Tax Treatment for Ravi Essays

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Proposed tax treatment for Ravi Gupta
Student’s name: Feng Wu
Course Title: Taxation Law
Lecturer: Victoria Lakis
Date: 20/3/2012

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Executive summary
Introduction
1. Background 2. Analysis of the taxation issues 3. Conclusion
Reference list

Executive summary
This report is to give Ravi Gupta advice of the tax liability he had to pay. It raises the taxation issues arising from the events in Ravi Gupta’s life and analyses the issues.

The income Ravi gains from sources outside Australia is non-assessable. The ordinary income includes the wages from the work as a library assistant, his pay form Macdonald’s, tips, the prize Ravi won, the advance payments for his services and the full settlement of the claim.

Introduction
The report aims to suggest Ravi Gupta whether he should pay taxes considering the issues rising from the events in Ravi Gupta’s life. The report will be divided into three sections. Section 1 is the background and tells about the life of Ravi. Section 2 gives the analysis of the taxation issues arising from the events in Ravi’s life. Section 3 is the conclusion.

1. Background
Ravi Gupta was an international student studying finance in Australia. During his studying period, Ravi found several jobs, such as a library assistant, an employee in MacDonald’s etc, which brought him income. He also won a prize in a completion and was offered money for settlement of the claim. These events all have connection with taxation issues.

2. Analysis of the taxation issues
There are four tests, which are the ‘common law’ test, the ‘domicile’ test, the ‘183 day’ test and ‘the superannuation fund’ test, to examine whether a person is a resident of Australia. Under para (a) (i) of the s6 (1) ITAA 36, a resident is defined as ‘a person whose domicile is in Australia, unless the Commissioner is satisfied that the person has a permanent place of abode outside Australia’ (Woellner et al. 2011, p1459). In Applegate’s case, a person would have lost their Australian domicile based on ‘the strength of the person’s association with the foreign country having regard to the continuity of the person’s presence in the foreign country, the duration of that presence and the durability of the person’s association with the foreign country’ (Woellner et al. 2011, p1479). Under s6(1)(a) ITAA 36 definition of “resident”, a person who is actually in Australia, continuously or intermittently, during more than half of the year of income is a resident of Australia unless the Commissioner is satisfied that the person’s usual place of abode is outside Australia and the person does not intend to take up residence in Australia. Ravi had been in Australia for more than half a year; thus, this rule applied. The ‘superannuation test’ does not apply here. Another issue is whether the income arising from these events is assessable and if it is assessable, whether it is an ordinary income or a statutory income. Therefore, Ravi Gupta was a foreign resident (non-resident) as he was from India on a student visa.

Assessable income is the sum of the ordinary income and statutory income. Ordinary income has been divided into the following categories: ‘income from personal exertion, income from property, income from business and income from a “one-off” or isolated transaction’ (Woellner et al. 2011, p128). There are several characters of ordinary income. Firstly, ordinary income must have sufficient connection with an earning activity. Secondly, ordinary income must be money or can be converted to money. Third, ordinary income may include compensation. Fourth, ordinary income often
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