Principles of Taxation Law Assignment (document)

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PRINCIPLES OF TAXATION LAWS

Principles of Taxation Law
Contents
Question 1.............................................................................................................................................2
Answer 1...........................................................................................................................................2
Question 2.............................................................................................................................................5
Answer 2...........................................................................................................................................5
Question 3.............................................................................................................................................6
Answer 3...........................................................................................................................................6
Bibliography..........................................................................................................................................7
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Principles of Taxation Law
Question 1.
Answer 1.
An individual fall under one of the following categories for tax purposes:
1. Resident of Australia for tax purposes
2. Foreign Resident
3. Temporary Resident
RESIDENT OF AUSTRALIA FOR TAX PURPOSES
A. Resides Test
The person who stays in Australia is considered to be an Australian resident for tax
purposes and does not require to apply any other tests of residency.
Following factors are also used to determine residency status of an individual:
1. Physical presence
2. Intention
3. Purpose
4. Family
5. Employment or business ties
6. Maintenance of assets
7. Location of assets
8. Social arrangement
9. Living arrangement
If a person fails to satisfy the resides test he can still be considered as resident of Australia.
For this he needs to satisfy any one or more of the conditions described below:
B. Domicile Test
A person who has his permanent home (domicile) in Australia and his permanent
abode place is not outside the country then he is considered as a resident of Australia
for tax purpose.
C. 183-Day Test
The people who has arrived in Australia and stayed for more than half of the income
year either continuously or with breaks would be considered as the resident of
Australia for that financial year and would be liable to pay tax1.
D. Commonwealth superannuation test
Commonwealth superannuation test applies to Australian people who works for the
Australian government outside the country/overseas and are the members of CSS
scheme and PSS scheme. In such case, the person, his spouse and children would be
considered as the resident of Australia for tax purposes 2.
1 Organisation for Economic Co-operation and Development, Information on residency for tax purposes (n.d.),
< https://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-residency/Australia-
Residency.pdf>.
2 Jacob Joseph, Tax return for foreign residents (15 January,2020), finder <
https://www.finder.com.au/australian-resident-for-tax-purposes>.
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Principles of Taxation Law
FOREIGN RESIDENT
If a person fails to satisfy all of the below mentioned criteria then he comes under the
category of Foreign Residents:
1. Resides Test
2. Domicile Test
3. 183-Days Test
4. Commonwealth Superannuation Test
TEMPORARY RESIDENT
If a person holds a temporary visa and also neither the person or his/her spouse falls under the
category of Australian resident as per Social Security Act,1991, then in such case the person
would be considered as temporary resident. This means such person would show all the
income earned in Australia and income earned from the employment performed outside the
country/overseas while he/she was Australia’s temporary resident 3.
Rob would be considered as foreign resident for the purpose of tax because:
A. He has failed to satisfy ‘the resides’ test. This happened because:
a. Length of his physical absence from Australia He stayed outside the country Australia
for eight years.
b. Surrounding circumstances are not being consistent with residing in Australia
(example, establishing or renting home overseas with his family or wife) in spite of
having a family home in Australia. Rob Rented a house in New Zealand for living.
B. He has also failed to satisfy the domiciled test. This happened because:
a. His permanent abode place is outside the country Australia due to:
1. Length of time committed to being overseas (stayed for eight years in New
Zealand)
2. Establishment/ renting of home overseas (rented a house in New Zealand for the
living purpose)
3. Family/ wife staying with him overseas (married a woman of New Zealand and
continued to stay with her outside Australia in New Zealand)
b. Though he has his own home in Australia and he has not sold it but still other factors
like his intention of not coming back to Australia and length of stay overseas are
stronger enough to consider Rob as foreign resident
c. He has also married women who is resident of New Zealand
C. He also failed to satisfy 183-Days test. This happened because he never stayed in
Australia for more than half income year with or without breaks in the last eight years.
3 Australian Government, International tax for individuals (4 December,2019) Australian Taxation
Office<https://www.ato.gov.au/Individuals/International-tax-for-individuals/Work-out-your-tax-residency/>.
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Principles of Taxation Law
D. Apart from this, Rob is also not an employee of Australian Government so failed to
pass the Commonwealth Superannuation test.
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Principles of Taxation Law
Question 2.
Answer 2.
On 23rd October, 2019 Treasury Laws Amendment Bill, 2019 was proposed with an intention
to remove CGT main residence exemption for foreign residents. The foreign residents who
has stayed in foreign country for six years or less and also some kind of life events had
occurred during the stay in foreign country can still avail CGT exemption. Those foreign
residents who has stayed outside the country for more than six years and no life event has
occurred cannot avail CGT main residence exemption.
Rob is no more a resident of Australia and is also being considered as foreign resident
because of the following two reasons:
1. He stayed in New Zealand for eight long years with no intention to get back to
Australia
2. He has rented a house in New Zealand for his stay
3. He has also married a woman having citizenship of New Zealand
4. He also works in New Zealand
Therefore, as per Treasury Laws Amendment Bill, 2019 foreign residents cannot continue to
avail the capital gain exemptions if:
1. The person has lived for more than 6 years in foreign country
2. No life event occurred during the stay in Foreign country
Therefore, Rob who is staying in New Zealand for eight years and no life event occurred
during his stay cannot consider 10 Snapper Street as his principle place of residence for CGT
purposes4.
4 Price Water House Coopers, It’s back: Removal of the main residence CGT exemption for foreign residents (24
October, 2019) <https://www.pwc.com.au/tax/taxtalk/assets/alerts/removal-of-the-main-residence-cgt-
exemption-for-foreign-residents-241019.pdf>.
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Principles of Taxation Law
Question 3.
Answer 3.
Treasury Laws Amendment Bill 2019, recommends amendments to eradicate access to
Capital Gain Tax main exemptions for those who falls under the category of foreign
residents.
Foreign residents are those persons who are not considered as the resident of Australia for the
purpose of taxation and therefore does not satisfy any of the following conditions for falling
into the category of resident of Australia:
1. Residency Test: The person who stays in Australia is considered to be an Australian
resident for tax purposes and does not require to apply any other tests of residency.
2. Domicile Test: A person who has his permanent home (domicile) in Australia and his
permanent abode place is not outside the country then he is considered as a resident of
Australia for tax purpose
3. 183-Day Test: The people who has arrived in Australia and stayed for more than half
of the income year either continuously or with breaks would be considered as the
resident of Australia for that financial year and would be liable to pay tax.
4. Commonwealth superannuation test: Commonwealth superannuation test applies to
Australian people who works for the Australian government outside the
country/overseas and are the members of CSS scheme and PSS scheme. In such case,
the person, his spouse and children would be considered as the resident of Australia
for tax purposes.
Therefore, people who decides to sell their main residence located in Australia and falls
under the category of foreign residents for taxation purpose would not be able to enjoy main
residence exemption at the time of property disposal. However, there are two exceptions
where an individual has the chance to avail CGT exemptions which are as follows:
a. An individual has been a foreign resident for continuous six years or less and also
for certain disposals as an outcome of a life event, or
b. Disposal qualifies under the period of transition 5
In case of Rob, he stays in New Zealand with no intention to get back to Australia. He also
rent a house in New Zealand for his stay. Apart from this, his spouse is also from New
Zealand and they did not shift to Australia after getting married. All these factors do not
qualify Rob for being the resident of Australia for taxation purpose. Now, he falls under the
category of foreign residents for Australian taxation purpose.
Now, Rob cannot assume 10 Snapper Street as his principle place of residence for CGT
purposes because he has stayed in a foreign country for more than six years. Now, if he
wishes to sell his property at Australia, he cannot claim for availing the exemptions relating
to capital gain tax.
Bibliography
5 Parliament of Australia, Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures)
Bill 2019 (n.d.) <https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/
Result?bId=r6439>.
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Principles of Taxation Law
Organisation for Economic Co-operation and Development, Information on residency for tax
purposes (n.d.), < https://www.oecd.org/tax/automatic-exchange/crs-implementation-and-
assistance/tax-residency/Australia-Residency.pdf>
Joseph, Jacob, Tax return for foreign residents (15 January,2020), finder <
https://www.finder.com.au/australian-resident-for-tax-purposes>
Australian Government, International tax for individuals (4 December,2019) Australian
Taxation Office<https://www.ato.gov.au/Individuals/International-tax-for-individuals/Work-
out-your-tax-residency/>
Price Water House Coopers, It’s back: Removal of the main residence CGT exemption for
foreign residents (24 October, 2019)
<https://www.pwc.com.au/tax/taxtalk/assets/alerts/removal-of-the-main-residence-cgt-
exemption-for-foreign-residents-241019.pdf>
Parliament of Australia, Treasury Laws Amendment (Reducing Pressure on Housing
Affordability Measures) Bill 2019 (n.d.)
<https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/
Result?bId=r6439>
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