ITAA 36 Analysis: Determining Mr. Johnson's Residency for Taxation

This report provides a legal analysis of Mr. Johnson's residency status for Australian taxation purposes in the income year 2018, based on the Income Tax Assessment Act 1936 (ITAA 36). It examines the resides test, domicile test, and the 183-day test to determine whether Mr. Johnson should be considered an Australian resident for tax purposes, considering his employment in Bahrain and visits to Australia. Additionally, the report includes a calculation of net taxable income for a partnership, detailing income, deductions, and a statement of distribution among partners, Jared and Judy. The conclusion states that Mr. Johnson is not a resident for tax purposes and provides the net income calculation and distribution.

Running head: TAXATION
Taxation
Name of the Student
Name of the University
Author Note

1TAXATION
Part A
Letter of Advice
To
Mr. Johnson,
Issue
The issue that can be conceived through the given circumstance is whether Mr Johnson will
be rendered an Australian resident for taxation in the year of income 2018.
Rule
The provisions regarding the evaluation of residency of an individual in Australia for taxation
is contained in the ITAA 36. As provided u/s 6(1) of the ITAA 36, an individual will only be
rendered an Australian resident if he can satisfy the fourth test provided in this provision. The
determination of a person's residency in Australia is to be carried out in accordance with the
fourth test provided under ITAA 36.
The resides test is the first test as provided in Tax Ruling 98/17, in assessing and individual’s
residency. This test is mostly applicable for the person entering Australia from a foreign land
to reside in Australia. This test requires every person residing within Australia for a particular
year of income year in question to be resident for imposing taxation. This can be discussed
under the principles established in the case of FC of T v. Miller (1946) 73 CLR 93.
The domicile test is the second test in this context that assist in the assessment of residency of
a taxpayer in Australia. The individuals of Australian origin who has been residing in other
territories for employment purposes will be applied with this test for determination of the

2TAXATION
residency. The Tax Ruling IT 2650 covers this test. An individual needs to have a domicile in
Australia for being rendered resident here. Again for being eligible to be applied with this
test, the commissioner of taxation should be satisfied that the person in question does not
have any permanent place of abode situated outside of Australia. This can be explained with
the case of FC of T v. Applegate 79 ATC 4307.
The 183 day test is yet another test of evaluation of residency of an individual in Australia.
Any person who has been living in Australia for a period equalling or exceeding 183 days
will be conferred with the residency of Australia.
Another test that has been provided under the ITAA 36 for the purpose of determining
residency is the superannuation test. Under this test certain government employees of
Australia enclosed by the Superannuation Act 1976 will be treated as resident along with
their members of family.
Application
In the instant scenario Mr Johnson was living in Bahrain for employment purposes. He has
also been residing in Australia. He has been visiting Australia for a 12 months contract
relating to his employment. During this time he has sold all his belongings in Australia to
permanently shift in Bahrain. However he has been owning a family home that is a
permanent place of abode in Australia. Although this points towards the domicile test being
satisfied but it needs to be notice that Mr Johnson has no intention of staying in Australia and
he has further sold his belongings to live Australia permanently and start living in Bahrain.
Again his stay within Australia was for 2 months only. Therefore, he failed to satisfy the
resides test as his visit in Australia was for a short period.
Again Mr Johnson had a permanent place of a boat in Australia but it is very clear from his
activities that he has been buying a permanent place of abode in Bahrain and has been selling

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all his belongings in Australia for permanently shifting to Bahrain. He has also failed to
satisfy the domicile test as he never had the intention of staying in Australia.
The next test that needs to be satisfied by Mr Johnson to be rendered to be a resident in
Australia is the 183 day test. But this test will to not be applicable to him as his stay in
Australia was only for 2 months in the year of income 2018. This renders him or non-resident
in Australia for taxation because he has failed to comply with the test of residency.
Moreover the superannuation test will not be applied to Mr Johnson as he has not been a
government employee in Australia.
Conclusion
Hence it can be stated that Mr Johnson will not be viewed as a resident in Australia for tax
purposes in the income year 2018.
Part B
Net Taxable Income
For the F.Y. 2018
Net Taxable Income
Particulars Amount $ Amount $ Amount $
Total Assessable Income 350000
Fees Receipt 350000
Less: Deductions 182976
Sundry Expenses 35500

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Cost of Materials 6600
Salary 125000
Superannuation Contribution 11876
Interest for Loan 1500
Judy’s intest 2500
Net Taxable Income 167024
Statement of Distribution
Statement of Distribution Jared Judy Total
Particulars Amount $ Amount $ Amount $
Deduction in relation to Salaries 35000 60000 95000
Deduction for Interest(Capital) 1000 1000 2000
Balance 70024
Interest for Drawings 500 750 1250
Taxable Income (WN) 35637 95887 71274
Working Note (WN):
Jared:
35000 + (50% * 71274) = $ 35637

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Judy:
60000 + 1000 – 750 + (50% * 712274) = $ 95887
Part C
Transcript
 The fact of the case as well as the relevant laws has made it evident that Mr Johnson
was residing in Bahrain for employment purposes.
 It can further be observed that he has also been residing in Australia.
 It has also been provided by the facts that he has sold all his belongings in Australia to
permanently shift in Bahrain.
 He has been owning a family home that is a permanent place of abode in Australia.
 Although this points towards the domicile test being satisfied but it needs to be notice
that Mr Johnson has no intention of staying in Australia and he has further sold his
belongings to live Australia permanently and start staying in Bahrain.
 Again his visit in Australia was for short span of time.
 He cannot be stated to have satisfied the resides test as his visit in Australia was for a
short period.
 He has also failed to satisfy the domicile test as he never had the intention of staying
in Australia.
 The 183 day test will not be applicable to him as his stay in Australia was only for 2
months in the year of income 2018.
 Hence it can be stated that Mr Johnson will not be treated as a resident in Australia for
tax purposes in the income year 2018.

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 The calculation of the net income of the partnership as well as the distribution of the
same among the partners is as provided above.
Reference
FC of T v. Applegate 79 ATC 4307
FC of T v. Miller (1946) 73 CLR 93
The Income Tax Assessment Act 1936
The Superannuation Act 1976
TR 98/17
TR IT 2650