Identification of relevant taxation law concepts and legal sources such as relevant legislation and case law


LETTER OF ADVICE – 1000 words

Presentation requirements and referencing

It is expected that your assignment will be written as if you were a professional tax adviser providing letter of advice to the client (as described in Question 2).

Word limit

• The word limit for this assignment is 1,000 words (with a +10% tolerance)

• The word limit does not include the bibliography but does include words in footnotes (if footnotes are used).

Grading criteria Marks will be allocated based upon:

• Identification of relevant taxation law concepts and legal sources such as relevant legislation and case law;

• Application of those concepts and legal principles to the problem at hand;

• Calculating any relevant taxation liability, so far as possible, given the information provided; and

• Providing a balanced and well-reasoned letter of advice which addresses relevant legal issues in a professional manner.


Question One: (Worth 15 marks)

Mario Maccaroni owns a hotel and restaurant in the Abruzzo region of central Italy, where he lives with his wife Francesca and three children. Mario is a widely acclaimed chef who specializes in traditional Abruzzo cuisine. Mario has a cousin Angelo, who lives in Melbourne and works as a chef at the ‘six-star’ Grand Hotel. Angelo recommended that the Grand should invite Mario to be the Guest Chef for three months, starting on 1 December 2017. Mario accepted the invitation and arranged a visit to Australia on a 457 Work Visa sponsored by the Hotel. Francesca and his three children stayed in Italy to run Mario’s hotel and restaurant in his absence. The ownership arrangements at the hotel in Italy were carefully structured so that Mario only received rental income as landlord of the property, at the rate of $8,500 per month. All other business receipts were derived by his wife and children. Under his contract with the Grand Hotel, Mario was to be paid $100,000 for his Guest Chef role plus the use of a luxury room at the Hotel for the next three months free of charge (the normal price would have been $500 per night) and an entertainment allowance of $300 per week, to enable Mario to learn about the local food industry by regularly eating out at other Melbourne restaurants. Mario’s work at the Grand Hotel role was a great success and he enjoyed Melbourne so much that towards the end of his contract he started looking for opportunities to open his own restaurant in Melbourne. In February 2018 he located an old warehouse in North Melbourne that he thought would be suitable, that was available for long term lease at a reasonable price. He instructed a local solicitor, Denis Denuto, to arrange a lease and all necessary permits for a high-end restaurant to seat 100 customers. He then set about renovating and fitting out the building at a cost of $300,000, which he borrowed from the Abruzzo Bank in Italy. When the restaurant plans were finalised, Mario returned to Italy for two weeks in early March 2018, and arranged for a friend to take over management of his Abruzzo hotel so that Francesca and the children could come out to live in Australia. Mario returned to Australia in late March 2018 with his family, and moved into a rented house in Toorak, close to schools for the children. His Abruzzo home was leased to tenants for a term of one year after Mario’s family moved out. Mario’s restaurant (called “Mario’s”) opened on 1 April 2018, and was an immediate success, making a profit of about $30,000 a month (net of running expenses). The business continued to trade very well until August 2018, when suddenly the street where the restaurant was located was closed off for the construction of a new railway station for the Metro Tunnel underground rail project. Mario was advised that the construction works would not only close his street but also cause high levels of noise and dust that would effectively prevent operation of the restaurant for the next twelve months. With the closure of his restaurant, Mario was so disappointed he decided to move himself and his family back to Italy in September 2018. The general manager of the Grand Hotel heard about Mario’s departure and offered to buy the restaurant business, as he believed it would be even more profitable once the new rail station was 4 completed. He offered Mario $600,000 for the business including the right to use Mario’s name and distinctive Abruzzo cuisine. He also offered Mario $400,000 for a contractual promise not to operate an Abruzzo style restaurant anywhere in Melbourne for the next 5 years, and an additional $100,000 for Mario to return to Australia to manage the setting up of the restaurant and the initial training of new chefs for a period of one month in August 2019. Mario accepted this deal and was paid $1.1 million by the Grand Hotel at settlement on 30 November 2018. Meanwhile, Mario was extremely angry that his solicitor, Denis Denuto, had not warned him about the construction project, and he engaged a new solicitor to commence legal proceedings against Denis Denuto on grounds of professional negligence, claiming $400,000 in lost profits and $1m for damage to Mario’s business reputation. On 1 March 2019, Mario accepted an offer from Denis Denuto’s professional indemnity insurance fund, which was $900,000 in full settlement of his claims plus Mario’s legal expenses of $50,000. That settlement amount of $950,000 was duly paid to Mario on 1 June 2019.


Using relevant legislation and case law, explain: (a) whether Mario is a ‘resident of Australia’ for income tax purposes at any time during the years ending 30 June 2018 and 30 June 2019? 5 marks

(b) whether any of the payments or benefits received by Mario in the relevant years would be assessable income for Australian taxation purposes (ignoring Capital Gains Tax). 10 marks