Sample Assignment Question and Solution

Sample Question

Elizabeth is a foreign resident (non-resident of Australia for tax purposes) who worked in Australia for four months during the year ended 30 June 2013 and received a salary of $20,000 for this work. She also worked in France and earned $27,000 in salary income. Elizabeth also owns a rental property in France and she received $7,000 in rental income during the year. In addition Elizabeth owns shares in Telstra Corporation Australia Ltd and she received a cash dividend of $500 from Telstra during the year. Telstra’s head office is in Sydney Australia. Based on these receipts what amount will be assessable to Elizabeth as income in Australia for the year ended 30 June 2013?

(Do not include the questions in your assignment answer – included here for information purposes).

 

Sample Solution

Issues:

• Will the salary and wage income of $20,000 and the $27,000 be included in Elizabeth’s assessable income?
• Will the $7,000 in rental income and the $500 in dividends received from Telstra be included in Elizabeth’s assessable?

Law:

• Section 6-5[1].
• French’s case[2].
• Nathan’s case[3]
• Esquire Nominees case[4].
• The source of rental income is the place where the property is located.

 

Discussion:

Elizabeth as a non-resident will include all Australian sourced income in her assessable income[5]. The salary and wage earned while working in Australia will have an Australian source[6] and thus Elizabeth will include the $20,000 salary earned in Australia in her assessable income. By contrast the salary earned in France will not have an Australian source[7].  The income earned from renting the property will have a French source[8] and will not be assessable in Australia. The dividend from Telstra of $500 will most likely have an Australian source[9] and be subject to tax in Australia for a non-resident. If the dividend is fully franked it may be excluded from inclusion in Elizabeth’s assessable income by the dividend withholding tax regime[10].

 

Conclusion:

Elizabeth as a non-resident will be assessable on the $20,000 salary earned while working in Australia and the Telstra dividend of $500. The salary and rental income earned in France will not have an Australian source and thus not be assessable in Australia.

[1] Income Tax Assessment Act 1997.

[2] FCT v French (1957) 98 CLR 398; 11 ATD 288.

[3] Nathan v FCT (1918) 25 CLR 183.

[4] Esquire Nominees v FCT 73 ATC 4114.

[5] Section 6-5 Income Tax Assessment Act 1997.

[6] FCT v French (1957) 98 CLR 398; 11 ATD 288.

[7] FCT v French (1957) 98 CLR 398; 11 ATD 288.

[8] General principles.

[9] Nathan v FCT (1918) 25 CLR 183; Esquire Nominees v FCT 73 ATC 4114.

[10] Division 11A (sections 128AAA to 128X) Income Tax Assessment Act 1936.