Taxation Law: Letter of Advice

This letter of advice provides guidance on tax residency position in Australia and income tax consequences for income earned from overseas sources.

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

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Letter of Advice: Private and Confidential
Knight Mare Pty Ltd
14 Aladdin Marine
Trunk Yard Delight NSW
5845
Mr Nguyen
25 St Joseph Street St
Villeneuve VIC 5874
Dear Nguyen
We would like to draw your gentle responsiveness toward are letter of advice that
pursues to report on substances associated to the tax residency position in Australia with the
ATO. In regard to proceed further with our latest meeting, correspondence and discussion
over telephone, we are requesting you to kindly find our letter of assistance in respect of the
several substances inquired by you.
Scope of the letter:
The main scope of this letter of advice is to provide a valued guidance to the client on
how they must respond to the matters that is raised by the ATO in its position paper. The
client is hereby notified that the present letter of advice strictly deals remains limited to the
client’s position of tax residency and income tax consequences for the income earned from
the overseas sources. The letter simply disregards any other tax concerns that would
following given the excess income of the individual to be extracted from other sources.

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Facts of the letter:
The latter is based on the applicable evidences and expectations on the basis of which
the advised are based. We would strongly recommend you to highlight if any of the evidences
and assumption are incorrect or not in agreement with your understanding, kindly feel free to
interact with us immediately as this would create an effect on the advice that is being given to
you. The current letter of advice is built on the applicable taxation rulings, cases and
judgements because we appreciate its submission in your present state of affairs.
Summary of Advice:
We have summarized our opinion below by taking into the account each matters that
is drawn directly above. We have below attached a full conversation regarding the numerous
subjects associated to our information for your examination. We are strongly encouraging
you to recite this conversation in combination with the information provided. We have drawn
our reactions to each of the particular areas relating to your residency and income tax
consequences raised by the ATO in its position paper.
Issues:
The chief issue to the problem is determining whether or not the taxpayer is a non-
resident as explained under the “section 6(1), ITAA 1936” to be an individual who is not the
inhabitant of Australia.
Rule:
As explained in “s 6-5 (2), ITAA 1997” the assessable pays of the Australian resident
involves of the ordinary earnings that is earned from all the sources (Barkoczy 2016). While
for the overseas resident under “s 6-5 (3)(a)” it consist of the assessable earnings as the

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ordinary earnings which is earned from the Australian sources. As a general rule, residency is
regarded as the important source on the basis of which Australia exercises its authority of
imposing tax. Accordingly, under “s-6(1), ITAA 1936” an “Australian resident” means an
individual that are viewed as dweller of Australia or includes someone that resides in
Australia (Brauner and Stewart 2015). The definition states that a person that has the fixed
abode in Australia is considered as Australian resident, except when the taxpayer clarifies
that he or she has the permanent location of residence out of Australia and does not has the
intent of taking Australian residency. In order to ascertain the residency of different taxpayer,
certain different test are applied on the individuals (Sharkey 2016). The rules are as follows;
a. Resides Test
b. Domicile Test
c. The 183-Days Test
d. The commonwealth Superannuation Test
Resides Test:
This test is recognised as the residence in accord with the ordinary notions (Jones
2018). The word “reside” is not explained in the act and its ordinary denotation is obtained
from a vocabulary which explains that to live on the permanent basis or for the momentous
time period (Grange, Jover-Ledesma and Maydew 2014). Ultimately, the court in “FC of T v
Miller (1946)” held that the ascertainment of the tax residency test is reliant on the topic of
fact and degree. The test lay down some vital factor in the determination of the tax residency
position. As per the “Taxation Ruling TR 98/17” these factors are;
a. The amount of time spent by a person physically inside Australia
b. Purpose of visits both in Australian and to abroad
c. The conservation of home in Australia for an individual’s usage.

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The high court in “IRC v Lysaght (1928)” held that if an individual is a visitor then it is
necessary to determine the duration and regularity of visits (Kenny 2016). While in “Levene
v IRC (1928)” the law court held that the person’s family, social or business ties are also
important in ascertaining the residency status.
As current instances of “Iyengar v FCT (2011) AATA 856” held that an engineer
who took up overseas employment for more than two years and maintained the family home
in Australia to which the taxpayer came back (Krever 2015). The court held the taxpayer as
Australian dweller on the basis of ordinary concept.
An identical outcome was noticed in “Sneddon v FC of T (2012) AATA 516” where
an Australian inhabitant was hired in Qatar for an employment period of more than two years
(Morgan, Mortimer and Pinto 2015). The taxpayer continued to maintain residence in
Australia, parked his car in garage, and maintained his telephone accounts, bank account and
Australian superannuation fund. The court ruled that despite the fact the taxpayer has bought
a residential house in foreign but this was not adequate enough to establish that he was not an
Australian citizen.
Domicile Test:
As per the Domicile Test, a person is held to be an Australian inhabitant if his or her
house is in Australia, except when it is proven to commissioner that the person has permanent
home out of Australia (Neethling 2016). The Domicile is ascertained with respect to the
“Domicile Act 1982”. A person usually attains the residence of their origin from birth while
in other circumstances an individual may attain the residence based on their choice where
they want to make their home for indefinite purpose or by the operation of law. This test is
regularly applicable on individuals that are shifting or moving out of the country.

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The taxation commissioner in “FC of T v Applegate (1979)” held that despite the fact
that Applegate had maintained his Australian domicile, he had set up the permanent location
of his residence somewhere else (Sadiq and Coleman 2014). It was noticed that the term
“permanent” in this case was somewhat less than eternal and constituted a fixed or the
habitual location of home. In contrast the federal court in “Harding v Commissioner of
Taxation (2019)” permitted the appeal of the taxpayer and stated that the taxpayer was not
the Australian citizen (Norbury 2019). The federal court stated that at the time of determining
the residency of an individual, the phrase “permanent place of abode” must not be
understood more widely to take into the consideration whether the person is living enduringly
in a specific nation or state. The “taxation ruling of IT 2650” explains certain factors which
must be included;
a. Intention and real stretch of stay in the foreign
b. Intention of staying in the overseas permanently or momentarily
c. Place of established house
d. Durability and continuity of taxpayer’s existence in a foreign country.
The 183-Day Test:
This test elucidates that, a person is held as Australian citizen when their physical
presence is found for a continuous period of six months or more than 183-days in the relevant
income year (Sadiq et al. 2016). However there are exceptions where person may not be
considered resident if the officer is satisfied that he or she has fixed dwelling in a foreign
country and does intend to reside in Australia.
Superannuation Test:
This test is applied to members of commonwealth super funds and they are deemed as
Australian resident.

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Application:
Referring to the laws that we have explained above, Nguyen we have noticed that you
moved to Saudi Arabia on 1st July 2016 for work purpose. We also found that you have no
intention of resigning from your employment in Saudi Arabia (Woellner 2016). To ascertain
whether you are resident or not we have applied four test in regard to description of resident
under “subsection 6 (1), ITAA 1997”.
Resides Test:
From the fact it is apparent that Nguyen do not “reside” in Australia starting from the
period of 2017 and 2018. You have also not demonstrated any of the factors listed under the
explanation of resident “subsection 6 (1), ITAA 1997” which would point towards you being
residing in Australia (Butler 2019). Citing the case of “Sneddon v FC of T (2012) AATA
516” although Nguyen has residential home in Australia and his sons live here, these factors
should not be treated as the entirely exclusive factor or significant enough in considering you
as Australian citizen (Morgan and Castelyn 2018). For the considerable time period of 2017
and 2018, we found that you were not present in Australia in both the income year. During
your holidays you visit Australia to meet your sons and spend some time in your home but
you always intend to go back to Saudi Arabia subsequent to your short break in Australia for
only meeting your family members. Hence, you are not a resident as per this test.
Domicile Test:
Denoting the case evidences which we have gathered, it is noticed that your employer
in Saudi Arabia gave you with a completely furnished house. Starting from the time on 1st
July 2016 after leaving Australia you did not convincingly confirmed that your choice of
domicile is in Australia. By citing the latest law court decision made in “Harding v

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Commissioner of Taxation (2019)” the circumstantial evidences suggest that you have the
permanent dwelling or abode in Saudi Arabia (Murray et al. 2018). We have referred to
statement of full federal court your case at the time of determining your residency position,
where the phrase “permanent place of abode” must not be read more widely to take into the
consideration whether someone is living permanently in a specific nation or state.
To support the above stated statement in your case, we have found that you also did
not display any decisive evidence or intention of joining or restarting family for good reason
following the completion of your employment contract. This is clearly evidence in your
action as you have already hinted that you seem to currently enjoy working in Saudi Arabia
and chose to keep on being absent from Australia for the unknown time period. During your
two year span commencing from 2016 onwards to 2018 you only visited twice in Australia to
see your sons. This simultaneously adds weight to the conclusion we have drawn above that
you are not the occupant of Australia under the domicile test as well.
The 183-Day Test:
On examining the case facts it is understood that you left Australia from 1st July 2016
and for both 2017 and 2018 you were not present physically in Australia. Hence, you were
only present for a month in both 2017 and 2018 which implies that you are not an australian
resident under this test.
Superannuation Fund Test:
This test does not apply in your situation.
Conclusion:
Based on the overall findings of the four alternative test conducted it is understood
that you are a foreign resident under definition of “section 995-1, ITAA 1997”. You are

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hereby advised to enter in the audit so that you can defend your present view as a foreign
resident for both the income year of 2017 and 2018 respectively. Consequently, this means
that you do not have to pay any income tax Australia for your Saudi Arabia income earned
from employment. You will continue to lodge your income tax return under the meaning of
foreign resident given in “section 995-1, ITAA 1997”.
Conclusively, if you are happy with our advice then we will be preparing your
response to ATO based on matters discussed above. In case of any clarification or more
detailed discussion please feel free to contact us.
Yours sincerely,
Associate – Taxation
Knight Mare Pty Ltd

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References:
Barkoczy, S. 2016. Foundations of taxation law.
Brauner, Y. and Stewart, M. 2015. Tax, law and development.
Butler, D., 2019. Who can provide taxation advice?. Taxation in Australia, 53(7), p.381.
Grange, J., Jover-Ledesma, G. and Maydew, G. 2014. Principles of business taxation.
Jones, D., 2018. Complexity of tax residency attracts review. Taxation in Australia, 53(6),
p.296.
Kenny, P. 2016. Australian tax 2016. Chatswood, N.S.W.: LexisNexis Butterworths.
Krever, R. 2015. Australian taxation law cases 2015. Pyrmont, N.S.W.: Thomson Reuters.
Morgan, A. and Castelyn, D., 2018. Taxation Education in Secondary Schools. J.
Australasian Tax Tchrs. Ass'n, 13, p.307.
Morgan, A., Mortimer, C. and Pinto, D. 2015. A practical introduction to Australian taxation
law. North Ryde [N.S.W.]: CCH Australia.
Murray, I., Taylor, J., Walpole, M., Burton, M. and Ciro, T., 2018. Understanding Taxation
Law 2019.
Neethling, A. 2016 Introduction to income tax for individuals.
Norbury, M., 2019. Mr Harding's residence reconsidered. Taxation in Australia, 53(9), p.497.
Sadiq, K. and Coleman, C. 2014. Principles of taxation law 2013. Sydney, N.S.W.: Lawbook
Co./Thomson Reuters.
Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W. and Ting, A.
2016. Principles of taxation law 2016.

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Sharkey, N., 2016. Departing Australia: a complex tax situation with possible benefits and
hidden traps. Tax Specialist, 19(5), p.180.
Woellner, R. 2016. Australian taxation law 2016. North Ryde [N.S.W.]: CCH Australia.