Question

In: Finance

Alex owns and operates a mobile phone business located in a large shopping centre in Perth,...

Alex owns and operates a mobile phone business located in a large shopping centre in Perth, WA. Alex was born in Paris, France. He has a family home there where his two grown-up children live. Alex spends 4 months of the year in Paris with his kids. The rest of the time he lives in a serviced apartment in Perth city. While Alex is in Perth he assists with the running of his small business. In the business, to promote their products, one of the suppliers Tara Inc. provided Alex with two new iPhone X’s this year valued at $1,760 each. Both of the phones were locked so they could only be used on Alex's account and the SIM cards were also locked so the phone could not be used with a different phone number. Since the phones cannot be used by anyone else, they cannot be converted to cash and Alex assumes they are not ordinary income under s6-5. a) Discuss Alex's residency and the tax implications of Alex's business b) Is Alex's assumption relating to s6-5 correct? Give reasons Type your answers in the space provided.

Solutions

Expert Solution

In this case Alex is a Foreign citizen as originally he is from France and a French citizen. He is carrying out his business in Australia. So we can consider he have migrated to Australia for business or employment purpose. As mentioned he lives in Australia for 8 months in a calendar year.

Residency of Alex -
Income Tax Act rules of Australia states that any foreign citizen coming for business/employment purpose and staying in the jurisdiction for six months is treated as a resident. As per Income Tax rules physical presence of the foreign citizen should be six months or more for assessing his income to tax. On the other hand migration rules states that person who comes to Australia without permanent residency visa will be treated as temporary resident and not resident of the country. But in this case Alex has moved to Australia for business and carrying on his business even though he does not have a permanent residency visa. So for the tax purpose his income derived from ordinary and statutory sources in Australia is assessable to tax.

Tax Implication
As mentioned in the earlier discussion Alex is carrying on business in Australia the ordinary or statuary source of income is from Australia and will be assessed to tax. However his foreign income will not be assessed to tax.

B] Alex's assumptions are incorrect regarding the source relating to S6-5. Why it is incorrect is listed in the following reasons:-
1] As mentioned in the question the iPhone are gifted to Alex by his supplier to promote their business. It means that he is generating income from the iPhone. So the source is ordinary and Australian and is is assessable to tax.
2] As mentioned in the phones are locked and cannot be used by anyone else and are unable to convert into cash. If it is assumed that the phones are unlocked and sold in Australia then there will source of income derived from Australian sources and ordinary in nature and is assessed to tax. If it should not be assessed to tax in Australia he need to sell it in France but in that case also the ordinary Source remain Australian and income from that sell is assessable to Tax.Thus the assumptions of Alex are incorrect.


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