Taxation Law

This document discusses the determination of residency and source of taxation for an individual, along with the tests used to determine residency status. It also explores the taxation of income derived from outside Australia and the taxation of business activities. The conclusion provides an analysis of the individual's residency status and tax obligations.

Running head: TAXATION
Taxation Law
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Table of Contents
Issues:.........................................................................................................................................2
Discussion by using tax legislation and case laws:....................................................................2
Test 1: Resides in Australia:..................................................................................................3
Test 2: Domicile Test:............................................................................................................3
Test 3: 183-day test................................................................................................................4
Test-4: superannuation test:...................................................................................................4
Conclusion:................................................................................................................................6
References:.................................................................................................................................7

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Issues:
The subject matter involved in the present case comprises the determination of
residency and source of taxation for Ms Sierra and the root from where the income is derived.
The issues also admit whether the taxpayer will let off for income generated from the sources
that are out of Australia and the activities of horse breeding contracted amounts.
Discussion by using tax legislation and case laws:
Conferring to the “section 6-1 (1), ITAA 1936” or “section 995-1 of the ITAA 1997”
the residence of Australia includes the persons who are staying in Australia and the
individuals who has the residence in Australia, unless the taxation officer clarifies that the
person has the residence outside of Australia (Woellner et al., 2016). According to the
“section 995-1, ITAA 1997” Australian resident substances that a person who has been
staying in Australia, permanently or intermittently for a six month in an income year, except
the persons have the residency away from Australia and they have no intention to be an
Australian residency as per the taxation commissioner.
There are four different tests for the description of dweller of Australia where the last
test evidently an objective. It is discernible in the present condition of Sierra that she is
employed in a luxury liner that voyages the Mediterranean Sea and has her own apartment in
Australia. On account of being away from home, the apartment has been given on rent to her
uncle and she used to stay there whenever she returns to Australia. In the present income
year, she stays for eight days in that apartment.
The following tests are conducted to test the residence status of sierra:

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Test 1: Resides in Australia:
To, identify whether the person residing in Australia or not this forms the main test
known as common law test. As, per the taxation purpose an individual would be considered
as an Australia citizen if the respective person lives in Australia, irrespective of his or her
people, citizenship (Barkoczy, 2016). The “taxation ruling of TR 98/17” addresses that to
know about the character of every individual in Australia it is important to identify the reason
of staying, employment ties and the location of taxpayer’s asset. To understand the residency
status, it is important to know about the social association and the physical presence in
Australia.
As held in “Iyengar v FCT (2011)” the taxpayer was engineer and had employed for
more than 2 years in overseas however he kept his family in Australia and was held as
Australian citizen (Sadiq, 2018). This also observes in the current situation of Sierra that she
has kept her family home in Australia and stay in the apartment when she returns. So, this can
be said that Sierra maintained her asset in Australia while she stays for a few days.
Test 2: Domicile Test:
In this test a person can be considered as the Australian citizen if he or she has given
the domicile in Australia, except when it has certified that the individual is from outside by
the commissioner (Morgan et al., 2018). The persons generally get their domiciles at birth or
the place where they interested to build their home. According to “section 6 (1)” the
commissioner will consider whether the person outside from Australia. According to
“taxation ruling of IT 2650” there are certain parameters on the basis of which it can be said
that whether the person stay abroad on a temporary period or reside permanently outside so
that their residency will ceases on their absence.

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In a case “Boer v FCT (2012) AATA 574” and “Sully v FCT (2012) AATA 582”,
the taxpayers were conceiving as Australian although all of them stay in abroad because, they
did not take residency in outside Australia (Morgan & Castelyn, 2018). Likewise, it also
happens in Sierra’s case that she did not have any fixed home out of Australia and her family
also stay here.
Consequently, it can be said Sierra satisfied the domicile test as all the criteria of the
test are matched.
Test 3: 183-day test
183-day test tell that an individual who is staying more than half of the income year
(183 days) will be consider as he or she has the nominal residency in Australia and there has
no plan to setting up the residence in Australia (Pert et al., 2018). In this test Sierra does not
meet the any criteria of 183-days.
Test-4: superannuation test:
This test also perceived as independent test because it requires the membership
information to specify superannuation structure. The test was framed to introduce the
individual who get the salaries for engaged in high commission staff inside the Australian
taxation field (Robin, 2019). But, in the present context this test is not applicable to Sierra
because she is not a member of superannuated fund.
On considering the test-1 and 2 it can be said that Sierra remains the citizen of
Australia while she stayed abroad as per “section 995-1, ITAA 1997”.
The inhabitants of Australia are subjected in the tax slab based on their income. There
also a number of exemptions like tax offset and special rule to the foreign income which are
sourced from outside. A case held in “FCT v French (1957)” the remuneration will be paid

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where the service is carried out (Robin & Barkoczy, 2019). But as held in “Mitchum v FCT
(1935)” the service was worked out in Australia while the contract was signed out of
Australia was consider the income as sourced from out of Australia (Bankman et al. 2018). In
such case the Australian taxation system gives tax relaxation.
As apparent in the current situation Ms Sierra has signed the contract out of Australia
in Hong- Kong and the company was establishing in Bermuda. The salary earned by Sierra
has allotted from outside of Australia. The contract for both service and job location were
made outside of Australia by Sierra. As per the case held in “FCT v French (1957)” there
will be tax relaxation for income earned from employment to avoid the double taxation of
salary. As the income derived by Sierra is outside Australia, hence it is exempt (Miller &
Oats, 2016).
Income derived from the business comprises of the ordinary income under “section 6-
5 of the ITAA 1997” (Fleurbaey & Maniquet, 2015). Describing the receipts as the ordinary
income generated from business is consisting of two steps. Following the first step includes
identifying whether the taxpayer is carrying on the business, secondly a due reflection should
paid whether the receipts treated as normal proceed of the business activity. As said in
“Ferguson v FCT (1979)” there is no single character considered in determining the business
receipts (Mellon, 2016). Similarly, in “Thomas v FCT (1972)” it is important to find
whether the activity amount is more than the recreational activity.
As discernible Sierra has been engage in the activity of horse breeding and in the
current income year, she has earned profit from this activity. The activity of the horse
breeding is more than the refreshment activity as there was a profit making intention on
behalf of undertaking this business. Therefore, the horse breeding activities are considered as
business under the “section 995-1 of the ITAA 1997”.

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Conclusion:
After complete analysis it can be conclude that Ms Sierra will be treated as Australian
legal resident as per “section 6-1 (1), ITAA 1936” because she has fulfilled all the conditions
of domicile test and reside test. Ms Sierra has derived her income from outside of Australia
hence she is exempted from tax while the activities of horse breeding what she did is more
than the recreational activity within the law-maker’s definition of business under “section
995-1 of the ITAA 1997”.

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References:
Bankman, J., Shaviro, D. N., Stark, K. J., & Kleinbard, E. D. (2018). Federal Income
Taxation. Aspen Casebook.
Barkoczy, S. (2016). Foundations of taxation law 2016. OUP Catalogue.
Fleurbaey, M., & Maniquet, F. (2015). Optimal taxation theory and principles of
fairness (No. 2015005). Université catholique de Louvain, Center for Operations
Research and Econometrics (CORE).
Mellon, A. W. (2016). Taxation: the people’s business. Pickle Partners Publishing.
Miller, A., & Oats, L. (2016). Principles of international taxation. Bloomsbury Publishing.
Morgan, A., & Castelyn, D. (2018). Taxation Education in Secondary Schools. J.
Australasian Tax Tchrs. Ass'n, 13, 307.
Morgan, A., Mortimer, C., & Pinto, D. (2018). A practical introduction to Australian taxation
law 2018.
Pert, A., Chen, H., & Carvosso, R. (2018). 'Federal Commissioner of Taxation v
Jayasinghe'(2016) 247 FCR 40. Australian Year Book of International Law, 35, 260.
Robin & Barkoczy Woellner (stephen & murphy, shirley et al.). (2019). Australian taxation
law select 2019: Legislation and Commentary. OXFORD University Press.
Robin, H. (2019). Australian taxation law 2019. Oxford University Press.
Sadiq, K., 2018. Australian Tax Law Cases 2018. Thomson Reuters.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian Taxation
Law 2016. OUP Catalogue.

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