Question 1

Adam Collins was born in Australia and works as an international airline pilot. He is married to Narelle and they have two school aged children. Adam and Narelle own a house in Sydney and receive interest on savings from their joint Australian bank account. Adam pays for Australian private health insurance for the family and has share investments in the airline on which he receives dividends. From 1 November 2017 until 1 April 2018, Adam was based at the airline’s hub in Dubai and lived in an apartment leased by the airline. The airline paid five months of Adam’s $500,000 annual salary directly into a bank account that he established in Dubai. Adam took annual leave in December and returned to Australia to spend Christmas with the family.

In May 2018, Adam accepted an offer to relocate with Narelle to Dubai for an indefinite period. The couple flew to Dubai on 1 July 2018. They established a joint bank account with a local bank and in November 2018 purchased an apartment close to Dubai airport. The children moved to a boarding school in Sydney. Adam and Narelle maintained their joint bank account and private health insurance in Australia and rented out their Sydney home. Adam took six weeks of annual leave during December 2018 and January 2019 and returned to Australia with Narelle to spend time with their children and inspect their home.

Required

Advise Adam Collins as to whether he is an Australian resident or non-resident for tax purposes for the 2017/18 and 2018/19 years. You must include relevant section numbers and cases in your explanation.

Question 2

In June 2018 Orpheus Parker purchased a ground floor two-bedroom townhouse in Neutral Bay, Sydney. He decided to rent out part of his townhouse on Airbnb while still living in the property. The total floor area of the townhouse is 850 sq feet (79 m2). The floor space of Orpheus’ bedroom and his private area is 250 sq feet (23.2 m2). The rented second bedroom area is 200 sq feet (18.6 m2). The shared area comprising lounge, kitchen and laundry cupboard is 400 sq feet (37.2 m2).

The property has been listed since 1 September 2018 and Orpheus has achieved consistent occupancy rates. During the period of 1 September 2018 to 30 June 2019, the room was rented for 150 days. Orpheus only offered the room to solo travellers and he has received a total of $22,500 in rental income. During this period, expenses relating to occupancy costs, such as mortgage interest, municipal rates, strata levies and home insurance amounted to $50,000. Orpheus also spent $250 on expenses relating to renting the room, i.e., advertising fees and consumables supplied for the room.

Required

Advise Orpheus Parker of the tax consequences of using his townhouse to produce rental income for the 2018/19 income year. Does Orpheus need to register for GST by doing Airbnb? You must include relevant section numbers in your explanations.

Question 3

In 1975, Joe Messina purchased five hectares of land 40 km from Sydney’s CBD. The land was used for agricultural pursuits, with produce sold through Sydney markets. In the year 2000 the government proposed construction of an airport adjacent to Joe’s land. Subsequently, in 2005 Joe sold the land for $700,000 and used this entire amount to acquire a large block of land closer to Sydney with the intention of keeping the land as a retirement nest-egg. In 2016, Joe was approached by a real estate developer to construct eight townhouses on the land. Joe accepted the proposal and employed architects, builders and obtained development approval from the local council. Joe oversaw the development and engaged real estate agents to market the townhouses for sale upon completion. During the course of the 2018/19 income year seven townhouses were sold for $650,000 each. Joe retired to the remaining townhouse.

Required

Advise Joe Messina about whether the proceeds from his land and building transactions constitute assessable income and the basis on which they may be assessed. You must include relevant section numbers and cases in your explanation.

Question 4

Harrison Carter, an Australian resident, seeks advice on the CGT consequences of the following events.

1. He exchanged contracts for the acquisition of an investment property, at market value, on 24 January 1999, paying a 10% deposit of $80,000. Property settlement was deferred until 5 December 2001, when the balance of $720,000 was paid, title transferred, and his name was recorded as the registered proprietor. At the time of settlement the market value of the property was $1m. He sold the property on 14 June 2018 for $1.3m.

2. He acquired 10,000 shares in Star Entertainment Ltd in October 1985, paying $4 per share. He decided to sell his entire shareholding, for $12 per share, and signed a share transfer document and handed the transfer and share script to the Stock Exchange on 20 June 2018. The transfer was not registered with Star Entertainment Ltd until 10 July 2018.

3. He incurred a capital loss in 2018/19 amounting to $65,000.

Required

Advise net capital gains (losses) to be included in Harrison Carter’s tax return for the years ending 2018 and 2019. Include ALL available methods for calculating a capital gain for both years. You must explain the timing of a CGT event with relevant section numbers and cases.