TASK DESCRIPTION

Smith was born and educated in Australia and works as a dentist. Smith recently married a person from Canada, who is in Australia on a student visa completing a Doctoral degree at an Australian university. The student (now married to Smith) originally arrived in Darwin on 1 August 2020 and completed quarantine thereafter. Smith has now been asked to consider working overseas for 12 months in a Spanish dental practice. Smith’s new role as a dentist in Spain will include travel overseas from Spain to Portugal and to Australia to promote a new dental technique and device produced by the Spanish practice, at least quarterly. Under the arrangement Smith will be employed by the Spanish dental practice and the salary will be paid part into a new Spanish bank account in Smith’s name and part into an Australian bank account, also in Smith’s name. The contract for Smith’s new position in Spain was signed in Townsville, Queensland. Smith’s spouse, on potential completion of the Doctoral degree in Australia, has been offered a job with a large consultancy firm in Sydney, which will commence in January 2022. Smith is currently renting a house in a Sydney suburb with the spouse and will be giving up that lease, when going to Spain. Smith also owns a car which will be left for a cousin to drive and maintain in Sydney. The only other assets Smith has are superannuation in Australia. Smith has an Australian bank account into which the pay is credited. Whilst in Spain, Smith will be given rental accommodation by the dental practice employer and will open a bank account in Spain to receive pay, be a member of various expatriate and social organisations and will join a class to learn the Spanish language. Both Smith and the spouse intend to leave for Spain on 1 December 2021.
REQUIRED

1. Is Smith a resident or non-resident of Australia for taxation purposes for the year ending 30 June 2021?

2. If the spouse of Smith is a resident of Australia for taxation purposes for the year ending 30 June 2021, what additional steps, if any, could Smith take that may be relevant to the question of tax residency or source of income?

3. What will be the source according to Australian taxation law of the employment income of Smith when Smith commences work in Spain?

In your answer you are to refer to the relevant legislation, tax rulings and case law.

Please note that the assignment should be limited to 2500 words, excluding referencing.

The following criteria will generally be used to grade the assignment:

1. Your ability to identify the relevant facts;

2. Your ability to develop these relevant facts into a logical argument;

3. Your ability to demonstrate an understanding of the key issues decided by the case;

4. Your ability to identify resulting changes from the case - for example, did this case clarify the law, or change it? In what way?

5. Clarity of communication, which will include, but not be limited to the development of a clear and logical structure, the use of headings and so on. 

6. Correct referencing. Please note that you are required to follow the Australian Guide to Legal Citation version 4 and adopt footnote referencing.

Henrietta runs a small internet business as a sole trader. Henrietta also works as an independent contractor for a defence contractor and receives income from a rental property. Henrietta’s bank statements for the year ended 30 June 2021 identify the following:

Receipts

$90,000 Retail Sales (GST inclusive)

$30,000 paid by the defence contractor

$25,000 Rental income from the investment property

$10,000 Exempt income from serving in the Army reserve

$16,000 Dividend franked to 60% received from an Australian resident public company

$6,000 Dividend received from a Singaporean resident company, net of 15% tax of $3,000 was withheld in Singapore

$2,000 retail sales from Country X. $2,000 was withheld by the Country X Foreign Exchange Board and has not been received by Henrietta

$1,000 Medical expense refunds from Medicare

$7,000 Employment income from working as a contractor in New Zealand, paid in this year for work done in the previous financial year

$10,000 Value of fringe benefit from the defence contractor

$20,000 Net capital gain from the sale of shares acquired during the financial year

Payments

$3,000 Rates and Insurance on investment property

$10,000 Interest on money borrowed to purchase the investment property

$1,000 paid to an assistant as to the retail business

$2,000 Doctor’s fees (out of pocket)

$1,000 Dentist fees (out of pocket)

$15,000 Maintenance of the rental property, which consisted of $10,000 to repair and paint the outside of the property due to wear and tear and $5,000 to improve to the bathroom

$5,000 Borrowing expenses relating to a new loan on the rental property, which is used exclusively for income producing purposes. The loan is for 6 years and commenced on 1 April 2021

$2,500 Travel between work and family home

$2,000 Rates on family home

$11,000 Purchases of trading stock

$1,000 Legal fees paid to a solicitor to collect outstanding trade debts

$1,000 Legal fees paid to a solicitor for preparing a lease of the investment property

$2,000 Donations ($1,000 to the Red Cross and $1,000 to the local school)

Additional Information

(a) Henrietta has a carry forward prior year trading tax loss of $15,000 and an ‘unabsorbed’ capital loss of $25,000 from the previous financial year.

(b) Henrietta and all members of her family are members of a Private Health Fund and do have private hospital insurance.

(c) Henrietta’s business is considered a small business for tax purposes and the business returns income on a cash basis. Henrietta’s trading stock on hand at the end of the year was valued at $27,000 (at cost price), $28,000 (at replacement price), $29,000 (at market selling value). Opening stock was valued at $35,000 using the replacement value.

(d) Accounting Depreciation was calculated at $15,000. The Tax Depreciation Schedule shows depreciation for the income year as $22,000.

REQUIRED

Calculate Henrietta’s taxable income and income tax payable for the year ended 30 June 2021.

Explain the treatment of each item.

You are required to submit one WORD document (not PDF) containing all parts of your Written Assessment with the document name as your student name with student number (e.g. Peter Smith s001234)

Please note that the assignment should be limited to 3000 words, excluding referencing.

The following criteria will generally be used to grade the assignment:

1. Your ability to identify the key issues.

2. Your ability to develop these key issues into a logical argument. In the case of the hypothetical questions, this will mean supporting your answers with reference to legislation, case law and ATO guidance materials.

3. Accurate numerical answers, where relevant.

4. Clarity of communication, which will include, but not be limited to the development of a clear and logical structure, the use of headings and so on. 

5. Correct referencing. Please note that you are required to follow the Australian Guide to Legal Citation version 4 and adopt footnote referencing.