Direct Tax Law and Practice - PDF

TAXATION LAW
STUDENT ID:
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Issue
The central issue based on the given facts is to tender advice to taxpayer (Jacinta) in relation
to the payments that she has received during the two tax assessment years namely 2016/17
and 2017/18.
Tax residency determination
In the given case, it is apparent that Jacinta has received income from both domestic and also
international income sources, hence the subject of tax residency gains relevance. As per s. 6-
5(2), in case of Australian tax residents, any income which is obtained from any source
irrespective of the geographical location of the source would be considered for tax purposes
in Australia (Krever, 2016). In sharp contrast, s.6-5(3) highlights that for foreign tax
residents, the income that is earned from sources based in Australia during the given
assessment (Woellner, 2014). This difference in tax treatment leads to the subject of tax
residency assuming importance. The subject of tax residency has been outlined in s.6(1)
ITAA 1936 (Reuters, 2017). For individual taxpayers, TR 98/17 highlights the various tests
that are outlined below (Gilders et. al., 2016).
 Residency Test – This test is applied to ascertain the tax residency of only foreign
resident staying in Australia and hence would not be useful in the given case.
 183 day Test – This test is applied to ascertain the tax residency of only foreign
resident staying in Australia and hence would not be useful in the given case.
 Domicile Test – This test is applied to ascertain the tax residency of Australian
residents who are staying outside Australia and hence would be useful in the given
case since Jacinta is an Australian resident and shifts to Singapore.
 Superannuation Test – This test is applied to ascertain the tax residency of those
Australian government employees who may be stationed aboard and clearly this
would be useful for the given taxpayer.
Since only the domicile test is applicable, hence this test is discussed in detail so that the
same can be applied for Jacinta.
Domicile test
In order to fulfil this test for tax residency, the taxpayer essentially needs to satisfy the two
conditions that are highlighted below (CCH, 2013).

 The taxpayer needs to have an Australian domicile.
 The taxpayer’s permanent abode should be based inside Australia despite residing
outside the country for fulfillment of personal or professional obligations.
In the given test, the determination of domicile is quite objective and straight forward.
However, the same cannot be concluded about the permanent abode since it is difficult to
ascertain the same especially when the taxpayer is staying abroad currently but has future
intent to get back to Australia (Coleman, 2011). In such situation, IT2650 is significant since
it enables the outlining of the key factors that Tax Commissioner normally considers for the
determination of the permanent abode (Sadiq et. al., 2016).
 Intention on taxpayer’s part to come back to Australia along with the period of stay in
foreign land
 The deviation of the actual stay period in foreign land from that of the intended period
along with the underlying reason for the same.
 The extent of lies (both in personal and professional sphere) existing for the taxpayer
both in Australia and the foreign country would be considered imperative.
 Also, the number of trips and frequency with which the taxpayer visits Australia when
abroad.
 The act of setting a home outside of Australia.
There may arise a situation where the taxpayer for professional reasons has to abroad for
years but the taxpayer may have intention to return to Australia after the professional reason
is over. In this context, the decision taken in Applegate per Franki J 79 ATC at 4314 case is
imperative as it specifies that if the taxpayer has to remain in foreign land for a period
exceeding two years, then it would be concluded that there has been a shift in the permanent
above which would lead to the conclusion that the underlying taxpayer is not a Australian tax
resident (Deutsch et. al., 2016).
Jacinta’s tax residency for the two years needs to be ascertained in the light of the above law.
The relevant details of the case highlight that the Jacinta accepted the EZI offer on September
1, 2016 based on which there was a requirement for Jacinta to move to Singapore for three
years. Considering the professional engagement in excess of two years, the verdict of the
Applegate per Franki J 79 ATC at 4314 case would be referred to and hence it would be
appropriate to conclude that Jacinta would not be an Australian tax resident for the period
that follows her acceptance of the offer. Therefore, for the complete assessment year

2017/2018, Jacinta would not be categorised as an Australian tax resident and instead
considered as foreign tax resident (Nethercott, Richardson & Devos, 2016).
However, assessability of the tax residency for the period leading to August 31, 2016 from
the beginning of assessment year 2016/17 still needs to be considered. In this context, it is
essential to note that the tender from Singaporean firm commenced in May 2016 and Jacinta
was supposed to be in Singapore only for a month. Otherwise she was residing in Australia
only. Clearly, this one month period would not imply in shifting of permanent abode. Even
though, this period was stretched by another two months, but it was on account on
professional requirements. Further, after this, the taxpayer was on vacation for a month
before returning back from Australia. Hence, it would be appropriate to conclude that for the
period of assessment year 2016/17 leading up to September 1, Jacinta will be categorised as
tax resident of Australia (Woellner, 2014).
Income Assessment
As discussed above, in accordance with s. 6-5(3), any income that is obtained by Jacinta after
September 1, 2016 would be taxable only if it has the underlying source as Australia.
However, in line with the facts of the case, there does not seem to any income post her
Singapore migration that arises from Australia and therefore the assessable income in
Australia for this period would be zero (Barkoczy, 2017).
However, the monthly salary that Jacinta derives from his foreign employer before accepting
offer from EZI would be categorised as assessable income in accordance with s. 6(5) ITAA
1997 (Woellner, 2014).
Further, the benefit extended by the company in the form of holiday voucher and air tickets
would not be considered a gift since even though it is voluntary, it is arising due to the
service offered by Jacinta and hence this would be taxable since it would be considered as
statutory income which would contribute to assessable income in line with s.6(10) (Gilders
et. al., 2016).
The compensation which Jacinta receives for moving to Singapore would be taxable to the
extent it is received before she moves to Singapore. Once she moves to Singapore on a
permanent basis, no proceeds received would be taxable in Australia since it would be
income derived from foreign sources (CCH, 2013).

References
Barkoczy, S. (2017) Foundation of Taxation Law 2017. 9th ed. Sydney: Oxford University
Press.
CCH (2013), Australian Master Tax Guide 2013, 51st ed., Sydney: Wolters Kluwer
Coleman, C. (2011) Australian Tax Analysis. 4th ed. Sydney: Thomson Reuters (Professional)
Australia.
Deutsch, R., Freizer, M., Fullerton, I., Hanley, P., & Snape, T. (2016) Australian tax
handbook. 8th ed. Pymont: Thomson Reuters.
Gilders, F., Taylor, J., Walpole, M., Burton, M. & Ciro, T. (2016) Understanding taxation
law 2016. 9th ed. Sydney: LexisNexis/Butterworths.
Krever, R. (2016) Australian Taxation Law Cases 2017. 2nd ed. Brisbane: THOMSON
LAWBOOK Company.
Nethercott, L., Richardson, G., & Devos, K. (2016) Australian Taxation Study Manual 2016.
8th ed. Sydney: Oxford University Press.
Reuters, T. (2017) Australian Tax Legislation (2017). 4th ed. Sydney. THOMSON
REUTERS.
Sadiq, K, Coleman, C, Hanegbi, R, Jogarajan, S, Krever, R, Obst, W, & Ting, A
(2016) , Principles of Taxation Law 2016, 8th ed., Pymont: Thomson Reuters
Woellner, R (2014), Australian taxation law 2014 7th ed. North Ryde: CCH Australia