In: Finance
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.
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.