Advance Taxation: Residency Test and Assessable Income Calculation

This article discusses the residency test and assessable income calculation in advance taxation. It explains the four alternate tests for residency determination and provides step-by-step guidance on how to calculate Australian assessable income. The article also includes a case study on Dr Wong's residency status and assessable income calculation. Subject: Taxation, Course Code: ADVTX, College/University: Not mentioned

Running head: ADVANCE TAXATION
Advance Taxation
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to question 1 A:.............................................................................................................2
Answer to Question B:...............................................................................................................5
Answer to Question 2:................................................................................................................7
References:.................................................................................................................................9

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Answer to question 1 A:
According to “section 6 (1) of the ITAA 1936” an Australian resident represents the
person other than the company that is residing in Australia and consist of the person that has
their domicile in Australian unless the commissioner is content that the person’s permanent
place of resident is outside Australia (Woellner et al. 2016). It also includes person that has
been Australia either on continuous basis or intermittently for more than one-half of the
income year except the commissioner is content that the person’s actual place of abode of
outside Australia and does not intends of taking up Australian residency. To determine the
residency test of an individual there are four alternate test. This includes;
a. Resides Test
b. Domicile Test
c. 183 Days Test
d. Superannuation Test
The current case study is based on determining whether Dr Wong would be held as
the Australian resident for taxation purpose for the period of 1st July 2015 to 30 June 2018.
Reside Test:
The Reside test represents that dwell permanently or for the considerable time period.
The court of law in “FCT v Miller (1946)” stated that residency of the person is reliant on
the circumstances of the case or by observing into the character of an individual behaviour
while their stay in Australia (Braithwaite 2017). The “taxation ruling of 98/17” explains that
the intention of taxpayer or the purpose of presence is necessary in determining the residency
test. As evident from the situation of Dr Wong it is noticed that he stayed in Australia and
was the Australian resident for the period of 2015. Dr Wong also held the property in Sydney
which was leased out by him during his visit to New York. With reference to the case of

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“FCT v Sneddon (2012)” it can be stated that Dr Wong for the period of 2015 was the
Australian resident under the Reside Test (Saad 2014). In the later instances it was noticed
that Dr Wong permanently moved to New York. Commencing from the year 1st January 2016
Dr Wong would not be held as the Australian resident under the Reside Test as the taxpayer
did not expressed the interest of residing in Australia.
Domicile Test:
According to “section 6 (1) (a) of the ITAA 1997” an individual would be held as
the Australian resident if the person has the domicile in Australian, unless it is found that a
person has the permanent place of abode outside of Australia. As evident Dr Wong held the
resident in Australia during his stay in New York. Citing the reference of “FCT v Applegate
(1979)” the court of law stated that the permanent does not represents everlasting or forever
and it is evaluated objectively for each year (Robin 2017). The permanent place of abode for
Dr Wong was in Australia and under the “Domicile Act 1982” he would be held as the
Australian resident for the income tax year ended 2015. However, from the year 2016
onwards Dr Wong cannot be held as the Australian resident since the taxpayer has abandoned
his residence that he held in Australia.
183 Days Test:
Under the 183 days test an individual would be considered as the Australian resident
if the person has been present in Australia either on continuous basis or intermittently for
more than half of the income year. An exception is that a person would not be held as the
Australian resident if he does not hold the intention of taking up the Australian residency
(Maley 2018). With respect to the 183 days test Dr Wong would only be held as the
Australian resident Australia for the year 2015 since he did spent around 183 days in
Australia however late for years 2016, 2017 and 2018 he will be not be considered resident of

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Australia. This is because the permanent place of abode for the taxpayer was outside of
Australia.
Superannuation Test:
The superannuation test is not applicable for Dr Wong since he is not the member of a
commonwealth superannuation fund.
The source of fund is also important consideration while determining the resident
status. The “Subsection 6-5(3) (a) and 6-10(5)(a) of ITAA 1997” argue that income from
Australia sources help decide the virtue (Maley 2018). Dr Wong received salary from Apex
into his Australian bank of $ 50,000 each month during 2015 and therefore despite being the
fact that he was in the New York during second half period of 2015, he will be considered as
resident of Australia. The case law of “Nathan v FCT (1918) 25 CLR 183” ague that real
source of income help determine the resident status. Dr Wong received Australian income
during the year 2015 however he started getting annual salary of $100,000 plus travel
allowance of $10,000 from New York University starting Jan 2016 hence he will be
considered resident of the United States from 2016 onwards.
Dr Wong residency status will be as follows based on legislation, case law and
relevant tax rulings:
2015 – Australian residency (source of fund, 183 day test, domicile test).
2016 to 2018 – Non-resident Australian (source of fund, 183 day test).
Hence, Dr Wong will only be considered Australian resident for one year of 2015 and
for rest he will be considered as non-resident Australian and his income is subjected to non-
taxation in the Australia due to being non-resident of Australia.

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Answer to Question B:
The assessable income has to be calculated using s 770-10 so that domestic income
can be calculated and if required than any foreign income can tax offset. The steps to
calculate the Australian assessable income for each year is as follows
Computation of Taxable Income
In the Books of Peter Wong
For the Year Ended 2015-16
Particulars
Amount
(AUD)
Amount
(AUD)
Assessable income
Gross salary 50000
Australian sourced rental income 20000
Foreign sourced Interest income (gross of WHT of AUD
10% x180) 180
Foreign sourced Dividend income (gross of WHT of AUD
10% x 3000) 3000
Total assessable income 73180
Allowable deductions Nil
Total allowable deductions Nil
Total taxable income 73180
Tax on taxable income 15330.5
Add: Medicare levy (2%) 1463.6
Less: Foreign income tax offset 300
Less: Foreign income tax offset on Interest 20
Total tax payable 16474.1
(Note: foreign income is required to be offset if the conditions get satisfied under the s 770-
10 of ITAA 1997).
The foreign income tax offset has to go through following steps like measure the
transaction as per 770-230 of Income Tax (Transitional Provisions) Act 1997 (ITTPA). The
dividends and interest income are subjected to statutory entitlement under the s 995-1(1). The
Division 820 to foreign income is applicable if the amount is incurred in deriving foreign

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income like dividends income and interest income from US based sources (Braithwaite
2017). The interest withholding tax of 10% comes under s 128B (2).
2016/17 and 2017/18 – Since Dr Wong started working as full time research position
with New York University and resigned from Apex. He will be considered as non-resident
Australian during that period however the only income that will be considered in Australia
will be as follows:
Computation of Taxable Income
In the Books of Peter Wong
For the Year Ended 2016-17
Particulars Amount (AUD) Amount (AUD)
Assessable income
Australian sourced rental income 20000
Tax on taxable income 6500
Add: Medicare levy (2%) Nil
Less: Foreign income tax offset Nil
Total tax payable 6500
Computation of Taxable Income
In the Books of Peter Wong
For the Year Ended 2017-18
Particulars
Amou
nt
(AUD)
Amou
nt
(AUD)
Assessable income
Australian sourced rental income 20000
Australian sourced dividend income:
Fully franked (net) 1400
Gross up for franking credits (2000 x 30/70) 600 2000
Total assessable income 22000
Dr Wong’s fully franked dividends are from Australian owned company. They are taxable
in Australia. Dividends are paid on 01 October 2017. So it should be included in 2017/18 tax
year Income.

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The rates of tax withholding applicable for the Dr Wong for the income during year 2017/18
is 30% as per Income Tax (Dividends, Interest and Royalties Withholding Tax) Act 1974. Dr
Wong is liable to pay the taxes and need to disclose income from entity as per the Taxation
Administration Regulations 1976.
The non-resident of Australia is not required to include the foreign source of earning
in Australia while Dr Wong has to pay the taxes in the United States for the income received
from the New York University. Dr Wong period of stay in the United States will be
considered their status as non-resident during that year 2016/17 and 2017/18.
Answer to Question 2:
Joesph’s superannuation lump sum benefit comes under the Superannuation Act 1976.
The Commonwealth superannuation test stated that taxpayer who remained resident in
Australia and retained membership under scheme of Australian government superannuation.
Joseph is an Australian resident and worked for an Australian construction company since
1980 till 2018 for a period of 38 years. The tax payable calculation on the superannuation
lump sum benefit is done as per “Taxation Ruling TR 2008/9” Income tax: meaning of
“Australian superannuation fund” in “section 295-95(2) of ITAA 1997”. The
superannuation funds are regulated as per the s 52 of the SIS Act and have to be calculated
through evaluating tax free caps and taxable super value calculations.
2007 2018
Post 1983 $266,687 Post 1983 $416,687
Pre-Jul83 $33,313 Pre 1983 $33,313
Contribution $50,000 (undeducted contribution from 2010 to 15)

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-------------- --------------
$300,000 $500,000
Joseph received $ 500,000 as superannuation fund during year 2018 while there is
applicable tax offset of 15% at margin rates. The lower tax cap is around $ 200,000 for the
year 2018 therefore the next taxable value will be $ 416,687- $ 200,000 (lower tax cap) - $
50,000 (undeducted contributions made between 2010 and 2015) - $33,313 (Pre july 1983
component). The complying taxed superannuation fund for Joseph is done through applying
tax caps of s 307-345 ITAA97. The total tax payable on the given superannuation payments
will be as follows:
2017 - 2018 Weekly Fortnightly Monthly Annually
Pay $5,168.17 $10,336.35 $22,395.75 $268,778.00
Taxable Income $8,781.17 $17,562.35 $38,051.75 $456,621.00
Superannuation $834.21 $1,668.42 $3,614.92 $43,379.00
Total Taxes $3,613.00 $7,226.00 $15,656.00 $187,843.00
Income Tax $3,437.38 $6,874.75 $14,895.30 $281,76.45
Medicare1 $175.62 $351.25 $761.03 $3,756.86
The total tax that Joseph is required to pay is $ 28176.45 for superannuation lump
sum benefit. The tax rate applicable is 15% as any lump sum amount greater than the low rate
cap amount is subject to income tax under s 301-20(4), (5)). These tax components are
required to be paid to the ATO and other exempts are required to be considered as per ss 301-
20(4), (5) ITAA97.

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References:
Blakelock, S. and King, P., 2017. Taxation law: The advance of ATO data
matching. Proctor, The, 37(6), p.18.
Braithwaite, V., 2017. Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Maley, M.N., 2018. Australian Taxation Office Guidance on the Diverted Profits Tax.
ROBIN, H., 2017. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’
view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.