Jenny is 35 years of age, single and is a professional hairdresser. She was born in Australia, though she frequently travels overseas for extended periods for work purposes. Jenny recently returned to live in Australia on 1 May 2012 after living overseas for the past 14 months. During that time, Jenny travelled to various cities all through Europe to showcase her hairdressing styling and techniques. Jenny stayed at different short-term accommodation facilities.
On 1 April 2011 Jenny opened a German bank account and rented a post office box in Germany to which she redirected some of her business mail to. During her time in Europe, Jenny stayed for a maximum period of 3 months in any one city. She spent the greater part of her time in Germany however as well had relatives in France with whom she stayed for a period of 2 months. Jenny was exceptionally busy with her showcasing for most of the time, though she did always try to take off 1 day per week to go sight-seeing and to soak up the local custom. Prior to her departure for Europe, Jenny was hesitant how long she would spend abroad. Her sole aim was to gain an international reputation and she was prepared to stay abroad until she had done so and only then to return to Australia. Jenny thus terminated the lease of her unit in Bondi Beach, where she had been living for the past 7 years. She as well sold her car and closed two of her short-term deposit bank accounts.
On her return, Jenny decided to set up her own salon due to the success of her trip to Europe. Jenny has now employed 4 full-time hairdressing staff at the salon. Three of these staff is qualified hairdressers and the other is a hairdressing assistant. While Jenny produces the majority of the income, the income produced by the other 3 hairdressers is not insignificant. The hairdressing salon has a large supply of hair care products, like shampoo and conditioners, though most of the income of the salon comes from the fees paid for hairdressing services. Jenny needs customers to pay on the day by cash, credit card or debit card. She does not offer credit to her customers. Most of her customers pay cash, though she does accept credit cards and debit cards. There are 4 large wall-mounted hair dryers and 8 specifically designed basins in the salon.
As part of her professional image, Jenny needs her staff to wear smart designer suits. Jenny stipulates which the suits should be either black or dark blue pin-striped in color and have no decorative logos. Sally, one of the 3 qualified hairdressers, purchased an Armani suit for $770 on 1 June 2010. In order to keep the suit in pristine condition, Sally doesn’t wear the suit for any occasion other than to work at Jenny’s salon. She could have purchased other pinstriped suit for $400, but she preferred the Armani suit.
Questions:
1) Will Jenny is classified as an Australian resident or a foreign resident for taxation purposes all through her time overseas? Give full reasoning with reference to legislative provisions and case law to support and validate your answer.
2) What process of tax accounting will Jenny use for her hairdressing salon business? Provide full reasons, citing relevant cases and other authorities for your decision.
3) Will Sally is entitled to claim an income tax deduction for her suit? Cite legislative references, case law and any other pertinent authority for your decision.