Taxation Law LAWS3070 Exam: Residency Status, Foreign Income, and Ordinary Income

TAXATION LAW
LAWS3070 – EXAM

1.
With reference to the taxation ruling TR 98/17 (residency status of individuals entering
Australia), individuals living on temporary visas are counted as temporary residents in Australia.
In the given case, Peter arrived in Australia on 1 March 2016 and was living in Australia on
temporary visa till getting enrolled for a four year engineering degree course at Western Sydney
University. Further, he was granted with the student visa which is another form of temporary
visa and in the beginning of 2022, he finally granted with permanent residency status in
Australia.
Therefore, permanent residency of Peter leads him to become an Australian resident from the
beginning of 2022. In Australia, temporary residents for the purpose of income tax usually do not
pay tax on the income they earn from another country. This is applicable in the given case of
Peter who was residing in Australia on the basis of temporary visa. The treatment of foreign
income earned in the case of temporary resident is such where foreign income is not taxed in
Australia except the income that has been derived as a result of employment or services
performed in overseas land while residing in Australian as a temporary resident.
Through the above discussion, it has been identified that TR 98/17 states that individual like
Peter entering to Australia on a student visa would be deemed and treated as temporary
Australian resident and accordingly, his treatment for the tax purpose would be as follows:
Issue of the given case
Peter is a citizen of another country until 2021 that is, Hong Kong.
Peter arrived Australia in 2016 and living as a temporary resident there till 2021.
As per the case given, Peter has not lodge any tax return in foreign nation that is, Hong Kong
while residing in Australia. Also, the income derived from rental property in Hong Kong was
never report in his Australian tax return.
Peter was receiving AU$40000 per annum in the form of rent from investment property owned
in Hong Kong. He has assigned his father for collecting rent and making payment for expenses

related to repairs & maintenance and then deposit the net amount in his bank account in
Australia.
Relevant laws, legislation and taxation rulings
As found in the case of Miller VS FACT, that foreign residents are not required to pay taxes on
the income earned other than employment & services performed in foreign land. Also, under the
section 6 of ITAA 1936, individuals living in Australia on temporary visa are not treated as
Australian resident and accordingly their foreign income derived through investment property in
another country is not taxable in Australia. On getting permanent residency in Australia, the tax
ruling and legislations application Australian permanent residents become applicable and
treatment for the tax purpose is done according. Temporary residents are taxed on their
Australian sourced income only at the marginal rates applicable on permanent residents and the
biggest issue they face is they do not get tax free threshold and accordingly, they pay
comparatively higher taxes on initial basis. The decision pertaining to the residency is taken on
the basis of several factors such as duration & frequency of visits to Australia, type of citizenship
of visa hold, physical presence, purpose of visit to Australia and maintenance of place of abode,
etc. as identified through the case law of Miller VS FACT. As per the ITAA 1936 section 6, the
temporary residents are liable to pay tax in Australia on the income derived in the following two
ways:
 Income earned while living in Australia from foreign nation through performing
employment and services.
 Income earned through Australian source while living in Australia on temporary basis.
On the other hand, the permanent residents are required to lodge tax returns in Australia of all the
income received from any corner of the world including Australia. Anyone who is an Australian
resident or have become Australian resident during the year is required to pay tax on both
Australian sourced as well as foreign sourced income derived from any means.
Application
In the given case of Peter arriving in Australia in 2016 and residing on temporary visa till the end
of 2021 would be definitely deemed as an temporary resident of Australia and accordingly, he