Nigel is an adult individual taxpayer entity and a grand prix race driver who lives outside of Australia in the Cook Islands. He is contracted to General Motors Holden (Australia) Ltd to race in 10 Grand Prix races held each year at locations throughout the world, which includes one race in Australia. He derives income of $1million per annum for his services. Nigel’s contract was negotiated and signed in Sydney by an agent acting on Nigel’s behalf. Payment is made in monthly instalments by electronic transfer from Australia directly into an account held by Nigel in the Cook Islands. During the income year ended 30 June 2017, Nigel raced in the Australasian Grand Prix held in Darwin. The Commissioner of Taxation has sought to tax Nigel on the whole of his $1million income derived in the
Advise Nigel on the following:
Whether or not he is liable to income tax in Australia on the $1million income by discussing the two main jurisdiction to tax criteria; and
What he might have done to try and reduce this liability if Nigel had consulted you before negotiating and signing his contract
Transnational Ltd is a company taxpayer entity that was incorporated in New South Wales and is listed on the Australian Stock Exchange. It has a subsidiary company (under the Corporations Act 2001 (Cth)), Investfund Pty Ltd, also a taxpayer entity that was incorporated in the Cook Islands out of Australia. The only business of Investfund Pty Ltd is investment in actively buying and selling shares on the New York Stock Exchange. The funds used to make the investments are collected from Australian investors under prospectuses distributed in Australia by Investfund Pty
The investments made by Investfund Pty Ltd are all in accordance with decisions of management staff of Transnational Ltd, who email details of the decisions to the registered office of Investfund Pty Ltd in the Cook Islands. That office is situated in the office of law firm, B. Wise & Associates. The only two directors of Investfund Pty Ltd are partners of B. Wise & Associates who both live in the Cook Islands.
Board meetings of Investfund Pty Ltd are held in the Cook Islands, and its directors simply act according to details contained in the emails to them from Transnational Ltd management staff.
By referring to relevant jurisdiction to tax criteria, you are required to discuss whether or not Transnational Ltd and Investfund Pty Ltd will be liable to income tax in Australia on any of their business income.
Note that under s46(a) of the Corporations Act 2001 (Cth) a company (the first company) is a subsidiary of another company if that other company:
controls the composition of the first company’s board; or
is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the first company; or
holds more than one-half of the issued share capital of the first