Taxation Law

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note

1TAXATION LAW
Part A
Whether Arun Sharma is to be treated as a resident for tax in Australia
Rules
The Basis of determining the tax residency of a person lies on 4 primary test. These tests are
namely Resides Test, Permanent place of Adobe test (Domicile Test), the 183 day test and
the superannuation test. The rules for the resides test have been given under Taxation Ruling
98/17. The ATO states that this is an appropriate test to analyze whether a person who is a
resident of another country and have been residing in Australia is a resident for tax purpose in
Australia or not. The ruling lays down a few indicators to make the analysis. These indicators
are detailed below
 The intention and purpose of presence of the Tax Payer
 The Family, Employment or Business ties of the Tax Payer
 The taxpayer maintaining and having assets in Australia
 Tax payer having living and social arrangement in Australia
 The Time of presence for the TP in Australia
If the resides test has been satisfied the TP is considered as a resident for tax and no other test
needs to be referred.
It needs to be noted that time is not a decisive factor. However, if the individual is present in
the country for more than 2 years, it is generally consider that the person is residing in
Australia ordinarily.
Application
The facts of the case study provide that, Arun is an Indian citizen who has come to Australia
for study and work. He has been staying in Australia for about 8 years. As discussed above,
the Commissioner will also examine the period the taxpayer is physically present in
Australia, although this by itself will not be determinative as stated in Joachim v FC of T
2002 ATC 2088. The case stated that a period of two years is enough to state that a person is
residing in Australia with the ordinary meaning the term reside. In addition the facts of the
case also state that the TP in context has married in Australia. This means that the TP also has
domestic ties in Australia and the above requirements have been satisfied. It further needs to
be noted that he is also employed in Australia with an Australian company thus signifies that

2TAXATION LAW
he has employment ties with the country. The facts of the case and the rules discussed above
therefore predict indicate towards the conclusion that he is a resident for tax in Australia.
Conclusion
Arun Sharma has to pay tax on all income earned world-wide to the Australian Tax Office.
Section ii
This section determines the Assessable Income, Allowable deductions and Net Tax payable
or refundable for Arun Sharma in the year 2018-2019
The rules
There are two kinds of income for a person in Australia. One is ordinary income and the other
is statutory income. ordinary income is as defined through the text of Income Tax
Assessment Act 1997 (Cth) s6-5 is the income which a person earns under the ordinary
concepts. As this definition is very wide, case laws are used to analyze the assessability of a
receipt as an ordinary income. Income works as per the flow concept. This means that income
is the fruit which is flowing out of the tree which is its source as highlighted by United States
Supreme Court in Eisner v Macomber (1920) 252 US 189.
It needs to be noted that if an income is not ordinary income , it can still be assessed as
statutory income such as stated under section 15-10 where allowance given by the employer
to the employee in terms of employment is assessable.
A gift to a person is not assessable income as highlighted in the case of Scott v. Federal
Commissioner of Taxation. [1966] HCA 48. However, the case of Kelly v. FC of T (1985) 80
FLR 155
stated that where the gift to the employee has sufficient nexus with the income producing
activity, employment or services rendered, it is to be treated as assessable income for the TP.
There are two limbs for this section which is the positive limb and the negative limb. The
expenses fall within the positive limb if they are incurred for the assessable income. The
expenses fall within the negative limb if they are capital or private nature or used for gaining
exempt income. There are a few statutory deductions as well such as borrowing expenses
under s40-88 of the ITAA97 and expenses incurred in relation to taxation management of the
TP as provided under s25-10 of the ITAA97. A property related expenditure where the
property is not a investment property becomes a cost base under s110-25. The tax payer gets