Question

Using the general principles of ordinary income, is income proceeds from selling the copyright to a book where the recipient was an employee accountant who wrote a novel in her spare time over a number of years, considered "ordinary" income in the hands of the receipient?

a. This income represents income from a business and would be added to the tax calculation for the accountants employer. b. This income would not be considered 'ordinary income' in the hands of the receiptient. c. The income would be seen as trust income held by the individual until another book is written. If there is no further book within the next financial year the income would be seen as a capital asset. d. This is ordinary income in the hands of the receipient.

The Big Bang Company was set up by Ed, an Australian resident. It is incorporated in Singapore and has two directors who are resident in Singapore and who hold board meetings in Singapore. Each director has two shares in the Big Bang Company, which they hold on trust for Ed. The Big Bang Company owns real property, all of which is outside Australia, and makes its profits from commercial property leases on a large scale. Ed does not attend the board meetings in Singapore; however, the constitution of the Big Bang Company provides that the decisions of the directors are only effective if Ed concurs with them. The directors carry on all operational activities, such as collecting rent, paying commission, finding tenants, making minor repairs and maintaining the buildings. Is there any possible scenario in which the Big Bang Company could be considered a resident of Australia for tax purposes?

a. The Big Bang Company is an Australian resident for tax purposes. b. The Big Bang Company is not an Australian resident however as Singapore has an extradition agreement with Australia a portion of the corporation's tax to the Singapore government will be forwarded to the Australian commonwealth govenment. c. The Big Bang Company is not an Australian resident for tax purposes. d. The Big Bang Company is now recognised as a tax paying entity in Australia and Ed will be taxed personally as an Australian resident with all money received by the corporation being attributed to him.

Ajay is a student from India who comes to Australia to study for a four-year bachelor degree in business. Ajay lives in rental accommodation near the university with fellow students and works part-time at the university social club as a barman. After six months, he has to withdraw from his studies and return to India because his father is ill. Is Ajay considered a resident of Australia?

a. Ajay would be an Australian resident for tax purposes and pay tax on one third of his income. b. Ajay is not an Australian resident for tax purposes. c. Ajay is not an Australian resident for tax purposes however he will owe the Australian government all the tips he earned while working as a barman. d. Ajay would be an Australian resident for tax purposes.

Fred, an executive of a British corporation specialising in management consultancy, comes to Australia to set up a branch of his company. Although the length of his stay is not certain, he leases a residence in Melbourne for 12 months. His wife accompanies him on the trip but his teenage sons, having just commenced college, stay in London. Fred rents out the family home. Apart from the absence of his children, Fred’s daily behaviour is relatively similar to his behaviour before entering Australia. As well as the rent on the UK property, Fred earns interest from investments he has in France. Because of ill health Fred returns to the UK 11 months after arriving in Australia. Would Fred be an Australian resident for tax purposes?

a. Fred would not be an Australian resident for tax purposes however part of the tax he will pay in the United Kingdom will be paid to the Australian Tax Office as part of a bi-lateral tax agreement. b. Fred would not be an Australian resident for tax purposes. c. Fred would be an Australian resident for tax purposes. d. Fred would be an Australian resident for tax purposes for half of his income

Answer 1

1. Using the general principles of ordinary income, is income proceeds from selling the copyright to a book where the recipient was an employee accountant who wrote a novel in her spare time over a number of years, considered "ordinary" income in the hands of the receipient?

a. This income represents income from a business and would be added to the tax calculation for the accountants employer. b. This income would not be considered 'ordinary income' in the hands of the receiptient. c. The income would be seen as trust income held by the individual until another book is written. If there is no further book within the next financial year the income would be seen as a capital asset. d. This is ordinary income in the hands of the receipient.

Answer is 'a'. Because the author was already an employee and the copyright actually belongs to the employer.

2. The Big Bang Company was set up by Ed, an Australian resident. It is incorporated in Singapore and has two directors who are resident in Singapore and who hold board meetings in Singapore. Each director has two shares in the Big Bang Company, which they hold on trust for Ed. The Big Bang Company owns real property, all of which is outside Australia, and makes its profits from commercial property leases on a large scale. Ed does not attend the board meetings in Singapore; however, the constitution of the Big Bang Company provides that the decisions of the directors are only effective if Ed concurs with them. The directors carry on all operational activities, such as collecting rent, paying commission, finding tenants, making minor repairs and maintaining the buildings. Is there any possible scenario in which the Big Bang Company could be considered a resident of Australia for tax purposes?

a. The Big Bang Company is an Australian resident for tax purposes. b. The Big Bang Company is not an Australian resident however as Singapore has an extradition agreement with Australia a portion of the corporation's tax to the Singapore government will be forwarded to the Australian commonwealth govenment. c. The Big Bang Company is not an Australian resident for tax purposes. d. The Big Bang Company is now recognised as a tax paying entity in Australia and Ed will be taxed personally as an Australian resident with all money received by the corporation being attributed to him.

Answer is 'C'. Only Ed will be taxed on his foreign income (if any)

3. Ajay is a student from India who comes to Australia to study for a four-year bachelor degree in business. Ajay lives in rental accommodation near the university with fellow students and works part-time at the university social club as a barman. After six months, he has to withdraw from his studies and return to India because his father is ill. Is Ajay considered a resident of Australia?

a. Ajay would be an Australian resident for tax purposes and pay tax on one third of his income. b. Ajay is not an Australian resident for tax purposes. c. Ajay is not an Australian resident for tax purposes however he will owe the Australian government all the tips he earned while working as a barman. d. Ajay would be an Australian resident for tax purposes.

d. Ajay would be an Australian resident for tax purposes.

4. Fred, an executive of a British corporation specialising in management consultancy, comes to Australia to set up a branch of his company. Although the length of his stay is not certain, he leases a residence in Melbourne for 12 months. His wife accompanies him on the trip but his teenage sons, having just commenced college, stay in London. Fred rents out the family home. Apart from the absence of his children, Fred’s daily behaviour is relatively similar to his behaviour before entering Australia. As well as the rent on the UK property, Fred earns interest from investments he has in France. Because of ill health Fred returns to the UK 11 months after arriving in Australia. Would Fred be an Australian resident for tax purposes?

a. Fred would not be an Australian resident for tax purposes however part of the tax he will pay in the United Kingdom will be paid to the Australian Tax Office as part of a bi-lateral tax agreement. b. Fred would not be an Australian resident for tax purposes. c. Fred would be an Australian resident for tax purposes. d. Fred would be an Australian resident for tax purposes for half of his income

Answer is 'b'