paid out of
company profits will be issues to an individual taxpayer as franked to the
extent of tax paid.
Hence, in this case, Stephanie and Ronald each are having $80,000 of
income. Stephanie and Ronalds purpose of income splitting is to receive tax
free threshold because their individual income is below $87,000. It has also
stated that any income of Rogan Advertising is not distributed as salary but
will be distributed as unfranked dividends to the both of them.
In conclusion, Stephanie and Ronald have the intention to avoid paying
income tax of 37%.
Primary entity Stephanie Rogan
Relative Husband
http://www.ird.govt.nz/technical-tax/case-notes/2010/cn-2010-0406-incomesplitting.html
tax avoidance
DIV21.100 &9.150

Isolated & Unusual Transaction

Last issue is whether the transactions made by Ronald and the contributions
to their joint account and also the amount $24,000 paid Monash University to
her Australian bank account is it an isolated and unusual transaction.
According to TR92/3, isolated transactions simply means transactions
occurred outside of ordinary course of business by a taxpayer on a business.
Hence under TR92/3(6) of transactions with a profit making purpose,
taxpayers intention or purpose by entering into the transaction was to gain
a profit also, when transaction occurred and profit was received, in the
course of carrying on a business or carrying out a business operation.

CASE: whitfords beach & MYER

http://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR923/NAT/ATO/00001