Determination of Residential Status in Taxation Law

This article discusses the determination of residential status in taxation law and its implications for tax residency. It covers the four tests used to determine residency status and provides a case study example. The article also discusses the taxation of income for non-residents.

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

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Table of Contents
Part A:........................................................................................................................................2
Introduction:...............................................................................................................................2
Determination of Residential Status:.........................................................................................3
Ordinary concepts Test:.........................................................................................................3
Domicile Test:........................................................................................................................4
The 183 days Test:.................................................................................................................5
Superannuation Test:..............................................................................................................5
Taxation of Income:...................................................................................................................6
Conclusion:................................................................................................................................6
References:.................................................................................................................................7

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Part A:
Date: 15th April
Client Number: 754312001
Client Name: Dave Granger
Introduction:
The definition of resident of Australian given under “section 6 (1), ITAA 1936”
includes a person that are residing in Australia. The definition also includes the person that
are having their domicile in Australia except the tax officer is pleased that the person’s
permanent place of dwelling is out of Australia1. The definition of “section 6 (1), ITAA
1997” identifies that only one of the four test must be met to treat a person a tax occupant of
Australia. This includes,
a. Resides Test
b. Domicile Test
c. 183-day Test
d. Superannuation Test
While “section 995-1, ITAA 1997” represents that a foreign resident means an
individual who is not the tax resident of Australia. Under “section 6-5 (2), ITAA 1997” a tax
resident of Australia is imposed tax on all source of income2. While under “section 6-5 (3),
ITAA 1997” a foreign resident for taxation purpose is levied tax on Australian sources. The
1 Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).
2 Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
`

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report here would be assessing the residency status of Dave and issues regarding the tax
residency for the relevant year.
Determination of Residential Status:
The definition of “section 6 (1), ITAA 1997” includes four different test and the final
test is entirely an objective test3. Numerous cases are related to understanding of first three
test. The residency status of an individual is determined on case basis and remains
dependents on specific facts and circumstances of an individual.
Dave holding an Australian citizen passport shifted to Paris for structural engineering
role and married to Olivia in 2007 and later shifted to Nepal in 2007. He on regular basis
came back Australia to care for his ill mother. The following test are performed to explain the
residency status of Dave;
Ordinary concepts Test:
The ordinary concepts test is the main test to ascertain whether Dave is residing in
Australia. A person regardless of their nationality, citizenship or place of fixed home is held
as Australian resident. The taxation commissioner in “FCT v Applegate (1979)” explained
that permanent does not mean everlasting and objectivity is ascertained each year4. The
taxpayer was held non-resident for tax purpose as he has established an enduring place of
abode out of Australia. Dave within the ordinary concept test is a non-resident of Australia
for tax purpose as he is residing in Nepal from the year 2007 and does not has any ties with
Australia. Dave has kept his personal assets in Nepal where he has set up a completely
3 Sadiq, Kerrie. Australian Tax Law Cases 2018. Thomson Reuters, 2018.
4 Butler, Daniel. "Who can provide taxation advice?." Taxation in Australia 53.7 (2019): 381.

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furnished home. Despite the fact that he comes to Australia to look after his ill mother for few
days but his behaviour reflect that he is not the Australian resident.
Domicile Test:
Inside the sense of “section 6 (1), ITAA 1997” a person is held as tax resident of
Australia given they have residence in Australia unless the taxation commissioner is content
that they have set up the permanent place of residence outside Australia5. The commissioner
in “FCT v Applegate (1979)” understood the word permanent place of dwelling. The court
stated that when a person leaves Australia to live in the foreign country for temporary basis,
the person ceases to be Australian resident up to their time of absence. As held in “Boer v
FCT (2012)” the commissioner treated the taxpayer a tax resident of Australia during his out
of the country stay as he did not set up any fixed place of dwelling outside Australia6.
Dave, in spite of born in Australia the location of his permanent residence was in
Nepal. He enjoyed the culture and surrounding in Nepal which establishes that his fixed place
of dwelling is in Nepal. He sold his car and personal belongings while leaving Australia and
has no intention of returning back again. Dave, under the Domicile Test is not an Australian
resident for tax purpose within the meaning of “section 6 (1), ITAA 1936”.
5 Morgan, Annette, Colleen Mortimer, and Dale Pinto. A practical introduction to Australian
taxation law 2018. Oxford University Press, 2018.
6 Sheffrin, Steven M. "The Domain of Desert Principles for Taxation." Erasmus Journal for
Philosophy and Economics11.2 (2018): 220-244.

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The 183 days Test:
Where a person has lived in Australia for 183 days’ or six months of an accounting
year is treated as Australian resident except when the commissioner is content that a person
has set up a fixed place of dwelling overseas with no intent of coming back Australia7.
Dave has only been in Australia for overall 91 days. Therefore, he is not a tax resident
of Australia under 183 day’s test for the reason that he has not been present in Australia for
one half or six months of the relevant income year. Additionally, Dave has set up the
permanent place of abode out of Australia and has clear intention of not coming back to
Australia. Dave, under this is a non-resident of Australia under “section 6 (1), ITAA 1936”8.
Superannuation Test:
The superannuation test is not applicable on Dave as his not the member of
superannuation fund9.
Conclusively, Dave did not meet any one of the above stated residency test and hence
he cannot be regarded as Australian resident within “section 6 (1), ITAA 1936”.
Taxation of Income:
Under “section 6-5 (3)(a), ITAA 1997” non-residents are considered for taxation
based on ordinary income and statutory income from the Australian sources. Dave and Olivia
7 Morgan, Annette, and Donovan Castelyn. "Taxation Education in Secondary Schools." J.
Australasian Tax Tchrs. Ass'n 13 (2018): 307.
8 Jones, Sally, and Shelley Rhoades-Catanach. Principles of Taxation for Business and
Investment Planning 2016 Edition. McGraw-Hill Education, 2015.
9 Robin, H. Australian Taxation Law 2019. Oxford University Press, 2019.

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jointly bought an investment property to produce income10. If Dave derives any income from
the Australian investment property, he would be required to file tax return in Australia. He
also bought shares in Australian listed company. Dave, being a non-resident and yielding
income from shares and investment property would be under obligation of filing tax return in
Australia because the income is sourced in Australia. The dividends derived from shares by
Dave would be subjected to withholding tax because it is derived from Australian source.
Conclusion:
Conclusively, Dave did not meet any of the residency test and hence he is a non-
resident of Australia for taxation purpose under “section 6 (1), ITAA 1936”. However, any
income derived by Dave from Australian shares and investment property then it would be
subjected to withholding tax and taxes would be applied on non-withholding rates.
10 Robin & Barkoczy Woellner (Stephen & Murphy, Shirley Et Al.). Australian Taxation
Law Select 2019: Legislation And Commentary. Oxford University Press, 2019.

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References:
Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
Butler, Daniel. "Who can provide taxation advice?." Taxation in Australia 53.7 (2019): 381.
Jones, Sally, and Shelley Rhoades-Catanach. Principles of Taxation for Business and
Investment Planning 2016 Edition. McGraw-Hill Education, 2015.
Morgan, Annette, and Donovan Castelyn. "Taxation Education in Secondary Schools." J.
Australasian Tax Tchrs. Ass'n 13 (2018): 307.
Morgan, Annette, Colleen Mortimer, and Dale Pinto. A practical introduction to Australian
taxation law 2018. Oxford University Press, 2018.
Robin & Barkoczy Woellner (Stephen & Murphy, Shirley Et Al.). Australian Taxation Law
Select 2019: Legislation And Commentary. Oxford University Press, 2019.
Robin, H. Australian Taxation Law 2019. Oxford University Press, 2019.
Sadiq, Kerrie. Australian Tax Law Cases 2018. Thomson Reuters, 2018.
Sheffrin, Steven M. "The Domain of Desert Principles for Taxation." Erasmus Journal for
Philosophy and Economics11.2 (2018): 220-244.
Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).