Taxation Law & Practice: Residential Status and Main Residence Exemption

The Faculty of Business
BULAW 5916Taxation Law & Practice
Assignment: Semester: Summer 18/19

TABLE OF CONTENTS
Part A.........................................................................................................................................3
Issues......................................................................................................................................3
Taxation provisions................................................................................................................3
Residential status................................................................................................................3
Main residence exemption in subsidy 118-B.....................................................................5
Application.............................................................................................................................6
The residential status of James in Australia and source of his salary from Sails
International.......................................................................................................................6
Entitlement of James to the main residence exemption in subdivision 118-B..................7
Conclusion..............................................................................................................................7
Part B..........................................................................................................................................8
References................................................................................................................................10

PART A
Issues
The issue is whether the James is considered as the resident of Australia. Along with
residential status, what is the source of receiving the salary from the Sail International Inc. is
also ascertained.
Taxation provisions
Residential status
Chargeability of the income tax is greatly impacted by the resident status of the person. The
taxation system of Australia governed according to the norms and rules prescribed under the
income tax assessment act 1997. Residents are well permitted to the tax-free entrance as well
as they have to pay a Medicare tax. In the case of the non-resident, income tax will be
charged only on the sourced income derived in Australia. In the case of FCT v Mitchum
[1965], the income derived by the Mitchum is not regarded as the Australian sourced income
and therefore it is not taxable for the non-resident. In addition, people are not allowed to tax-
free access (Kopczuk and WMunroe 2015).
A person is considered as an Australian tax resident in case if he/she “resides” in Australia as
per the ordinary sense of that word (subsection 6(1) of the Income Tax Assessment Act 1936
(ITAA 1936)) (Soltana, Sabetzadeh and Briand, 2016).
Following are the tests to determine residency of individual:
(a) Residency according to ordinary concepts
This test presents whether an individual resides in Australia is a question of fact that is based
on the circumstances of every case, however following are the influential factors-
 In case an individual comes back to the country of origin than the occurrence,
promptness and period of such trips and their reason can be important factors
(Woellner, 2016). And if the individual is not present in Australia just because of its
business than in that situation, it might not be sufficient in itself to hold a claim that
the individual is not a resident (Jenner, 2015).