Taxation Assignment 2022

Taxation
by [Name]
Course
Professor’s Name
Institution
Date

1
Taxation
The Australian Tax Office (ATO) on behalf of the federal government does taxation on
Income in Australia. Income tax is generally charged on the income of corporations and
individuals. With the increase in mobility of labor and capital, it becomes more challenging for a
government to tax income from foreign countries, and these calls for more clear criteria.
Part A
Rachel will be subjected to the residency for tax purposes tests as per the Australian Tax Office
(ATO). Taking the first as the ‘resides,' Rachel is in Australia, has family ties(spouse and two
children) in Australia, has bank accounts in her names and also has social and living provisions,
this qualifies her as a resident for tax purposes regarding this test.
Another test performed to determine an individual’s residence for tax purposes in Australia is the
Superannuation test, this calls for individuals who are employed by the Australian government
with duty stations abroad to be considered Australian residents for tax purposes1. This test does
not apply to Rachel since her duty station is in Australia.
Considering the 183-day test, this studies whether you have been staying in Australia for more
than half the financial year. It doesn’t matter whether daily or intermittently. Tests your usual
place of abode, and whether you intend to acquire a residence in the area. According to this test,
Rachel has stayed in Australia for more than 183 days, her usual place of abode is London
(outside Australia), has no intention of taking up residence in Australia since her and her family
plan going back to London and therefore her residence in Australia is not constructive as per the
183 days rule2. She will be considered a resident for tax purposes since she fulfills the test.
1 Mayo, Wayne, Time to Upgrade Australia’s Company Tax System From Imputation to Integration (July 31, 2018).
Australian Tax Forum, Vol. 33(4), 2018. Available at SSRN: https://ssrn.com/abstract=3311250
2 Australian Government. Residency-The The 183-day test. 2019. Available at https://www.investopedia.com

2
Australia's taxation of income from foreign countries exempts businesses from income for which
a tax has already been levied from the source country and encourages payment of tax for stable
income in the source country. Residents of Australia pay tax on their foreign income and also
income in their state which does not exclude capital gains3.
The source of income principles requires that Australian residents for tax purposes declare all
income earned both domestically and outside on their Australian tax profit regardless of whether
they have already paid tax on the income overseas.4 Rachel will be charged tax on her interest
earned on the bank account held in London $2500(EUR), salary and wages on her work before
going to Australia $45,000(EUR), salary and wage income from her Perth job $120,000(AUD).
A tax will also be levied on the Australian salary and her deductions relating to her job at the
hospital.
Part B
Taking into account John's purpose of presence in Australia, family and business ties, whether he
has open bank accounts, social and living arrangements that are the 'resides' test. He fulfills none
of these requirements, which leads us to test other tests on John.
Subjecting John to the 183-day test gives us the result that John is not considered a resident for
tax purposes for the years 2017/2018 and 2018/2019 as per the 183-day test since he was not in
Australia for those days.
The superannuation test requires that individuals employed by the Australian government
working overseas be considered Australian residents for tax purposes. John is not in this category
3 John, McLaren. Should the international income of an Australian resident be taxed on a worldwide or territorial
basis? 2006. Available at https://pdfs.semanticscholar.org/932c/caac062cdd28c1cc5e27fbad617e9345e63f.pdf
4 The Australian tax office, Work out your tax residency, the Australian government, 2018.

3
and therefore, not considered a taxpayer to the Australian government all his time in Brunei
under the superannuation test.
John fulfills the domicile test with his permanent home is in Australia since he did not acquire
permanent residence in Brunei. He is considered an Australian resident for tax purposes. Since
John fulfills one of the tests, he will be considered a resident for tax purposes by the Australian
tax office.5
Relating John to the Harding v Commissioner of Taxation [2019] FCAFC 29, this is a
case where an individual was born in Australia, had not lived there for the previous 17years after
his move to work in Saudi Arabia. He was still considered a resident for tax purposes by the
Australian government after all this time. The Federal Court's first decision was that Harding was
a resident basing on the place of abode as a correct address. However, awakening the place of
abode to mean an individual's permanent address changed Harding's place of abode to Saudi
Arabia because he had permanently left Australia. Harding in this argues that the individuals the
financial connections left by an individual in Australia (the family house, investments, accounts
at the bank) have no much use where a person resides.6
The other aspects of the ‘resides’ test, such as the purpose of his visits to Australia
(visiting family) also disqualify Harding as a taxpayer to Australis. Subjecting Harding’s case to
the Australian 183 day test residence test for tax purposes revealed him as a none resident given
the fact that he would never spend half the financial in Australia. The fact that the Australian
5 Jacob, Joseph. Tax return for Australian residents. 2019. Available at https://www.finder.com.au/australian-
resident-for-tax-purposes,
6 Maja, Garaca Djurdjevic. Harding case: Full Federal Court clarifies the definition of ‘permanent abode.' 28th
February 2019. Available at https://www.publicaccountant.com.au/news/full-federal-court-clarifies-definition-
permanent-abode-harding-case