Week 2 - Residence and source PDF

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Week 2 Residence and source summary...

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Week Two Chapter 4: Key Points ● ●

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Australian residents are taxed on income from all sources; Foreign Residents are taxed on income sourced in Australia. An individual is an Australian Resident if they satisfy one of 4 Tests: ○ the ordinary concepts test, ○ the domicile test, ○ the 183-day test and ○ the Superannuation test A company is a resident of Australia if it satisfies one of three tests: ○ The place of incorporation test ○ The place of central management and control test ○ The controlling shareholder test Source requires a geographical connection with Australia. International tax treaties to which Australia is a party may override the domestic principles of source. Determining the source of income requires the income to be categorised Income categories: ○ Sale of goods ○ Sale of property other than goods ○ Provision of services ○ Passive income from; dividends, royalties or interest.

Residence of Australia - Individuals Test 1: Residence according to ordinary concepts (4.6) RULING 98/17 -

Common law Primary test

Levene v IRC [1928] AC 217 – Supports the principle that a taxpayer will not lose residence in one jurisdiction until they have acquired a new residence in another jurisdiction.

Joachim v FCT (2002) 50 ATR 1072 Think about where the taxpayer lived. Therefore, it is possible to retain residence according to the ordinary concept even if the taxpayer is not present in Australia. This case has very specific facts. Worked abroad on Sri Lankan vessels but his family remained in Australia Factors Considered by the courts: RULING TR 98/17 ● Physical presence in Australia - generally, it is necessary for the taxpayer to spend some time physically in Australia. An exception is Joachim v FCT (2002) 50 ATR 1072

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If the person is a visitor, the frequency, regularity and duration of the visits are considered ● The purpose of the visits to Australia and abroad ● The maintenance of a place of abode in Australia for the taxpayer’s use ● The person’s family, business and social ties - evidence is in Levene v IRC [1928] AC 217 ● The person’s nationality - only considered if the case is borderline; not normally considered. Commissioner places emphasis on: ● Intention or purpose of presence; ● Family and business or employment ties; ● Maintenance and location of assets; and ● Social and living arrangements

Test 2: Domicile Test (4.100) First Statutory test A person is a resident of Australia if his/her domicile is in Australia, unless the commissioner is satisfied that the person has a permanent place of abode outside Australia. “Domicile” is a legal concept determined according to the Domicile Act 1982. It broadly means the jurisdiction with which a person has permanent legal ties. To acquire a Domicile of choice; a person must have the intention to make his home indefinitely in that country; EG permanent residency in Australia. -

This test generally applies to people leaving Australia. For this test the individual will be deemed a resident of Australia only if it is proven that they do not have a permanent place of abode outside of Australia.

FCT v Applegate (1979) 9 ATR 899 Still precedent for cases where a taxpayer was able to show that they had adopted another permanent place of abode. ‘Permanent’ in this context was not everlasting but more of a contrast to temporary or transitory.

FCT v Jenkins (1982) 12 ATR 745 If this case was heard today, it may be that the short period of employment could see the taxpayer being classified as a resident, unless they were able to prove that at the end of the first year of employment, they did not have specific plans to return to Australia.

Factors Considered by the commissioner for this test: ● The intended and actual length of the taxpayer’s stay in the overseas country; ● Whether the taxpayer intended to stay in the overseas country only temporarily and then leave at a set point of time ● Whether the taxpayer has established a home outside of Australia.

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Whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence The duration and continuity of the taxpayer’s presence in the overseas country The durability of association a person has with Australia. Eg informing government departments of departure.

Emphasis is placed on the length of stay overseas. Ruling IT 2650 states that, as a broad rule of thumb, a period of two years or longer will be considered a substantial period.

183 Day Test (4.130) Second Statutory Test Requires physical presence in Australia for more than one-half of the year. This test generally applies to incoming individuals. The 183 days can be continuously or intermittently. Unless the commissioner finds that their Usual place of abode is outside Australia and they are convinced that they do not intend to become permanent residents. The use of the word usual means it is easier to fit this requirement than it is in the domicile test.

Superannuation Test (4.140) Applies to commonwealth superannuation fund members and their families, aka Commonwealth Public servants....