Question one
James is a lawyer who works in Singapore. He is single and lives in Singapore with his parents. Until April 2015 his work did not involve travel. At that time he accepts an offer from his employer, a Singapore law firm to travel to Australia to provide business advice to Singapore citizens establishing businesses in Melbourne. James enters Australia on 20 April 2015. His employer wants him to spend three months here and are paying his hotel accommodation in the city His employer asks him towards the end of the three months to stay for a further nine months. In early July 2015, he leases a serviced apartment for nine months near his workplace. The apartment is his home base during his stay there. He asked his parents to bring him the rest of his clothing and some personal effects when they next visited him in Melbourne. Although based in Melbourne his commitments require some travel outside the city. On average, James travels at least once a week to meet clients in Sydney.
In July 2016 he returns to Singapore. He has some financial assets in Singapore from which he receives dividend income.
Required:
James seeks your advice on whether he is a resident of Australia for tax purposes and the effect this might have on his income tax liabilities here.
Question two
In 2004 Tran, an Australian resident for income tax purposes, inherited $1,000,000 cash on the death of a relative.
She used the money to purchase two houses adjacent to each other in October 2004 and by 1 January 2005 had the properties let and commenced receiving rent.
In March 2014 she was advised by her financial consultant to sell the properties as land values in the area had significantly increased over the 10 years.
However that Tran has received advice from a property developer not to simply sell the two properties but demolish the two houses and build a small multi story apartment block with 6 units and then sell each unit. She was advised that this would give her a better financial return than simply selling the houses.
She discussed this advice with three different of builders, a lawyer and two property agents before making a decision on this advice.
Finally she went to an architectural firm to have plans drawn up which she could take to the potential builders, She finally chose a building company and then a real estate agent.
Tran decided to proceed with this plan and the project commenced in October 2014 and was finished in one year later with the properties finally sold in April 2016.
Required:
Advise Tran of the income tax consequences of demolishing the two houses then building and selling the units.
You should discuss whether (i) she will be assessed on the profit under Income Tax Assessment Act 1997 section 6 as ordinary income or (ii) if it will it still be taxed as a capital gain under Income Tax Assessment Act 1997, Division ten. You are not required to make calculations in your answer.