Question

Mr Dumas is a famous French chef who moved from Paris to Sydney on 1 November 2018 to work for an Australian fine dining restaurant. His remuneration includes a salary of $350,000 plus $50,000 bonus per year and a contractual term of two years. Mr Dumas would be paid a lump sum of $500,000 in return for his promise that, if he resigns, he would not set up in a business in Sydney in competition with an Australian fine dining restaurant for 3 years. Mrs Dumas moved to Sydney with her husband and three children. Mr Dumas obtained permanent residence since 1 November 2018 and bought the following assets in Sydney: A vintage motor vehicle built in 1961: acquired on 15 November 2018 at a cost of $150,000. Mr Dumas intended it to be kept as a long-term investment. A family house in Chatswood: acquired on 1 December 2018 at a cost of $1,200,000 10,000 Shares in BHP: acquired on 1 January 2019 at a cost of $300,000 were sold for $320,000 on 15 May 2020. During the financial year 2020, Mr Dumas signed the contract with SBS TV channel around November 2019 and agreed to travel to New Zealand in December 2019 for filming The Food Show. The fee of $100,000 will be paid out to him once the show is released on TV in August 2020. On 1 May 2020, Mr Dumas sold the following overseas assets which he bought before he came to Australia: 30,000 shares in a USA company: acquired on 1 July 1982 at a cost of $15,000 and was sold for $35,000 on 1 May 2020. The market value was $6,000 as at 1 November 2018. An investment flat in Paris: acquired on 15 July 2018 at a cost of $230,000 and was sold for $200,000 on 1 May 2020. Mr Dumas still maintains a bank account at the Bank of Paris in France which earned a total of $8,500(2018/2019) and $10,000(2019/2020) in interest income. He neither repatriated nor declared any part of the interest derived in France because he has paid 15% withholding tax. Hence, at the time of lodging his Australian tax return, Mr Dumas declared his Australian sourced income only. Mr Dumas lodged his 2018/19 tax return on 15 August 2019 and received a notice of assessment on 25 October 2019. On 15 February 2020, he received a notice of amended assessment which included his Australian taxable income the amounts derived in French. The amended assessment required Mr Dumas to pay $4,250 additional tax to the ATO. Mr Dumas and his family decided to relocate to New Zealand indefinitely and left Australia on 30 June 2020 to set up a high-end restaurant. On 10 July 2020, he also received a lump sum payment of $500,000 under the terms of his remuneration package with his Australian employer.

Required: Under what circumstances and on what grounds could the ATO issue the amended assessment for the year 2018/2019?

What should Mr Dumas do if he decides to dispute this amended assessment, and what time limits would apply for the dispute to be commenced?

Advise Mr Dumas on what amounts may be included in his Australian taxable income for the 2019/20 tax year.

Calculate his taxable income for the year ending 30 June 2020.

Answer 1

Solution:

Mr Duma capital gain

10,000 Shares in BHP: acquired on 1 January 2019 at a cost of $300,000 were sold for $320,000 on 15 May 2020.

Capital gain on BHP shares = $320,000 - $300,000 =$20,000

If you own an asset overseas, you may have to pay Australian tax when you sell the asset. You need to keep appropriate records

-30,000 shares in a USA company:

Capital gain = $35,000 - $6,000 = $29,000

An investment flat in Paris: acquired on 15 July 2018 at a cost of $230,000 and was sold for $200,000 on 1 May 2020.

Capital loss = $200,000 - $230,000 = -$30,000 (held for more than 12 months)

Total long-term gain = (BHP shares) $20,000 + (shares in USA) $29,000 = $49,000

We offset the long term capital gain with long term capital loses

$49,000 - $30,000 (flat in Paris) = $19,000

Apply the discount method to the capital gain (50%)

50% x $19,000 = $9,500

-Even though Mr Duma was paid in August 2020 for filming The Food Show, the contract was signed around November 2019. This makes the $100,000 fee assessable for year 2019/2020

The interest income of $10,000 for2019/2020 will be assessable. The 15% withheld tax will offset the tax liability, the amount will be 15% x 10,000 = $1,500

Mr Duma will be required to pay the tax for interest income for year 2018/2019 of $4250. He may offset the withheld tax of 15% x $8,500 = $1,275

A lump sum payment of $500,000 paid on 10 July 2020, under the terms of his remuneration package with his Australian employer. The amount will not be taxable as falls under category Non-assessable, non-exempt income

Obtained permanent residence, a family house in Chats wood and a vintage motor vehicle built in 1961 will not be assessable.

Mr Duma's taxable amount will be:

Item	amount ($)
Salary	350,000
Bonus	50,000
Capital gain	9,500
Filming food show fee	100,000
Interest (2019/2020)	10,000
Total	519,500

Taxable amount = $519,500