Taxation Law

This document provides a letter of advice regarding residency status in Australia for tax purposes. It explains the different tests used to determine residency and their implications. Additionally, it includes a computation of net income from a partnership and a tax distribution statement.

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
Letter of Advice.........................................................................................................................2
Part B:.........................................................................................................................................6
Net Income of Partnership:........................................................................................................6
Distribution Statement:..............................................................................................................6
References:.................................................................................................................................8

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Part A:
Letter of Advice
To Jack
From: ABC Tax Consultancy
Date: 5th May 2019
Dear Jack
The issue here highlights the significance of undertaking the detailed analysis of the
fact and situations of your residency status in Australia for the purpose of tax law. We would
like to explain you that the “taxation ruling of IT 2650” is mainly related with determining
the residency status of a taxpayer for tax purpose that has the permanent place of abode out of
Australia (Woellner et al., 2016). As per this ruling a person that leaves Australia for work
purpose to reside in overseas nation ceases to be Australian resident for tax purpose during
their stay in overseas nation.
The word resident or the resident of Australia implies under “subsection 6 (1), ITAA
1936” as someone that has their domicile in Australia, except it can be proved that the
commissioner is content that the taxpayer has the permanent place of abode out of Australia
(Barkoczy 2016). It also includes persons that has been living in Australia on a continuous
basis for a minimum of six months in the income year except when the commissioner is
content that the taxpayer has the usual place of residence out of Australia and has no such
intention of taking up the residency in Australia.
We would like to stated that the above stated definition includes four relevant test to
determine whether you will be considered as the Australian resident for taxation purpose;

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a. Residence in accordance with the ordinary concepts
b. The domicile test
c. The 183-day test
d. Superannuation test
Resides Test:
Whether a person is residing in Australia is regarded as the first and foremost test for
residency and it is regarded as the common law test. A person is treated as the resident of
Australia if an individual is living in Australia, irrespective of their nationality, citizenship or
the fixed location of home. A person is only considered to be residing in Australia when he or
she demonstrates a behaviour that is considered consistent with living in Australia and they
are treated as resident when their behaviour begins. As held in the “Dempsey v FCT (2014)”
the court held the taxpayer to be non-resident of Australia by remaining dependent on the
intention of taxpayers to live out of Australia despite his wife and children remaining in
Australia and coming back on periodical basis to visit them (Freudenberg et al. 2017).
As evident Jack in your situation, it is noticed that in June you moved out of Australia
to work in Saudi Arabia. You also expressed the intention of living and working in Middle
East on a permanent basis. You also sold all your belongings that were in Australia and
moved to a single bedroom apartment in Bahrain. As understood even though Jack has the
residential home in Australia and his family wife and children resided in Australia this factors
cannot be considered sufficient. Furthermore, you intended to return back to Bahrain
following a short stay in Australia. Additionally, you were also not present in Australia
physically for the considerable period of time in the income year. Therefore, you cannot be
treated as Australian resident under the Reside Test.

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Domicile Test:
Domicile is held as the legal concept of determining the residency status under the
Domicile Act 1982 and the common law rules states that the person obtains the domicile by
birth the domicile of their origin being the nation of his birth as his permanent home ( Sadiq
2019). However, a person retains the domicile of their origin unless and until the person
obtains the domicile in the country of their choice. As held in “Applegate v FCT (1979)” the
taxpayer shifted with his family to New Hebrides and stayed for unspecified period.
However, the taxpayer returned after falling ill (Morgan, Mortimer and Pinto 2018). The
court of law noticed that even though the taxpayer has retained the domicile in Australia he
has established a permanent place of abode out of Australia. The taxpayer was non-resident
because his fixed place of habitual was out of Australia.
With respect to Jack’s situation it can be stated that you have conclusively
demonstrated that your choice of domicile is in Australia. Jack’s circumstances indicate that
he has the place of abode in Bahrain. Your intension of joining your family for good is also
not conclusive and your actions as indicated reflect that your absence from Australia is
indefinite. Furthermore, the term permanent in your context appears to be less than
everlasting and it is understood that your fixed place of habitual is out of Australia (Morgan
and Castelyn 2018). Hence, Jack under the Domicile Test cannot be regarded as the
Australian resident because, his fixed place has been established out of Australia in Bahrain
and no intention of returning to Australia.
The 183-day test:
Under the 183-day test the person is only treated as the resident of Australia if the
person has been present in Australia for greater than six months and will be considered

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resident unless the taxpayer has intention of taking up the residency out of Australia
(Cavenagh et al. 2018). With respect to the 183-Day Test, for the income year 2017-18
beginning from June you did not reside in Australia for a minimum of six months. It is also
understood that you have established the fixed place of abode out of Australia and hence you
will not be treated as Australian resident within the ordinary meaning of “section 6 (1), ITAA
1936”.
Superannuation Test:
The superannuation test objectively requires the membership of the specified
superannuation scheme (Maley and Maley 2018). The test is only applicable that are the
member of superannuation fund. In case of Jack, this test is relatively considered irrelevant
since you are not the member of the superannuation fund.
In light of the above case facts, it is understood that you are not the resident of
Australia as you did not meet the criteria for any of the residency test. Therefore, you will be
considered as the non-resident of Australia under “section 6 (1), ITAA 1936”. We hope the
letter has served your purpose and please feel free to reach us in case you want further
clarification.
Thank You

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Part B:
Net Income of Partnership:
Computation of Net Income from Partnership
In the books of J&J Barista School
For the year ended 30 June 2018
Particulars Amount ($) Amount ($)
Assessable Receipts
Receipts from Fees 350000
Total Assessable Receipts 350000
Allowable Deductions
Rent of training venue 35500
Cost of ingredients 6600
Salary of Part-time teachers 125000
Superannuation contributions 11,876
Bank Loan Repayment - Interest 1500
Interest on Loan from Judy 2500
Total Allowable Deductions 182976
Net Income From Partnership 167024
Distribution Statement:
Tax Distribution Statement
For the Year Ended 30 June 2018
Particulars Amount ($) Amount ($)
Net Income - (Section 90) 167024
Less: Partners Salaries

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Salary of Jared 35000
Salary of Judy 60000 95000
Less: Interest on Capital
Interest of Jared 1000
Interest of Judy 1000 2000
Residual After Subtracting 70024
Add: Interest on Drawings
Interest on Drawings - Jared 500
Interest on Drawings - Judy 750 1250
71274
Therefore:
Jared: 35000 + (50% x 71274) 35637
Judy: $60,000 + $1000 - $750 + (50% x 71274) 95887

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References:
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Cavenagh, J., Matley, H., Burke, L., Castles, S., Chesterfield, T., Clare, G., Fitzgerald, C.,
Grant, S., Kluckow, T., Lewis, A. and Norris, A., 2018. Australian legislation concerning
matters of international law 2016. Australian Year Book of International Law, 35, p.353.
Freudenberg, B., Chardon, T., Brimble, M. and Isle, M.B., 2017. Tax literacy of Australian
small businesses. J. Austl. Tax'n, 19, p.21.
Maley, M.N. and Maley, D.M., 2018. Australian Taxation Office Guidance on the Diverted
Profits Tax.
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., 2018. A practical introduction to Australian
taxation law 2018. Oxford University Press.
Sadiq, K., 2019. Australian Taxation Law Cases 2019. Thomson Reuters.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.