Ernie is employed as a chartered accountant by a private accounting firm in Melbourne, Australia. He has worked for the firm since graduating from Melbourne University in 2010. In January 2015, Ernie was seconded to the firm’s London office for an initial 2 year period. There was an option for Ernie to extend the stay by an additional year if he wished. Ernie and his domestic partner, Bert, had a settled life in Australia with their own home, two dogs and many friends and family nearby. They had Australian bank accounts and investments in shares in Australia. Bert and Ernie enjoyed many social activities particularly acting with their local theatre company, Big Bird Productions. However,
they were both born in Australia and had never lived overseas and considered the secondment opportunity a ‘once-in-a-lifetime’ experience.
Bert and Ernie rented out their house in Melbourne, sold their car and moved to London in February 2015. They maintained their Australian bank accounts and share investments but cancelled all other memberships and subscriptions except for Ernie’s membership of the Institute of Chartered Accountants. Their friends and family were sad to see them go but were excited by the prospect of free accommodation in London. The two dogs, Mike and
Harvey, were left with friends who promised to look after them well for the 2 years that Bert and Ernie would be away. Ernie’s employer provided them with temporary accommodation for 6 months. In September 2015,
Bert and Ernie moved into their own rented apartment in London. Ernie opened a UK bank account and started investing in the UK share market. Bert and Ernie did not have any friends and family in London but they soon had an active social life after getting involved in local acting companies in London. They were very happy in London but due to the unexpected ‘Brexit’ vote result, Bert and Ernie decided to move back to Australia permanently in late July 2016.
Advise Ernie as to whether he is a resident of Australia for tax purposes for the year ended 30 June 2016. You may assume that he is not a member of a relevant superannuation fund. You may also assume that he is not a ‘temporary resident’ for the purposes of subdivision 768-R ITAA97. You should include references to relevant legislation, case law and/or taxation rulings in your answer. If you require any further information, state what that information is and why it is required. You are expected to consider alternative consequences where a particular consequence
is not clear or straightforward. (12 marks)
Rumpole Pty Ltd is a company incorporated in New Zealand. It runs an extremely successful adventure sports for kids business in Melbourne, Australia. The company has several sites in Melbourne where kids can join a number of different ‘boot camp’ programs. The company’s monthly turnover is approximately $20,000 which is largely from fees for their programs. The company also sells specially designed t-shirts. The t-shirts are purchased from a manufacturer in Indonesia and delivered directly to the company’s various sites in Melbourne. The company
director, Juno, sometimes gives away the t-shirts to friends and family members. Rumpole Pty Ltd also sells fresh fruit and herbal teas at all of its locations. These items are purchased from the Queen Victoria market in Melbourne. Rumpole Pty Ltd also owns an investment property which it rents to its director, Juno, at market
rates. Recently, there was a leak in the home due to the unusually high rainfall in Melbourne. The plumber charged Rumpole $660 (including GST) to fix the problem.
Rumpole is considering selling the investment property to its director, Juno. However, it is not sure about the tax consequences of the sale as the property was purchased as part of a special government scheme. It knows that another owner of a similar property received a private ruling from the Australian Taxation Office stating that any gain on the sale of the property would be exempt from tax (ie. no tax payable).
(a) Advise Rumpole as to its GST obligations and consequences arising under the A New Tax System (Goods and Services Tax) Act 1999 on the information above. (12 marks)
(b) Advise Rumpole as to how it should determine the tax consequences on the sale of the investment property. Rumpole is a risk-adverse company that does not want to suffer reputational damage for tax reasons. You are not required to advise Rumpole as to the tax consequences on the sale. How would you advise Rumpole to treat the sale of the investment property if the ATO had published a public ruling covering such sales and the public ruling
stated that the gain on the sale of the property was taxable? (6 marks)
You should include references to relevant legislation, case law and/or taxation rulings in your answer. If you require any further information, state what that information is and why it is required. You are expected to consider alternative consequences where a particular consequence is not clear or straightforward.