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Give step-by-step solution with explanation and final answer: Stacey was born and raised in Sydney. She graduated with Bachelor of Commerce / Bachelor of Laws degrees from the ANU in 2 0 1 5 . From January 2 0 1 6 to December 2 0 2 4 , she worked as a lawyer in King Wood Mallesons ( KWM ) in Sydney. She had purchased an apartment in Darling Harbour, Sydney in February 2 0 1 6 for $ 1 , 0 0 0 , 0 0 0 . She lived in this apartment from February 2 0 1 6 to December 2 0 2 4 . In late 2 0 2 4 , Stacey obtained a secondment to work in a Finnish firm, Delphi, which is affiliated with KWM . Delphi is based in Helsinki. It was not agreed with KWM about how long she would stay in Helsinki, but Stacey and her supervising partner, Tracey, agreed that she would work in Helsinki ‘ for about two to three years. ’ Stacey decides to maintain her private health insurance policy ( provided by an Australian insurer ) while she is overseas because it also provides cover in many European countries, including Finland. Stacey advises her best friend Max that she plans to return to Australia in early 2 0 2 8 . Stacey departed Australia on 3 1 December 2 0 2 4 and arrived in Helsinki on 1 January 2 0 2 5 . She has travelled to Helsinki on a five - year working visa. She commenced work in Delphi ’ s Helsinki office in January 2 0 2 5 . Her salary is still paid by KWM . Stacey receives 1 5 , 0 0 0 euros per month in salary from KWM and this is paid to her on the last day of each month. Initially, for two months, Stacey lived in a hotel in downtown Helsinki. Since 1 March 2 0 2 5 , Stacey has been leasing an apartment in Helsinki that is close to her work. The lease is for one year with an option to renew. While overseas, Stacey has been renting her Darling Harbour apartment to tenants ( who signed a threeyear lease ) . The tenants moved in on 1 January 2 0 2 5 . Under the lease agreement, the tenants will pay $ 3 , 5 0 0 per month in 2 0 2 5 ( in 2 0 2 6 and 2 0 2 7 , the rent is to be renegotiated based on market changes ) . Stacey pays 4 % commission ( on rent received ) to a Sydney agent who is looking after the property. Stacey also incurs $ 1 , 2 0 0 per quarter on council rates and $ 2 , 5 0 0 per quarter on body corporate fees. These are payable each year on 3 1 March, 3 0 June, 3 0 September and 3 1 December. Since 2 0 2 0 , Stacey has also owned a large area of vacant land in Victoria. Her wealthy older brother had given her the money to buy this land. Stacey had signed the contract to buy the land on 1 January 2 0 2 0 . The contract price was $ 8 0 0 , 0 0 0 , and she also incurred $ 4 3 , 0 0 0 in associated stamp duty; she had become the legal owner of the land on 1 February 2 0 2 0 . An agent, Leo, manages this property for her. In 2 0 2 5 , Leo emails Stacey to advise her that the surrounding properties have substantially increased in value due to the construction of a large hotel resort in a nearby area. Stacey then decides to sell her land and enters into a contract of sale on 1 March 2 0 2 5 . The sale price under the contract is $ 1 , 6 0 0 , 0 0 0 . The purchaser pays Stacey a 1 0 % deposit on 1 March 2 0 2 5 , but requests an extended settlement period to obtain finance. Settlement ( the transfer of ownership and receipt of the rest of the sale price ) will occur on 3 0 June 2 0 2 5 . The agency contract with Leo provides that Leo is entitled to a 3 % commission on the sale price. In the previous income year ( 2 0 2 3 / 2 0 2 4 ) , Stacey made a $ 1 0 , 0 0 0 loss on the sale of shares in XYZ Ltd ( a company listed on the ASX ) and a $ 5 , 0 0 0 loss on the sale of an antique clock ( that originally cost $ 1 2 , 0 0 0 ) . In the period from 1 July 2 0 2 4 to 3 1 December 2 0 2 4 , Stacey earned $ 1 8 , 0 0 0 per month salary from KWM . Based on the Australian tax law, answer the following questions: 1 . For the 2 0 2 4 / 2 0 2 5 income year ( i . e . , starting 1 July 2 0 2 4 and ending 3 0 June 2 0 2 5 ) only, discuss if Stacey is a tax resident of Australia; 2 . Discuss the income tax treatment of all receipts and outgoings mentioned in the facts above – i . e . , identify the items which constitute assessable income ( if any ) and identify the items that are allowable deductions ( if any ) . Provide reasons for your answers and provide tax law authorities; 3 . Based on the above information, what is the final income tax liability in Australia ( if any ) that Stacey would expect to incur for the income year 2 0 2 4 / 2 0 2 5 ? For the remainder of 2 0 2 4 / 2 0 2 5 , you can assume that Stacey would continue to earn 1 5 , 0 0 0 euros / month in salary, and for her Darling Harbour apartment, that she would continue to receive rent, and incur the periodic expenses mentioned above; show all your working. If you think her Helsinki salary should be included in her taxable income, then use the following conversion: AUD$ 1 = 0 . 5 8 Euros 4 . With reference to relevant tax law provisions, advise Stacey of the income tax consequences ( if any ) if she were to sell her Darling Harbour apartment when she returns to Australia in 2 0 2 8 .

Question:

Give step-by-step solution with explanation and final answer: Stacey was born and raised in Sydney. She graduated with Bachelor of Commerce / Bachelor of Laws degrees from the ANU in 2 0 1 5 . From January 2 0 1 6 to December 2 0 2 4 , she worked as a lawyer in King Wood Mallesons ( KWM ) in Sydney. She had purchased an apartment in Darling Harbour, Sydney in February 2 0 1 6 for $ 1 , 0 0 0 , 0 0 0 . She lived in this apartment from February 2 0 1 6 to December 2 0 2 4 . In late 2 0 2 4 , Stacey obtained a secondment to work in a Finnish firm, Delphi, which is affiliated with KWM . Delphi is based in Helsinki. It was not agreed with KWM about how long she would stay in Helsinki, but Stacey and her supervising partner, Tracey, agreed that she would work in Helsinki ‘ for about two to three years. ’ Stacey decides to maintain her private health insurance policy ( provided by an Australian insurer ) while she is overseas because it also provides cover in many European countries, including Finland. Stacey advises her best friend Max that she plans to return to Australia in early 2 0 2 8 . Stacey departed Australia on 3 1 December 2 0 2 4 and arrived in Helsinki on 1 January 2 0 2 5 . She has travelled to Helsinki on a five - year working visa. She commenced work in Delphi ’ s Helsinki office in January 2 0 2 5 . Her salary is still paid by KWM . Stacey receives 1 5 , 0 0 0 euros per month in salary from KWM and this is paid to her on the last day of each month. Initially, for two months, Stacey lived in a hotel in downtown Helsinki. Since 1 March 2 0 2 5 , Stacey has been leasing an apartment in Helsinki that is close to her work. The lease is for one year with an option to renew. While overseas, Stacey has been renting her Darling Harbour apartment to tenants ( who signed a threeyear lease ) . The tenants moved in on 1 January 2 0 2 5 . Under the lease agreement, the tenants will pay $ 3 , 5 0 0 per month in 2 0 2 5 ( in 2 0 2 6 and 2 0 2 7 , the rent is to be renegotiated based on market changes ) . Stacey pays 4 % commission ( on rent received ) to a Sydney agent who is looking after the property. Stacey also incurs $ 1 , 2 0 0 per quarter on council rates and $ 2 , 5 0 0 per quarter on body corporate fees. These are payable each year on 3 1 March, 3 0 June, 3 0 September and 3 1 December. Since 2 0 2 0 , Stacey has also owned a large area of vacant land in Victoria. Her wealthy older brother had given her the money to buy this land. Stacey had signed the contract to buy the land on 1 January 2 0 2 0 . The contract price was $ 8 0 0 , 0 0 0 , and she also incurred $ 4 3 , 0 0 0 in associated stamp duty; she had become the legal owner of the land on 1 February 2 0 2 0 . An agent, Leo, manages this property for her. In 2 0 2 5 , Leo emails Stacey to advise her that the surrounding properties have substantially increased in value due to the construction of a large hotel resort in a nearby area. Stacey then decides to sell her land and enters into a contract of sale on 1 March 2 0 2 5 . The sale price under the contract is $ 1 , 6 0 0 , 0 0 0 . The purchaser pays Stacey a 1 0 % deposit on 1 March 2 0 2 5 , but requests an extended settlement period to obtain finance. Settlement ( the transfer of ownership and receipt of the rest of the sale price ) will occur on 3 0 June 2 0 2 5 . The agency contract with Leo provides that Leo is entitled to a 3 % commission on the sale price. In the previous income year ( 2 0 2 3 / 2 0 2 4 ) , Stacey made a $ 1 0 , 0 0 0 loss on the sale of shares in XYZ Ltd ( a company listed on the ASX ) and a $ 5 , 0 0 0 loss on the sale of an antique clock ( that originally cost $ 1 2 , 0 0 0 ) . In the period from 1 July 2 0 2 4 to 3 1 December 2 0 2 4 , Stacey earned $ 1 8 , 0 0 0 per month salary from KWM . Based on the Australian tax law, answer the following questions: 1 . For the 2 0 2 4 / 2 0 2 5 income year ( i . e . , starting 1 July 2 0 2 4 and ending 3 0 June 2 0 2 5 ) only, discuss if Stacey is a tax resident of Australia; 2 . Discuss the income tax treatment of all receipts and outgoings mentioned in the facts above – i . e . , identify the items which constitute assessable income ( if any ) and identify the items that are allowable deductions ( if any ) . Provide reasons for your answers and provide tax law authorities; 3 . Based on the above information, what is the final income tax liability in Australia ( if any ) that Stacey would expect to incur for the income year 2 0 2 4 / 2 0 2 5 ? For the remainder of 2 0 2 4 / 2 0 2 5 , you can assume that Stacey would continue to earn 1 5 , 0 0 0 euros / month in salary, and for her Darling Harbour apartment, that she would continue to receive rent, and incur the periodic expenses mentioned above; show all your working. If you think her Helsinki salary should be included in her taxable income, then use the following conversion: AUD$ 1 = 0 . 5 8 Euros 4 . With reference to relevant tax law provisions, advise Stacey of the income tax consequences ( if any ) if she were to sell her Darling Harbour apartment when she returns to Australia in 2 0 2 8 .

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Asked by: Nishant Saini
Created at: 2025-09-24 06:09:58

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# 1. Tax Residency of Stacey for 2024/25 ## Key Facts - Stacey lived and worked in Australia from July 2024 to 31 December 2024. - She left Australia on 31 Dec 2024, arriving in Helsinki on 1 Jan 2025. - She leased her Sydney apartment and took a lease in Helsinki. - She plans to stay in Finland for 2–3 years but intends to return to Australia in early 2028. - Maintains private Australian health insurance. ## Tax Residency Tests Under s 6(1) ITAA 1936, a person is a resident if they: - Reside in Australia according to ordinary concepts - OR satisfy one of the three statutory tests (domicile, 183-day, superannuation) ### **Ordinary concepts test:** Key factors: intention, physical presence, family, business/employment ties, maintenance of home, social and living arrangements. - Stacey was physically present and living in Australia for the first half of the year. - She moved overseas for work, initially for a temporary period (2–3 years), and kept strong ties to Australia (property, health insurance, intention to return). - _Case Law:_ **FCT v Applegate (1979)** – temporary overseas assignments with an intention to return may not break residency. ### **Domicile test:** Stacey's domicile remains Australia unless she acquires a permanent domicile elsewhere. Her move is for a defined, temporary period. ### **183-day test:** She was present in Australia for 6 months (July–December), so not absent for more than 183 days in the year. ### **Conclusion:** **Stacey remains an Australian tax resident for the entire 2024/25 income year.** Her absence is not for a permanent or indefinite period, and she maintains significant connections to Australia. --- # 2. Income Tax Treatment of Receipts and Outgoings ## (a) **Assessable Income** ### 1. **Salary from KWM (Australia & Helsinki)** - **July–Dec 2024:** $18,000/month × 6 = **$108,000 AUD** (Australian source, fully assessable). - **Jan–June 2025:** €15,000/month × 6 = **€90,000**. - Convert: €90,000 ÷ 0.58 = **$155,172 AUD**. - **Total salary:** $108,000 + $155,172 = **$263,172 AUD**. - **Legal Basis:** Resident taxpayers are taxed on worldwide income (s 6-5 ITAA 1997). ### 2. **Rental Income (Darling Harbour apartment)** - Jan–June 2025: $3,500/month × 6 = **$21,000 AUD** (assessable under s 6-5). ### 3. **Capital Gain (Sale of Victorian Land)** - **Contract date:** 1 March 2025 (CGT event A1). - **Proceeds:** $1,600,000 - **Cost base:** $800,000 (purchase) + $43,000 (stamp duty) + selling costs (commission) - **Commission:** 3% × $1,600,000 = $48,000 - **Cost base total:** $800,000 + $43,000 + $48,000 = $891,000 - **Capital gain:** $1,600,000 – $891,000 = **$709,000** - **Discount:** Asset held >12 months → eligible for 50% CGT discount (s 115-25 ITAA 1997) - Discounted gain: $709,000 × 50% = **$354,500** - **Carry-forward capital losses:** - Shares: $10,000 - Antique clock: **Not deductible** (personal use asset, cost < $10,000; s 108-20(2)) - Net capital gain: $354,500 – $10,000 = **$344,500** ### 4. **Interest/Other Receipts** - No other assessable receipts mentioned. --- ## (b) **Allowable Deductions** ### 1. **Rental property expenses (Darling Harbour)** - **Agent’s commission:** 4% × $21,000 = **$840** - **Council rates:** $1,200/quarter × 2 = **$2,400** - **Body corporate fees:** $2,500/quarter × 2 = **$5,000** - **Total deductions:** $840 + $2,400 + $5,000 = **$8,240** (deductible under s 8-1 ITAA 1997) ### 2. **Other possible deductions** - No mention of interest on property loan or other expenses. --- # 3. Calculation of Stacey's Australian Tax Liability for 2024/25 ## (a) **Calculation of Assessable Income** | Item | Amount (AUD) | |------|--------------| | Salary (Jul–Dec 2024) | $108,000 | | Salary (Jan–Jun 2025) | $155,172 | | Rental income | $21,000 | | Discounted capital gain (net after losses) | $344,500 | | **Total** | **$628,672** | ## (b) **Calculation of Allowable Deductions** | Item | Amount (AUD) | |------|--------------| | Agent commission | $840 | | Council rates | $2,400 | | Body corporate fees | $5,000 | | **Total** | **$8,240** | ## (c) **Taxable Income** \[ \text{Taxable Income} = \$628,672 - \$8,240 = \$620,432 \] ## (d) **Tax Payable** 2024/25 resident tax rates (excluding Medicare levy): | Taxable Income | Tax on this income | |---------------------|---------------------------------------| | $0 – $18,200 | Nil | | $18,201 – $45,000 | 19c for each $1 over $18,200 | | $45,001 – $120,000 | $5,092 + 32.5c for each $1 over $45,000| | $120,001 – $180,000 | $29,467 + 37c for each $1 over $120,000| | $180,001+ | $51,667 + 45c for each $1 over $180,000| \[ \text{Tax on first \$180,000} = \$51,667 \] \[ \text{Excess over \$180,000} = \$620,432 - \$180,000 = \$440,432 \] \[ \text{Tax on excess} = \$440,432 \times 0.45 = \$198,194.40 \] \[ \text{Total tax} = \$51,667 + \$198,194.40 = \$249,861.40 \] **Medicare levy:** 2% × $620,432 = **$12,408.64** **Total tax liability:** $249,861.40 + $12,408.64 = **$262,270.04** --- # 4. Tax Consequences of Selling Darling Harbour Apartment in 2028 ## Main Residence Exemption (CGT) - **S118-110, S118-145 ITAA 1997:** Main residence fully exempt from CGT unless used to produce income. - Stacey lived in the apartment (Feb 2016–Dec 2024), then rented it out from Jan 2025. - Under the **6-year absence rule** (s 118-145), if the property is first used to produce income after it stops being her main residence, and she does not treat another property as her main residence, it can remain exempt for up to 6 years while rented out. ### Application: - Stacey can **choose to treat the apartment as her main residence** for up to 6 years of absence while it is rented out. - She plans to return in early 2028, so absence is about 3 years (Jan 2025–early 2028), **within the 6-year rule**. - **Result:** Entire period remains exempt from CGT if she does not nominate another property as her main residence. ### **If she sells after returning:** - **No CGT liability** on sale of Darling Harbour apartment, provided she satisfies the above conditions. --- # **Summary Table** | Question | Short Answer | |----------|--------------| | 1. Residency | Stacey is a resident for the full 2024/25 year. | | 2. Assessable income | Salary (global), rental income, discounted capital gain (net of losses) are assessable. Allowable deductions: rental expenses. | | 3. Tax liability | Taxable income: $620,432. Tax: $262,270.04 (incl. Medicare levy). | | 4. Apartment sale | No CGT if sold in 2028 under main residence 6-year absence rule. | --- ## **References** - Income Tax Assessment Act 1997 (ITAA 1997), especially s 6-5, s 8-1, s 115-25, s 118-145 - Income Tax Assessment Act 1936 (ITAA 1936), s 6(1) - FCT v Applegate (1979) 9 ATR 899 - ATO Taxation Ruling TR 98/17 (residency) - ATO CGT Guide: Main residence exemption --- **If you need detailed workings for currency conversion, CGT calculations, or further breakdowns, please specify.**

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