Question

Jovanni P/L is a manufacturer of shoes, whose directors reside in Italy and conduct most of director meetings in Italy. Jovanni P/L was incorporated in Italy and 80% of its shareholders are Italian. It exports its shoes around the world. Jerrrabomberah P/L is an Australian primary producer and manufacturing company that raises young cattle, pigs and goats to make sales of meat, but also to tan the hides of the animals and supply them to Julius P/L to make shoes in Italy. While in Australia, the directors of Julius P/L enter into a contract with an unrelated company, Jolimont P/L that distributes shoes nationally to stores around Australia.
Jovanni P/L has the following receipts in 2019-20
1.Interest income
Jovanni P/L has an Australian bank account where all of its Australian business receipts are deposited and derives interest from that account.
2.Contract business income
Jovanni P/L receives income from the sale of shoes to Jolimont P/L.
Required
For the 2019-2020 year of tax, based on source rules/residency, what receipts need to be included in Jovanni P/L’s assessable income regarding:
a)interest income, and
b)contract business income

Answer 1

First we understands what is source base taxation & residance base taxation:-

(1) SOURCE BASE TAXATION :- In the source based taxation principal importance is to be the source (country) where imcome is genrated. There are indiviauals /entites whose residence is in one country but their business is actually carried on in another country & their income is earned in the latter country.

In such cases the principal of residence based taxation would be inappropriate . Therefore the country which provides the opportunity and facilities to genrate income or profit should also have the right to tax the same.

(2) RESIDENCE BASED TAXATION :- This rule states that the power to tax should rest on the country in which you resides.There are individuals/ entities whose residence is in one country but their business is actually carried on it in another country & their income is earned in the latter country.

In such cases individuals / companies have to pay taxes for their global income. Therefore the principal of residence based taxation of income states the taxation of global income.

(a) intrest income :- As per the question , Jovani P/L has an a/c in austrailain bank & interest arrived from this a/c is treated as per the source base taxation. so as per this rule jovani P/L should not includes this income for tax purpose as the austrailan govertment has the right to tax this income.

(b) contract business income :- As per the source rule this income should be treat in jovanis income statement for the purpose of taxation as this income is arrived from his business.so this income will treat as per residance base income tax.