TAX 101: Analysis of Residential Status and Income Tax in Australia

This assignment delves into Australian tax law, specifically addressing the determination of residency status and the implications for income tax liability. The assignment analyzes the case of Jenny, a Hong Kong resident working in Australia, to determine if she qualifies as an Australian resident for tax purposes. It examines relevant legislation, including the Income Tax Assessment Act 1936 and 1997, as well as taxation rulings and case law. The analysis focuses on various tests for determining residency, such as the ordinary test, domicile test, superannuation test, and the 183-day test. Furthermore, the assignment addresses the taxability of income, distinguishing between ordinary and capital receipts, referencing case law like FCT v. Woite and Brent v. FCT. The document provides a detailed application of the law to the given scenarios, offering conclusions on the tax implications for the individuals involved.

Running head: TAX
Tax
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Answer to Question 1......................................................................................................................2
Issue.............................................................................................................................................2
Laws.............................................................................................................................................2
Application......................................................................................................................................3
Conclusion...................................................................................................................................7
Answer to Question 2......................................................................................................................7
Reference.........................................................................................................................................9

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Answer to Question 1
Issue
Jenny is a resident of Hong Kong but as her profession involves travelling from one place
to another thus she came to Australia regarding her profession. Now the issue is that whether
Jenny who is staying in Australia for the last few months will be considered as a resident of
Australia or not for the purpose of taxation.
Laws
The laws or acts or rulings or judgements that can be used to establish the residential
status are as follows:
 The provisions of the Income Tax Assessment Act 1936 is applied in this case. The Section 6-1of the Income Tax Assessment Act 1936 provides the definition on
residential status and it is applied in the discussion. The Section 995-1 of the Income Tax Assessment Act 1936 is applied in this case as it
provided the definition of residents; The section 4-1 of the Income Tax Assessment Act 1997 states who are required to pay
tax. The section 4-15 of the Income Tax Assessment Act 1997 describes the manner of
calculation of taxable income.

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 The 6-5 of the Income Tax Assessment Act 1997 provides the meaning of ordinary
income; The section 6-10 of the Income Tax Assessment Act 1997 provides the meaning of
statutory income; The Taxation Ruling TR 98/17proides the rules relating to the determination of the
residential status.
Application
According to the Income Tax Assessment Act 1936 and 1997, it administers the
residential status of an individual and whether the person is liable to pay tax in Australia or not.
Not only this, an important role in determining the liability to pay income tax of the taxpayers in
Australia has also been played by Taxation Rulings, explanatory guidelines mentioned in
Australian Taxation Office and various case judgments (Barkoczy 2016). It is mentioned under
section 4-1 of the Income Tax Assessment Act 1997 that a company or an individual or any
other entity is obliged to pay tax on the income generated by them that is taxable. Whereas on
the other hand, as per section 4-15 of the Income Tax Assessment Act 1997, the income which
is taxable must be considered by decreasing the deductions from the assessable income which are
permitted under taxation. The income as per the ordinary income under section 6-5 of the ITAA
1997 and in accordance to the income which are statutory under section 6-10 of the Income Tax
Assessment Act 1997 is being classified by this act. It is mentioned under section 6-5(2) of the
ITAA 1997 and section 6-10(4) of the ITAA 1997 that if, the person who is taxpayer and liable
to pay tax is a resident of Australia then in such cases his/ her income from all the sources will be
considered as taxable income at the time of assessing the tax liability of that person. However, if

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the person is not a resident of Australia then those incomes will be considered as assessable
income that are generated from Australian sources (Lam and Whitney 2016). Thus due to the
above mentioned reason, it is very much essential to determine the residential status of a person
in order to calculated the liability of the person to pay income tax.
Section 995-1 of the Income Tax Assessment Act 1936 defines the term Australian
resident which refers to an individual who is an Australian resident according to the act. Under
section 6-1of the Income Tax Assessment Act 1936, the meaning of the term Resident is
explained which also mentions about the four different test/ methods which can be used in
measuring an individual’s residential status (Bevacqua 2015). According to the paragraph 32 of
the Taxation Ruling TR 98/17, four methods/ test for the determination of an individual’s
residential status are:
 Ordinary Test or determining the residential status as per ordinary conception;
 Domicile Test or determining the residential status on the basis of domicile;
 Superannuation Test; and
 183 Days Test.
With the help of the above mentioned test it can be established that whether Jenny will be
considered as an Australian resident for the purpose of taxation or not.
Ordinary Test
The most basic and primary test or method to determine the residential status of an
individual is the ordinary test or resides test. This test states that if an individual is by default a
resident of Australia, then that individual will be considered as an Australian resident by default.
In other words, if a person resides in Australia only since the time of birth then the person would

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be considered as an Australian resident for the purpose of taxation and thus he/ she will not need
to apply for any other further residential test for the purpose of determining his/ her residential
status (Gartner2015). But in case if the person does not satisfy or fails to satisfy the above
mentioned test, then he/ she might be required to satisfy any one of the other three test which are
the Domicile Test, the 183 Days Test and the Superannuation Test in order to be considered as
an Australian resident.
As it is evident from this case that Jenny has her permanent house in Hong Kong and she
is also a resident of Hong Kong, therefore she fails to satisfy the ordinary test and will be subject
to satisfy any one of the other three test in order to consider herself as an Australian resident.
Domicile Test
The word domicile refers to that particular place where an individual have his/ her
permanent place of residence. According to the Australian Taxation Office, an individual will be
considered as an Australian domicile for the purpose of taxation in Australia if it is proved that
the individual have his/ her permanent place of abode in Australia (Bowden 2016). However if
the Commissioner of Taxation in Australian is satisfied of the fact that being a permanent place
of residence in Australia, the individual resides at any other foreign country or abroad then the
individual will not be considered as an resident of Australia for the purpose of taxation according
to the domicile test.
It is found from this case study that Jenny is already a permanent resident of Hong Kong
before she entered Australia for employment purpose. Therefore it is thus proved that she is
already a permanent domicile of Hong Kong. Despite of the fact that she took up an executive
apartment on rent at Sydney but it was on a temporary basis. This point thus establishes that

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Jenny does not have any permanent place of abode in Australia and moreover she is a domicile
of Hong Kong where she have her permanent place of abode. Hence Jenny fails to satisfy the
Domicile test and thus she cannot be considered as an Australian resident for the purpose of
taxation.
Superannuation Test.
The superannuation test states that an individual who is an employee of the Government
of Australia and posted anywhere abroad i.e. outside Australia at an Australian post will be
considered as a resident of Australia for the purpose of taxation (Novikov et al. 2014).
It can be understood from the above definition that superannuation test does not relates to
the case of Jenny by any mean as she is not an employees of Australian Government and thus it
is not possible to establish the residential status of Jenny as an Australian resident by referring to
this test. In simple words, this test is not applicable in case of Jenny as she can never satisfy this
test due to the reason that she is not an employee of the Australian Government.
183 Days Test.
The 183 days test is another method or ways to determine the residential status of an
individual. According to the Australian Taxation Office, if an individual or a person stays at
Australia for more than half an income year or more precisely more than or equal to 183 days
that may be in a continuous manner or with taking breaks then that particular person will be
considered as a productive resident of Australia (Torepe and Manning 2017). This law is also
mentioned under para 50 of Taxation ruling 98/17 that if any individual who is entering
Australia for the purpose of study or to take up any employment opportunity and if the same
resides for more than half of the income year with breaks or without breaks then the individual

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will be considered as an Australian resident since their arrival in Australia. But however, if it
seems that the individual’s permanent place of abode is outside Australia and also he/ she have
no such intentions of taking up residence in Australia then the individual will not be considered
as an Australian resident for taxation purpose (Weller et al. 2013).
By relating this point with this case it can be found that Jenny although came to Australia
to reside for only 3 months but later she decides to stay further 9 months at Sydney to handle her
clients. Thus in this process Jenny qualifies the 183 days test where she stayed at Australia for
more than 183 days and thus she would be considered as an Australian resident for the purpose
of taxation since her arrival.
Conclusion
Based on the above discussion it can be concluded that jenny should be regarded as a
resident of Australia for the purpose of tax. That means income received from any source by
Jenny shall be taxable in Australia.
Answer to Question 2
In this case, the main issue is to ascertain whether the receipt is related to, the work
performed and is therefore related to the ordinary income as per section 6-5 of the Income Tax
Assessment Act 1997. In addition to this evaluation should be made whether the amount is a
capital receipt as per the case FCT V Woltie (1982) 13 ATR 579 for giving up the right to make
income (AO 2015).
In this case the annual salary of $10000 received by the TV personality is taxable as an
ordinary income as per section 6-5 of the Income Tax Assessment Act 1997. It can be seen that

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the salary receipt have direct relation or nexus with the service provided hence it is an assessable
income (Doran et al. 2013).
The amount of $400000 cannot be directly regarded as income and is required to be
compared with the decisions like Woite and Jarrold V Boustead (1963) 41 TC 701. In the case
of Brent V FCT (1971) 125 CLR 418 it was stated that if there is a nexus between the receipt
and service then the receipt should be regarded as an ordinary income. However, in the case of
Woite it was held that if the receipt is for giving up income then the payment is a capital receipt.
Therefore, it can be said that the conclusion is depended on the particular facts of the case
(Vandenberg and Sharma 2016). If it is evident that the taxpayer is provided an inducement for,
entering into contract for proving services in future then the nexus is established and the receipt
is regarded as ordinary income under section 6-5 of the Income tax Assessment Act 1997. In this
case, the amount of $100000 is paid for joining a new network for providing services (Chapman
et al. 2015). Therefore, based on the above discussion it can be said that the amount received is
an assessable income.

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Reference
AO, M.D.A., 2015. Modernising the Australian Taxation Office: Vision, people, systems and
values. eJournal of Tax Research, 13(1), p.1.
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
Bevacqua, J., 2015. ATO accountability and taxpayer fairness: An assessment of the proposal to
split the Australian taxation office. UNSWLJ, 38, p.995.
Bowden, R., 2016. One step at a time. Superfunds Magazine, (409), p.28.
Chapman, R., Plummer, P. and Tonts, M., 2015. The resource boom and socio-economic well-
being in Australian resource towns: a temporal and spatial analysis. Urban Geography, 36(5),
pp.629-653.
Doran, C.M., Byrnes, J.M., Cobiac, L.J., Vandenberg, B. and Vos, T., 2013. Estimated impacts
of alternative Australian alcohol taxation structures on consumption, public health and
government revenues. Med J Aust, 199(9), pp.619-622.
Gartner, C., 2015. Flushing out smoking: measuring population tobacco use via wastewater
analysis.
Lam, D. and Whitney, A., 2016. Taxation and property: Practical aspects of the new foreign
resident CGT witholding tax. LSJ: Law Society of NSW Journal, (21), p.84.
Novikov, A.A., Ling, T.G. and Kordzakhia, N., 2014. Pricing of volume-weighted average
options: Analytical approximations and numerical results. In Inspired by Finance (pp. 461-474).
Springer International Publishing.

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Torepe, T.K. and Manning, R.F., 2017. Cultural Taxation: The Experiences of Māori Teachers in
the Waitaha (Canterbury) Province of New Zealand and their Relevance for Similar Australian
Research. The Australian Journal of Indigenous Education, pp.1-11.
Vandenberg, B. and Sharma, A., 2016. Are alcohol taxation and pricing policies regressive?
Product-level effects of a specific tax and a minimum unit price for alcohol. Alcohol and
Alcoholism, 51(4), pp.493-502.
Weller, S., Smith, E.F. and Pritchard, B., 2013. Family or Enterprise? What shapes the business
structures of Australian farming?. Australian Geographer, 44(2), pp.129-142.