International Tax Fundamentals: Residency, Income & Superannuation

This report provides a comprehensive analysis of international tax fundamentals. It begins by examining the residential status of Dr. Jones, applying the Australian Income Tax Act's residency tests, including the resides test, domicile test, 183-day test, and superannuation test, to determine her non-resident status. The report then calculates Dr. Jones's assessable income for the years 2015/16, 2016/17, and 2017/18, considering employment income, dividends, and rental income, and determining which are taxable in Australia. Finally, the report addresses a superannuation question, calculating the tax liability of Diana, who received a lump-sum payment from an early retirement scheme. It details the tax-free and taxable components of the payment, and the applicable tax rates. The report references relevant Australian tax legislation, rulings, and case laws throughout its analysis.

INTERNATIONAL TAX
FUNDAMENTAL

Table of Contents
QUESTION A.....................................................................................................1
Residential status of Dr. Jones......................................................................1
QUESTION B.....................................................................................................2
Calculation of assessable income for the year 2015/16, 2016/17 and
2017/18.........................................................................................................2
SUPERANNUATION QUESTION 1......................................................................3
REFERENCES....................................................................................................4

QUESTION A
Residential status of Dr. Jones
According to Australian Income Tax Act, deciding residency status of
an individual is the first step before tax computation. As per the resides test,
if taxpayer resides in Australia, then he or she will be recognized as an
Australian resident for the purpose of tax and in such situation, there is no
need to apply other tests. However, if the condition does not satisfied, then,
residency status of the member will identified through applying statutory
tests (Woellner and et.al.,2016). In the given case, Dr. Alice who is an
Australian geneticist accepted 2-year fellowship at London university
beginning from 1st July 2015. She also accepted Geneo Co.’s new work
conditions to work remotely from London on part-time basis. She leased her
Melbourne Apartment, sold her car and moved London on 1st July 2015. Thus,
the condition of resides test does not fulfill as she is not residing in Australian
during the period of 1st July 2015 to 31st June 2018.
Domicile Test: Section 6(1)(a)(i) states that if taxpayer has a
permanent residency home inside Australia, then, will be treated as an
Australian citizen or vice-versa. IT 2650 also mention permanent residency
intention as well as migrating to Australia. A legal case of FCT V Applegate
1979, taxpayer does not found resident in Australia due to the absence of
intention of permanently residing (Cox, 2017). Referring the case, although
when Dr. Alice moved to London to join university for minimum of 2 years,
rented out the house in Melbourne, and sold her car. Thus, she found with an
intention of residing outside Australia. Moreover,on 1st January 2016, she
accepted London university offer to have a full time research position and
permanent residency visa sponsorship that clearly states that she accepted
permanent residency in London, hence domicile test condition does not
satisfied even though she owned a house in Australia.
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183-day Test: Section 6(1)(a)(ii) presents that if tax contributor lives
in Australia for a period of 183 days or more without any mandatory
requirement of continuance, then he or she would be recognized as
Australian resident for tax purpose (Residency test. n.d.). In the given case,
Dr. Alice did not lived in Australia as she left the country on beginning of tax
year 2015 and did not came back, hence, the condition does not satisfied.
Taxation Ruling (TR) 98/17 takes usual place of abode and resided similarly
(Miller and Oats, 2016).
Superannuation test: Sec 6(1)(a)(iii) treat an individual as Australian
citizen if he or she is the member of Commonwealth fund. In the case, when
Dr, Alice left Australia, then for the period of 1st July 2015 to 31st December
2016, she was working with Gene Co. and was the member of
superannuation but as she resigned from Gene Co. on 1st January, she was
no longer remain its member. Thus, condition does not satisfied and found
non-resident (Woellner and et.al.,2011). Although, she did not sold her house
as it remains rented till 30th June 2018, still, as she accepted permanent
residency at London, it simply means she intended to live in London
permanently.
Thus, it becomes clear that Dr. Alice Jones found non-resident.
QUESTION B
Calculation of assessable income for the year 2015/16, 2016/17 and 2017/18
As per the Australian Income Tax Assessment Act (ITAA), residents
need to pay tax as per the applicable tax rates in Australia on all the income
regardless their source of income whether inside Australia or outside
Australia. However, on the other side, foreign resident only need to pay tax
on their Australian sourced income.
Particulars Relevant notes
2015
/16
2016
/17
2017/
18
Employment Income
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From Gene Co.
Laboratories Ltd
Taxed in Australia
because employment
income is taxed at it
place of source
$
21,00
0
From London University
Tax will be imposed in
London as the source of
income is London
Evidencing from the
case law of Boer Bs
Commissioner of
Taxation, AAT declared
that income derived by
Mr,. Boer from
employment services
delivered in Oman is
correctly included in
Australian assessable
income because Mr.
Boer is an Australian
citizen and visit Oman
just for 35 days under
their work arrangement
and return back to
Australia.
Similar decision was
been made in the case
of Sully Vs
Commissioner of
Taxation and
SneddonBs Commission
of Taxation.
Dividend from UK
company
Not taxed because
investment income from
UK will be taxed in UK.
ITAA 1997 stated that
non-resident are only
liable to pay tax on the
income that are
Australian sourced.
Interest on UK bank
deposits
Similarly, interest is
received on UK deposits
therefore, will be taxed
in UK not in Australia
Fully-franked dividend
from Australia Exempted
Rental income from Section 855-20 of the $ $ $
3

property in Australia
IncomeT Tax
Assessment Act 1997
states that on income
received by a non-
resident from the
property located in
Australia is considered
taxable.
18,00
0
180,0
0 18,000
Assessable income
$
39,0
00
$
18,0
00
$
18,00
0
SUPERANNUATION
QUESTION 1
As per the scenario, Lasso Pty Ltdhad restructured, hence, offered
Diana with early retirement scheme plan at a lump sum payment of
$600,000. Early retirement is a plan that is offered to Diana to get early
retirement from the employment (Yip, 2015). As per the Australian Income
Tax Act 1997, section 307-210 & 307-220tax-free component of
superannuation fund includes both the contribution segment as well as
crystallised segment. In this regards, contribution includes all the
contribution that are made after 1st July 2007 which is not included in
individual’s assessable income. In contrast, crystallised segment is found by
using a full value of superannuation interest that is an eligible payment of
termination before 1st July 2007. As per ITAA, 1997, s 307-225, it includes
undeducted contribution, concessional component, invalidity component
after June 1994, component before July 1983 and CGT exempt components a
well.
As per ITAA, 1997 section 307-215, Taxable component of the lump
sum payment is determined through subtracting tax-free component from
the value of taxpayer’s total interest. ITAA 1997, section 301-15 state that,
an individual above the age of 60 receives a superannuation benefit from a
taxed element, then such benefit is not the part of assessable income
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(Calculating components of Super benefits, n.d). However, in the given
situation, as Dianao is under the age of 60 years but attained preservation
age, therefore, as per s301-20, its taxable component will be tax as follows:
Tax-free component for the contribution before July 1983: 3 years
(365 *3)/(365*38) * 400,000 =
1095/13870* 600,000
= $31578.95
Undeducted contribution: $40,000
Contribution after 2007: ($600,000-$400,000-$40,000)
= $160,000
Total tax-free component for superannuation: $47,368 + $40,000
= $87,368
Taxable component:
Total lump sum amount received – tax-free component
= $600,000 - $87,368
= $512632
Tax rates for superannuation lump-sum benefits for taxation year 2016-17 by
CPA is no tax charged on the amount received 195,000 and above this, 15%
tax is levied (CPA Australia Superannuation Guide, 2016/17).
Preservation age to 59 years Tax
rate
Amount
Benefits from $0 - $195,000 0%
Over $195,000, 15% ($157,362*15%) =
5

($352,362 - $195,000) = $157,362 $23,604
Total tax liability $23,604
According to the result, tax liability of Diana for the taxation year is
determined to $23,604.
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REFERENCES
Books and Journals
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury
Publishing.
Woellner, R. and et.al., 2016. Australian Taxation Law 2016. OUP Catalogue.
Woellner, R. and et.al., 2011. Australian Taxation Law Select: legislation and
commentary. CCH Australia.
Online
Calculating components of Super benefits. n.d. [Online]. Available through:
https://www.ato.gov.au/Super/APRA-regulated-funds/Paying-benefits/
Calculating-components-of-a-super-benefit/.
Cox, B., 2017. Australians Working Abroad: How will you be taxed?. [Online].
Available through: <https://www.accru.com/2017/08/australians-
working-abroad-how-will-you-be-taxed/>.
CPA Australia Superannuation Guide. 2016/17. [PDF]. Available through:
<
https://www.cpaaustralia.com.au/~/media/corporate/allfiles/document/
professional-resources/financial-planning/superannuation-guide-2016-
17.pdf?la=en>.
Residency test. n.d. [Online]. Available through:
<https://www.ato.gov.au/Individuals/International-tax-for-individuals/
Work-out-your-tax-residency/Residency-tests/>.
Yip, D., 2015. Taxation of employment termination payments. [Online].
Available through:
http://www.mondaq.com/australia/x/386366/Redundancy+Layoff/Taxati
on+of+employment+termination+payments.
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