Count Drac Ula, a Romanian citizen, recently arrived in Australia with his wife and three children. He is a very wealthy businessman with vast interests in real estate in Transylvania. Although a Romanian citizen, he has spent the last 10 years in Italy expanding his business interests. Count Drac Ula has been able to obtain a four-year temporary visa in Australia for him and his family. His purpose in entering Australia is to expand his European franchise to Australia. He arrived in Australia on 17 January 2011, but his family only arrived on 23 April 2011. Upon his arrival in Australia, he immediately enlisted the assistance of a real estate agent to find him suitable accommodation for himself and his family. He commenced his business operations one month after his arrival.
During the 2011 income year, Count Drac Ula entered into a number of transactions in relation to his business:
1. Prior to arriving in Australia, he incurred costs totalling $100,000 conducting a feasibility study as to whether it would be viable to expand his franchise into the Australian market. This was incurred on 1 July 2010.
2. He signed a three-year lease with the landlord of a newly constructed office tower for
his business. The landlord offered him the following lease incentives for signing the
lease:
> A three-month rent-free period.
> Premium tickets to a major sporting event. The tickets cannot be transferred to anyone else and are solely for the benefit of Count Drac Ula and his family.
3. He signed a number of licensing agreements with several manufacturers under which he will receive a sum of money in return for giving the manufacturers the right to use his ‘technology' (patent) relating to certain blood products. In particular, he granted
the following licences to different manufacturers:
> An exclusive licence to Manufacturer A, which has the exclusive right to use Count Drac Ula's patent in New South Wales for 10 years. In return, Count Drac Ula will receive a $200,000 lump sum.
> An exclusive licence to Manufacturer B, which has the exclusive right to use Count Drac Ula's patent in Victoria for 10 years. In return, Count Drac Ula will receive a royalty.
> A non-exclusive licence to Manufacturer C, to use Count Drac Ula's patent in Queensland for 10 years. The grant of a non-exclusive licence to Manufacturer C in Queensland means that Count Drac Ula is free to grant further non-exclusive licences to other manufacturers in Queensland (i.e. Manufacturer C does not have the exclusive use of the licence in Queensland). In return, Count Drac Ula will receive $20,000 lump sum.
Assume that Count Drac Ula has some carried forward capital losses in the amount of $200,000.
4. Count Drac Ula has an office for his business; however, he works from his home two days per week because he wants to help his young children settle down in Australia. He has incurred electricity expenses, rent and telephone expenses on his home.
Taxation (1) 2012 • Project 11
5. Count Drac Ula made a $5,000 donation to his children's school building fund, which is endorsed as a deductible gift recipient. In return, the school reduced his school fees by $1,000 and provided free school uniforms to his children.
6. Count Drac Ula initially provided his family castle in Romania as security to his bank for a loan that he took out to set up his Australian business. During the income year, he repaid the loan and incurred costs totalling $3,000 to discharge the mortgage.
7. He received a refund of the following deductible business expenses which he has incurred:
> Fees paid to a registered tax agent for managing his income tax affairs.
> Sales commission overpaid to his sales agents.
Required
(a) Explain to Count Drac Ula whether he is a resident of Australia for income tax purposes. Cite relevant references (i.e. cases and/or ATO rulings) to support your answer. Ignore double tax agreements and temporary resident issues.
(b) Explain to Count Drac Ula the key income tax consequences for him for each of the above transactions. Cite relevant references (i.e. cases and/or section references) to support your answer.