Taxation Law: Residency Determination for Tax Purposes

This article discusses the determination of residency for tax purposes under Australian taxation law. It explains the four tests prescribed under the Income Tax Assessment Act 1936 and their application in determining residency. The article also provides insights into a case study and a statement of distribution. The subject is Taxation Law, and the course code is not mentioned. The content is relevant to students pursuing law courses in Australia.

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

1TAXATION LAW
Part A: Letter of Advice
Issue
The concern arising from the present situation is whether Mr Johnson can be treated as a
resident in Australia for the purpose of income your 2018.
Rule
The Income Tax Assessment Act 1936 contains provisions relating to the residency of a
person in Australia for tax purposes. Section 6(1) of the Act renders all the individuals having
cleared the four test provided under this section to be resident of Australia. The section has
prescribed four tests related to the determination of residency of a person in Australia.
The first test that is required to be applied for the purpose of determining the residency of a
person in Australia for the purpose of tax is the resides test. This test is applied to the persons
who have entered into Australia from foreign state for the purpose of residing in Australia.
However, it can also be applied to a person who has been residing in Australia. This test has
been covered by the tax ruling TR 98/17. Under this test, a person will be considered as a
resident in Australia if it can be proved that he has been residing in Australia in the income
year. This same can be illustrated with case of Levene v. The Commissioners of Inland
Revenue (1928) 13 TC 486.
The second test in this regard is the domicile test for the purpose of determining the residency
of individual for tax purposes. This test applied only on the individuals who has been a
citizen of Australia but has been away from Australia for the employment purposes in some
other territory. This test has been covered by the tax ruling IT 2650. Under this test, a person
is required to have domicile in Australia. A domicile can be considered to be more than
residence. However, for the application of this domicile test a person is required to establish
that he does not own any place of abode of permanent nature, which is located outside

2TAXATION LAW
Australia. This can be illustrated with the case of Henderson v. Henderson [1965] 1 All
E.R.179.
The third test that need to be applied individual for the purpose of determining his residence
in Australia is the 183 day test. Under this test, a person will be treated as a resident in
Australia, if he has satisfied the two previously stated test and has been residing in Australia
for a period which exceeds 183 day.
The last test in this regard is the superannuation test. Under this test, there are certain persons
employed with the government of Australia who are covered by the Superannuation Act 1976
has been rendered to be resident for the purpose of taxation. This also covers their family
members.
Application
In the present situation, Mr. Johnson has been residing in both Australia and Bahrain. He has
been staying in Bahrain for the purpose of his employment. During the year 2018, he was
visiting on a 12 month contract of employment. In this furtherance, he has sold the
belongings he has been earning in Australia for the purpose of his leaving Australia.
However, it can be noticed that he has a permanent place of abode in Australia that is, he has
his family home in Australia. But this cannot be taken into consideration while deciding is
domicile test. For this purpose, his intentions of staying in Australia needs to be considered.
He has sold all his belongings and has given up his house in Australia for the purpose of
staying in Bahrain. His visit in Australia was for a very short period. Hence, under this test,
he cannot be considered as a Australian resident.
The second test that needs to be applied to Mr Johnson for the purpose of determination of
his residency. Under this test, it can be said that he has a permanent place of abode situated
within Australia. But in this regard, it can be construed that his intention of buying a place of

3TAXATION LAW
accommodation in Bahrain is for the purpose of staying there permanently. He has left
Australia, for the purpose of his employment contract. This shows intention to stay away
from Australia and hence under this test, he will be considered as a non-resident in Australia
as he has not been having a domicile in Australia as his intention was to leave Australia for
his employment.
As the previous two tests related to the determination of residency has not been satisfied by
Mr. Johnson, the question of satisfying the 183 day test will not applicable. However, even if
this test has been applied, he has been residing in Australia for 2 months in the income your
2018. This prescribe that he did not satisfied the 183 test and will automatically be rejected
the status of resident in Australia for tax purposes. Mr. Johnson is not an employee of the
government of Australia as covered under the superannuation act he will not be applied with
the Superannuation Act 1976.
Conclusion
Hence, he will not be considered as resident.
Part B
Net Taxable Income
For the F.Y. 2018
Details $AUD $AUD $AUD
AI
Fees Receipt 350000
Total AI 350000
Deductions (section 8-1 & 8-
2)
Sundry Expenses 35500
Material Cost 6600
Salary Paid 125000
Contribution towards Superannuation 11876
Interest on Loan 1500
Interest to Judy 2500

4TAXATION LAW
Total Deductions 182976
Net Taxable
Income
167024
Statement of Distribution
Details Total $ Jared $ Judy $
Income 167024
Deduction of Salaries 95000 35000 60000
Deduction of Interest(Capital) 2000 1000 1000
Balance Amount 70024
Interest on Drawings 1250 500 750
Taxable Income 71274 35637 95887
Working Note
Jared: 35000 + (50% * 71274) = $ 35637
Judy: 60000 + 1000 – 750 + (50% * 712274) = $ 95887

5TAXATION LAW
Transcript
 From the given scenarios, I have found that Mr. Johnson has been residing in both
Australia and Bahrain.
 It can be noticed that he has a permanent place of abode in Australia that is, he has his
family home in Australia.
 But his intentions of staying in Australia needs to be considered.
 He has sold the belongings he has been earning in Australia for the purpose of his
leaving Australia.
 It can be construed that his intention of buying a place of accommodation in Bahrain
is for the purpose of staying there permanently.
 This shows intention to stay away from Australia and hence under this test, he will be
considered as a non-resident in Australia as he has not been having a domicile in
Australia as his intention was to leave Australia for his employment.
 He has been residing in Australia for 2 months in the income your 2018.
 This prescribe that he did not satisfied the 183 test and will automatically be rejected
the status of resident in Australia for tax purposes.
 Hence, he will not be considered as resident.


6TAXATION LAW
Reference
Henderson v. Henderson [1965] 1 All E.R.179
IT 2650
Levene v. The Commissioners of Inland Revenue (1928) 13 TC 486
The Income Tax Assessment Act 1936
The Superannuation Act 1976
TR 98/17