Taxation Law and Practice Case Study Australian 2022

Taxation Law and Practice

Table of Contents
Introduction................................................................................................................................3
Regulations and provision relating to assessability of taxation of Rod McLean.......................3
Conclusion..................................................................................................................................6
References..................................................................................................................................7

Introduction
The provision of residential status has been provided in subsection 6 (1) of ITAA 1997.
Further, the primary variant to be analysed in order to ascertain the residential status is to
assess whether the individual or organization resides in Australian or not. Para 6 to 13 of
taxation ruling IT2607 provides provision relating to variants which are required to be
assessed to determine residential status in appropriate manner. Present study revolves around
ascertainment of taxation provision of Mr. Rod McLean who resides in Manly and working
as an engineer in company named as Softmicro Ltd. It is US based company. In March 2017,
Rod was temporary posted in RST Ltd, situated in Hong Kong. Thus, provision relating to his
residential status and assessable income has been provided in detail manner for the tax years
2018/19 and 2019/20.
Regulations and provision relating to assessability of taxation of Rod
McLean
Provision relating to residency test
Resides test is the main test implemented to ascertain tax residential status of an individual.
In case an individual an individual resides in Australia, than he or she is deemed to be
Australian resident for taxation purpose. However, in case an individual does not persudes
the provision of resides test than he or she is still considered as Australian resident in case
one of the three specified test are satisfied i.e. Domicile test, 183 day test, common wealth
superannuation test (Domazet, Marjanović, and Stošić, 2018).
Domicile test
In accordance with ATO provision an assessee is considered as Australian resident in case his
or her domicile is in Australia. A domicile can be referred to a place which can be treated as
permanent home by law (Trakman, 2015). It is necessary that the place of abode should be
everlasting, however it could be contrasted in case it is impermanent or transitory place of
abode it could be contrasted.
183 day test

In this test, if an Australian resident is actually present in Australia for period exceeding half
of income year than he would be deemed as constructive resident in Australia. It is not
necessary that he lives in continuity for period of more than six months; it could be in breaks
too (Burgess, 2018). Moreover, an individual can have to be said constructive residence in
Australia in case it is not possible to establish that general place of abode is not in Australia
and assessee has no intention to establish here. Further, in case assessee has resident in
Australia than specified test will not be applied regardless of no. of days spend overseas.
Superannuation test
The above test is applied to Australian government employees who are employed abroad and
are part of CSS or PSS schemes. Further, spouse and children are also deemed as resident of
Australia in specified case (Thampapillai, 2016).
In present case Rod McLean will be treated as Australian resident and will be taxed
accordingly for the income he has earned while working in Hong Kong on temporary basis,
as he is permanent resident of Australia. The reason behind same is that he has it main
residence (home) in Australia due to which he satisfies the conditions of reside test. Further,
he is present there for more than half year; thus requirements of 183 day test are also
satisfied. In case of resident, income from all sources should be taxable in home country,
whether it is received in Australia, or outside Australia. Thus it is appropriate to state that
salary of three months will be taxed in Australia even though it has been received in bank of
Hong Kong. Overall, it can be said that for the tax year 2018/19, he is considered as resident
of Australia.
Impact of residency on tax
In case an individual is employed in another country on a temporary basis, he is still
considered as resident for the purpose of taxation. He or she is further eligible for the purpose
of tax free threshold available to the individual for the time period when he or she satisfies
held residential status. However, in case an individual ceases to be resident; it is not
necessary to disclose foreign income in his tax return and will be subject to taxation provision
relating to non-resident (Taxation Ruling. IT 2650, 2017). In present case for year 2018/19,
Rod McLean is resident, thus tax will be also paid on salary deposited in Kowloon branch of
HSBS Bank in Hong Kong.
Provisions relating to other benefits attained by Rod McLean

In general, employer provided some additional benefits to employee along with salary or
wages which is referred as fringe benefit. In Australia, on these benefits, employer is liable to
pay the tax (Cooper, 2018). It is applicable even in a case if the benefits are not directly
provided by employer and offered by third party or any arrangement made by employer. It is
considered as spate tax, which is computed on the taxable amount of fringe benefit (Barry,
and Caron, 2015). If the total amount of taxable fringe benefit is more than $2000, then it is
considered as reportable fringe benefit, then employer is required to gross up this amount
(Frienge Benefit Tax , 2019). Even the amount received a non-refundable voucher is
considered while evaluating assessable income.
Further, it has been observed that in the course of employment, RST ltd provided an airline
ticket for vacation in Paris along with voucher of $8000 in order to reimburse the expenses. It
is considered as fringe benefit as same are provided to Rod for being employee of Softmicro
Ltd and incentives provided to employee are considered as fringe benefit. On the basis of
above provision, fringe benefit can be received by directly from employer, or by third party,
or any other arrangement entered by employer (Trump, 2019). Therefore, in this case air
ticket and reimbursement of expenses in regarded as fringe benefit, as it is provided by
employer in addition with salary. Since, the amount of fringe benefit is more than $ 2000,
therefore it is required to gross up. In addition to this, the liability for payment of tax levy on
fringe benefit is possessed by employer. Therefore, in such case, $ 8000 is not considered in
computation of taxable income of Rod.
Case law of Harding v Commissioner of Taxation [2019] FCAFC 29
In case of Harding v Commissioner of Taxation [2019], decision was made by Federal Court
that assessee who was an Australian citizen and presently not living in Australia for few
years and also established a home in another country (temporary furnished apartment) was
not permanent enough, thus same will be not be judged as Australian tax resident . Further,
section 6 of Income Tax Assessment Act asserts that resident of Australia can be referred as
an individual who lives in Australia and it includes individual whose domicile is in Australia,
unless authorities are convinced that person’s place of abode is not in Australia. Permanent
place of abode test was considered in order to evaluate the residential status of Mr Harding
and emphasis was made on his accommodation in Bahrain to assess whether it can be
considered as permanent place of above or not (Australia: Residency case a win for the
taxpayer, 2019). The decision of case of Harding was taken on same basis and it was

adjourned by the court that Mr. Harding was not a resident as the place where he lived in
Australia is required to be regarded as home and same was not possible.
Apart from above aspect, it has been assessed that RST ltd also offered job to Rod. Further, ,
he accepted the job and moved permanently to Hong Kong. If a person moved from Australia
with the intention toshift permanently in other country, then in such case he/she is not
considered as resident of Australia. Further, case of Mr Harding can be related to scenario of
existing situation of Rod, as he has accepted the offer of RST Ltd and permanently shifted to
Hong Kong with his family on a permanent basis, thus he will be not considered as a resident
for the year 2019/2020. By application of this provision, in the year2019-20, Rod is not
considered as resident of Australia. Therefore, in case of non-resident income tax is levy only
on that income which is generated from Australian sources. Thus, any income which is
earned from sources outside Australia is not taxable in Australia. In the given case, from the
mid of year Rod accepted job of RST ltd, therefore after this he is considered as non-resident
of Australia. In such situation, income which is generated from Australian Source is only
taxable for Rod.
Conclusion
It can be concluded from above assessment that result of reside test, domicile, test,
superannuation test decides the residential status of an individual. Thus, for year 2017/18 as
Rod has satisfied the condition of reside as well as domicile test he will be treated as
Australian resident for taxation purpose. Further for taxation year 2019/20 he will be
considered as non-resident of Australia as he has permanently shifted to Hong Kong with his
family and asserted by above stated provisions.

References
Books and Journals
Barry, J.M. and Caron, P.L., 2015. Tax regulation, transportation innovation, and the sharing
economy. U. Chi. L. Rev. Dialogue, 82, p.69.
Burgess, M., 2018.International tax and estate planning. Taxation in Australia, 53(1), p.26.
Cooper, R., 2018. Recent changes to fringe benefits. TAXtalk, 2018(71), pp.52-55.
Domazet, I., Marjanović, D. and Stošić, I., 2018. Attractiveness of the domicile economy
through tax incentives. Ekonomikapreduzeća, 66(7-8), pp.434-445.
Hodgson, H. and Pearce, P., 2015. TravelSmart of Travel Tax Breaks: Is the Fringe Benefits
Tax a Barrier to Active Commuting in Australia. eJTR, 13, p.819.
Thampapillai, D.J., 2016. Foreign Employment Income and Double Tax Avoidance
Agreement: Australia's Possible Governance Failure. Lee Kuan Yew School of Public Policy
Research Paper, (16-03).
Trakman, L., 2015. Domicile of choice in English law: an Achilles heel?. Journal of Private
International Law, 11(2), pp.317-343.
Trump, D., 2019.Tax-efficient education. Tax Breaks Newsletter, 2019(402), pp.5-6.
Online
Australia: Residency case a win for the taxpayer. 2019. (Online). Available through
<https://www.pwc.com/gx/en/services/people-organisation/publications/assets/pwc-
australian-residency-case-a-win-for-the-taxpayer.pdf?elq_mid=16164>. [Accessed on 28
September 2019]
Fringe Benefit Tax , 2019. (Online). Available through
<https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/> [Accessed on 28 September
2019]
Taxation Ruling.IT 2650. 2017. Income tax: residency - permanent place of abode outside
Australia. (Online).Available through <https://www.ato.gov.au/law/view/document>.
[Accessed on 28 September 2019].