Tax Residency and Assessable Income in Australian Taxation System

Assessment item 2

TABLE OF CONTENTS
Introduction......................................................................................................................................3
Question 1........................................................................................................................................3
Tax residency concept of the Australian Taxation system..........................................................3
Question 2........................................................................................................................................6
Meaning of the assessable income...............................................................................................6
Capital receipt and revenue receipt..............................................................................................7
Capital gain tax............................................................................................................................7
Conclusion.......................................................................................................................................9
References......................................................................................................................................10

INTRODUCTION
The Taxation system of Australia is governed by the Income Tax Assessment Act 1997, which
prescribes all the rules, regulations for assessing the income of the individual. Tax residency is
an important aspect with respect to the assessment of the income tax of the individual (Lombard,
2017). The determination of the tax residency status depends on the circumstances of the
individual. The present study focuses on the tax residency concept of the Australian Taxation
system. Further, the income tax is levied only on the consistent and regular income generated
from the business activity of the individual. Therefore, the determination of the assessable
income of the individual should be as per the provisions provided by the Income Tax Assessment
Act 1997 (Saez, 2017).The taxation system of Australia describes the conditions of ascertaining
the tax residency status of the individual, only after fulfilling those conditions individual will be
considered as a tax resident of Australia (Choudhary, Koester, and Shevlin, 2016). Moreover, the
separate rules are prescribed in the Act with respect to the capital gain tax of the individual.
QUESTION 1
Tax residency concept of the Australian Taxation system
The determination of the Australian Tax residency is based on the fact and the circumstances of
the individual while applying the certain laws and statutory tests. According to (subsection 6(1)
of the Income Tax Assessment Act 1936 describes that, in general aspect, an individual is
considered as a residence of Australia if the individual “resides” in Australia. Here the word
resides is decided by considering the overall situation of the individual which includes the
intention and the purpose of the residence of the individual in Australia. It is further, supported
by the level of connection with the family of the individual or business and employment within
Australia and the maintenance and location of the assets of the individual and the social and
living arrangement of the individual (Clark, and Maas, 2016).
By considering the case law of Harding v Commissioner of Taxation [2018] FCA 837, if the
individual does not satisfy the above test of residency, then the individual will be considered as
an Australian Tax resident only if the individual satisfies the statutory residence test. The

statutory residence test is described in the subsection 6(1) of the Income Tax Assessment Act
1936, which are as follows-
1. The domicile Test- An individual will be considered as a resident of Australia under the
domicile test if they have a domicile in Australia except the commissioner is satisfied that
the permanent place of residence of them is outside Australia. Generally, the domicile
means the country in which the individual is born unless the individual migrates to
another country (Boyd, 2018). According to the Domicile Act 1982, if the person plans to
build the house in Australia, definitely then that person obtains the domicile by choice.
2. The 183 days test- An individual will be considered as a resident of Australia under the
183 days test if the person is present in Australia for more than 183 days, in a particular
tax year. The presence of the 183 days may be continuous or irregular; it does not make
the effect on the residency. However if the commissioner is satisfied that the usual place
of that person is outside Australia and the intention of that person is not to take up
residence, then the individual will not be considered as a resident even if the condition of
183 days test is satisfied (Sharkey, 2015).
3. The superannuation test- this is referred to as a substitute for the ordinary test of
residence. An individual will be considered as a resident of Australia under the
superannuation test, when ordinarily they do not live in Australia, however if the
individual is eligible employee for the purpose of the superannuation Act 1976, or the
assessee is spouse or the child below the 16 years of age of such individual, then the
individual is deemed resident under this test (Burgess, 2018).
Further, an individual may be considered as a temporary resident of Australia, if the individual
holds a temporary visa granted provided by the provisions of Migration Act 1958 or if the person
is not a resident Australian resident under the social security Act 1991 or if the spouse of the
person is not a resident provided by the provisions of social security Act 1991.
Further, it is also possible for the individual that simultaneously tax resident of the two countries,
for instance, individual got the assignment from the other country and received income from that
country but individual satisfies any one condition of the tax residency rule which is described
above therefore individual is a resident of Australia. In this example, the individual is
simultaneously the tax resident of Australia and the other country also. In this situation through