Question

Choose ONE or more of the following cases and discuss, in detail, the manner in which the case has shaped the Australian taxation system and the importance of the case in the context of Australian business and commerce:

a.     Federal Commissioner of Taxation v Stone 2005 ATC 4234.

b.     Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 355.

c.     Harding v Commissioner of Taxation [2007] FCAFC 29.

d.     Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199.

e.     Bywater Investments Limited & Ors v. Commissioner of Taxation [2016] HCA 45.

Explain your answer with reference to the facts and issues arising in the case you select, and provide an appraisal of the Court’s decision. Ensure you refer to relevant legislation, ATO Guidance and professional legal, tax or accounting commentary relevant to your case in support of your answer.

Answer 1

Federal iCommissioner iof iTaxation iv iStone i2005 iATC i4234.

1. The itaxpayer iwas ia ipolice iofficer iin ithe iQueensland iPolice iForce

She ireceived i$39,832 isalary ias ia ipolice iofficer

2. She ialso irepresented iAustralia iin isport iat inumerous iathletics imeetings, iincluding ithe iOlympic iGames iand iWorld iCup.

She ireceived isporting ireceipts iof i$136,448, iconsisting iof:

· prize imoneys iof i$93,429

· government igrants iof i$27,900 i(consisting iof iQAS igrant iof i$5,400 iand ianother igrant iof i$22,500)

· sponsorship imoneys iof i$12,419

· appearance imoneys iof i$2,700

From ibeing i“role imodel iof ithe iyear”, ishe ialso ireceived:

· $1,600 ifrom iOceania iAmateur iAthletics iAssociation

· $1,000 ifrom iLittle iAthletics

3. She ireturned ias iher iassessable iincome i$39,832 i(salary ias ia ipolice iofficer), ilisted ithe isporting ireceipts ibut iclaimed ithat ithey iwere inot iassessable iincome.

4. The iCommissioner iincluded ithem ias iassessable iincome

•             The itaxpayer iobjected ibut ithe iCommissioner idid inot iallow iher iobjection.

•             The itaxpayer iappealed ito ithe iFederal iCourt.

5. iThe iprinciples i(paras i18-19):

· There iis ia ifundamental idifficulty ithat ilurks ibehind iquestions ilike iwhether ithe itaxpayer iwas iconducting ia ibusiness

· The iquestion imay ibe ithought ito iassume ithat iactivities iassociated iwith ithe ireceipt iof isums ican ialways ibe idivided iinto iseparate icategories.

•     As iwe ipointed iout, ihowever, iin ithe imajority ireasons iin iFC iof iT iv iMontgomery, igeneral ipropositions iin ithis ifield iof idiscourse ioften irequire isome iqualification:

•             Sporting iactivites imay ioften i(but iwill inot ialways) ibe idistinct ifrom ibusiness iactivities. iA itaxpayer’s isport iis ioften i(but inot ialways) idistinct ifrom ithat itaxpayer’s icareer ior ibusiness.

•             To iconclude, ias ithe iFull iCourt idid, ithat ithe itaxpayer i“is ia icareer ipolice iwoman i… i[who] ihas inot ibeen iengaged iin ia ibusiness iactivity ito iexploit iher isporting iprowess ior ito iturn iher italent ito iaccount iin imoney” imay iassume ithat i“career” iand i“sport” inot ionly ilie iat iopposite iends iof ia irelevant ispectrum iof iactivities, ibut ithat itheir ilocation ion ithat ispectrum idictates ithe ianswer ito ithe iquestion iwhich iis ipresented.Those iassumptions, iif imade, ican imislead.

•             To idecide iwhether ireceipts iof ia itaxpayer iform ipart iof ithat itaxpayer’s iassessable iincome ithere imust ibe iundertaken i“a iwide isurvey iand ian iexact iscrutiny iof ithe itaxpayer’s iactivities”.

•             To ithat iend, iit iis inecessary ito isay imore iabout ithe ifacts.

The idecisions:

1.            The itaxpayer iappeal ito ithe iFederal iCourt.

o             The itaxpayer:

a.            agreed ithat ithe isponsorship iamounts iwere iincome

b.            however, isubmitted ithat ithe iremaining iamounts iwere inot iincome ibecause:

•             she idid inot icarry ion iany ibusiness iactivity

•             none iof ithe iamounts iwere ia ireward ifor iservices i(that iis ia icharacter iof iincome)

– inone iof ithe iamounts iwere irelied ion iby iher ito imeet iher idaily iexpenditure i(that iis ia icharacter iof iincome)

o             The iCommissioner iconceded ithat ithe i$1,000 ifrom iLittle iAtheltics iwas inot iincome.

o             The iCourt’s idecision:

•             The itaxpayer iwas icarrying ion ia ibusiness iand ithat iall iof ithe irewards iof ithe ibusiness, iincluding ithose iincidental ito ithat ibusiness, iwere iincome iin iaccordance iwith iordinary iconcepts.

2.            The itaxpayer iappeal ito ithe iFull iFederal iCourt, imaintaining ithat ithe idisputed ireceipts iwere inot iassessable iincome.

o             The iFull iCourt’s idecision:

i.             the iprize imoney iand ithe igrants iwere inot iassessable iincome

a.            the iappearance imoneys iwere iassessable iincome

3.            The iCommissioner iappealed iagainst ithe iFull iCourt’s idecision iwhile ithe itaxpayer icross-appealed iagainst ithe idecision i(b)

o             The iCommissioner isubmitted ithat:

•             the isums iwere ibusiness iincome ibecause ithe itaxpayer ihad iturned iher italent ias ian iathlete ito iaccount ifor imoney

o             The itaxpayer isubmitted ithat:

•             The ireceipts iin iissue iwere ito ibe itreated ias iincome ionly iif ithe irelevant ireceipts iarose iform ian iact idone iin icarrying ion ia ibusiness.

o             The iHigh iCourt’s idecision: iappeal iallowed, icross-appeal idismissed

i.             All ithe ireceipts iin iquestion iwere irelated ito ithe itaxpayer’s iathletic iactivities. iThe iathletic iactivities iof ithe itaxpayer iconstituted ithe iconduct iof ia ibusiness. iHer ipursuit iof iexcellence, iif isuccessful, inecessarily ientailed ithe ireceipt iof iprizes, iincreased igrants, iand ithe iopportunity ito iobtain imore igenerous isponsorship iarrangements

Harding iv iCommissioner iof iTaxation i[2007] iFCAFC i29.

an iAustralian iexpatriate iwas ifound inot ito ibe ia iresident iof iAustralia iwhile iliving iin itemporary iaccommodation ioverseas iand idespite imaintaining imany ipersonal iand ifinancial iconnections iwith iAustralia, ibecause ihe iabandoned ihis iAustralian iresidence iin ia ipermanent iway.

The iissue ifor ithe iFull iFederal iCourt iwas iwhether iHarding iwas ia iresident iof iAustralia ifor ithe iyear iof iincome iended i30 iJune i2011.

Courts iagree ithat iappellant idid inot ireside iin iAustralia ibut idiffer ion idetermining ihis ipermanent iplace iof iabode

A iresident iof iAustralia iis ia iperson iwho iresides iin iAustralia iand iincludes ia iperson iwhose idomicile iis iin iAustralia, iunless ithe iCommissioner iis isatisfied ithat ithe iperson's ipermanent iplace iof iabode iis ioutside iAustralia.

The iprimary ijudge ifound ithat iHarding iwas ia iresident iof iAustralia iin ithe i2011 iyear ibecause iwhile ihe idid inot ireside iin iAustralia, ihe idid inot iestablish ia ipermanent iplace iof iabode ioutside iAustralia. iHarding ilived iin itemporary iaccommodation iin iBahrain ias ihis iintention iwas ito iacquire ia ihouse ionce ihis ifamily imoved ithere. iThis iwas inot ienough ito iestablish ia ipermanent iplace iof iabode ioutside iAustralia.

i

1. The ifacts iwere:

2. Harding iwas iborn iin iAustralia iand iwas ian iAustralian icitizen. iHe ileft iAustralia iat ia irelatively iyoung iage, imarried ihis ifirst iwife iin ithe iUnited iKingdom iand ilived iand iworked iin iSaudi iArabia ifor i16 iyears

3. In i2001 ithe isecurity isituation iin iSaudi iArabia iworsened iand icaused iMrs iHarding iand ithe ichildren ito ireturn ito ithe iUnited iKingdom ifor itwo iyears

4. Mrs iHarding iand ithe ichildren ithen ireturned ito iSaudi iArabia ibut isoon iafter iHarding iand ihis ifamily idecided ito irelocate ito iAustralia iand ithey ibuilt ia ihouse iat ithe iSunshine iCoast. iMrs iHarding iand ithe ichildren imoved iin ito ithe ihouse iin iJune i2004

5. Harding iremained iin iSaudi iArabia iuntil i2006 iand ithen ijoined ihis ifamily iat ithe ihouse iat ithe iSunshine iCoast. iIt iwas ithe ifamily's iintention ito istay iin iAustralia itemporarily iuntil ithe isecurity isituation iin ithe iMiddle iEast iimproved

6. Harding iremained iin iAustralia iuntil i2009 iwhen ihe iaccepted ian ioffer ito iwork iin iSaudi iArabia. iHe ileft iAustralia iintending ito ileave ipermanently ior iat ileast iindefinitely ito ilive iand iwork iin ithe iMiddle iEast i

7. Mrs iHarding iand ithe ichildren iremained iin ithe ihouse iat ithe iSunshine iCoast ibut iit iwas iintended ithat iMrs iHarding iand ithe iyoungest ichild iwould ijoin iHarding iin ithe iMiddle iEast iat ithe iend iof i2011

8. Harding ichose ito ilive iin iBahrain iand icommute ito iSaudi iArabia. iInitially ihe ileased ia ifully ifurnished i2 ibedroom iapartment iso ihis ifamily icould ivisit. iThe iapartment iwas iintended ito ibe ia itemporary iresidence iuntil ihe iacquired ia ihouse ifor ihis ifamily

9. Mrs iHarding ichanged iher imind iabout ijoining iHarding iin iBahrain iand ithe imarriage ibroke idown

10. Harding imoved ito iother ifully ifurnished iapartments ias ia iresult iof ithe imarriage ibreak idown iand ilater icommenced ia inew irelationship, iwhich isubsequently ibroke idown ibecause iHarding's inew ipartner idid inot iwant ito ijoin iHarding iin iOman iwhen ihe icommenced ia inew ijob

Until ithe imarriage ibreak iup, iHarding iregularly ivisited ihis ifamily iat ithe ihouse iat ithe iSunshine iCoast iand iin ithe i2011 iyear ihe ivisited ithem ifor iover i91 idays. iHe iindicated ion ihis ipassenger icards ithat ihe iwas ian iAustralian iresident

Harding's iother iconnections icommissioner’s iNotice iof iContention irejected, iapplies ito iappeal ito iHigh iCourt

The imain ijudgment iof ithe icourt iwas igiven iby iDavies iand iSteward iJJ iwho iagreed iwith ithe iopinion iof ithe iprimary ijudge ithat ithe icircumstances iof ithis icase iwere imost irare, iexceptional iand iextraordinary. i

In ia iseparate ijudgment, iLogan iJ iprovided iadvisers iand ithe iCommissioner iwith isome isalient ipoints, inamely ithat idetermination iof ia iperson's iresidence iis ia iquestion iof ifact iand idegree iand iit iis inot iappropriate ito iseize ion ia iparticular ifact ias idecisive ior ito iapply iparticular ifacts ifound idecisive iin ithe idifferent icircumstances iof iprevious icourt idecisions ias iif ithey iwere iprinciples iof ilaw. iith iAustralia iincluded iholding ian iAustralian ipassport, iusing ithe ihouse iat ithe iSunshine iCoast ias ihis ipostal iaddress, icertain iinvestments, ia ibank iaccount, iMedicare iand iprivate ihealth iinsurance, idriver's ilicense iand isuperannuation.