Taxation Law: Case Studies on Residential and Tax Implications

This taxation law assignment delves into the complexities of Australian taxation, specifically focusing on determining residential status and the resulting tax implications through two detailed case studies. The first case examines the residential status of an individual, Jack, who worked in Australia, analyzing domicile, the 183-day test, and the superannuation test to ascertain his tax obligations. The second case evaluates the tax consequences for Eliza Tower, who received fully franked dividends and rental income, while also claiming interest deductions. The analysis considers the tax treatment of franked dividends for non-residents, rental income, and allowable deductions for investment-related expenses, referencing relevant sections of the ITAA 1997 and other legal precedents. The assignment provides a comprehensive understanding of how different factors affect tax liabilities in various scenarios.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

1TAXATION LAW
Table of Contents
Case 1.........................................................................................................................................2
Answer to Question 1:................................................................................................................2
Answer to question 2:.................................................................................................................4
Case 2:........................................................................................................................................5
Reference List:...........................................................................................................................8

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Case 1
Answer to Question 1:
The study currently is being considered for ascertainment of the residential status of
Jack who visited Australia German passport from the year 2007 until the year of 2016, on
which year he got the permit for residing and working within Australia. From all of these
situations this can be stated that Jack has worked as Marine engineer in Australia during this
period. The purpose of taxation is to fist identify if the person is Australian or foreigner.
According to the taxation ruling of TR 98/D1, this can be stated that one-person
Australia can be considered as the occupant for satisfying the purpose of tax1. These ruling
are proper for a good number of people that enters Australia as well as this consider
prearranged employment contracts. According to the current situation of Jack, this is
identified that Jack has worked under this contract policies. In contrast with these
elaborations, Jack’s situation is considered as matter of element for making it chief conditions
that defines compulsion to the Australian income tax. This chief condition is being elaborated
within this context for making the context of Jack’s right for being an occupant in Australia.
Along with this, Australian income tax is also considered to be prioritized as per law for Jack.
As held in the case of “FC of T v. Applegate 79 ATC 4307; (1907)” events for
following the time of returns might be helpful in establishing a residential status of
individual2. As stated in “section 995-1 of the ITAA 1936” an Australian corresponds to one
individual that occupies Australian taxation system. Jack was present in Australian from 2007
until 2016 that is continuous nine years during this period, only for nine months Jack was not
1 Barkoczy, S, Foundations of taxation law 2014. in .
2 Coleman, C, & K Sadiq, Principles of taxation law 2013. in

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present in Australia for employment purpose3. The current situation of Jack is now
considering the residential status of Jack that is elaborated as follows;
Domicile Test:
Domicile is known as a lawful theory for ascertaining the “Domicile Act 1982” along
with the “common law” rules have made situations that created the ground of private global
laws. According to common rule, every individual from a country have the domicile related
to their origin from their birth. Whereas there are some exception to this rules. As held in the
case of “Henderson v. Henderson [1965] 1 All E.R.179” an individual will be have the right
to retain residence in their origin only exception is that those individual will be able to choose
their residence in different nation according to the operation of law.
Likewise, as evident from the current situation of Jack this can be elaborated that in
spite of holding the German Passport he was staying in Australia with his family from 2007
to 2016. According to the case “R v. Hammond (1852) 117 E.R. 1477” it can be stated that
Jack can be considered as an Australian resident as his surrounding place was Australia from
2007 to the end of 2016. Jack stayed for nine years with his family within Australia that made
him an occupant for Australia’s law and income tax laws under different facts that are
prioritized in income taxation laws for Australia.
The 183 days’ test:
As per the 183days test, one person who has been living in Australia for a period
greater than half of the financial year either in breaks or continuously, that person might be
3 Graetz, M, & D Schenk, Federal income taxation. in .

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considered to have productive dwelling within Australia and also have permanent place for
abiding out of Australia.
This is clarified from the elaborated situation that an assertion can be bought against
Jack that he has been present in Australia for more than half of financial year which made
him one Australian according to law. He was out of Australia only for nine months for
employment purpose and returned to Australia for termination of employment4. Therefore,
this can be stated that the government of Australia have the right to consider Jack as an
occupant of Australia under the 183 days as he was present there for 183 continuous days.
The superannuation test:
The superannuation test makes the sure that Australian employees are working at the
Australian post overseas and should be treated as Australian residents. As this is clear from
the existing scenario, this is observed that Jack was employed for an Australian post and
worked overseas for more than a period of nine months. Therefore, because of these facts, as
a result of this Jack will be considered as an Australian occupant according to the
Superannuation test.
Answer to question 2:
As a general rule, a person that leaves Australia either temporarily would be
considered to be an Australian resident provided that the person had acquired the residence in
another country either by choice or due to the operations of law. As evident in the current
state of affairs of Jack who is employed in china and receives his salary in bank account of
Australia. Furthermore, Jack has also invested in the shares in Australia with bank account in
4 Grange, J, G Jover-Ledesma, & G Maydew, 2014 principles of business taxation. in .

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Australia. Hence, the salary received by Jack in the bank account of Australia would be liable
for taxation.
As stated under “Section 6-5 (1) of the ITAA 1997” income in accordance with the
ordinary concepts comprises of those income which is derived in accordance with the
ordinary concepts will be treated as ordinary income5. An individual who is a resident of
Australia having their taxable income would be included in the ordinary income which a
person derives earns directly or indirectly from all the sources weather inside or outside of
Australia in the income year. The remuneration earned by Jack from his service in china was
received by him in Australian bank account and will be treated for assessment under “section
6-5 of the ITAA 1997”.
Case 2:
The present study is based on the understanding the consequences of tax for Eliza
Tower that is related with several transactions which has been incurred in the present year of
income. It is noticed from the circumstances of Eliza she has received a dividend which were
completely franked from the global AIH. In addition to this, Eliza has also received rental
income from the lease of her Australian residence. The Australian taxation office has defined
that dividends are usually taxed based on the circumstances whether or not the shareholder is
the Australian dweller or non-dweller of Australia6. The situation of Eliza states that she has
received a fully franked dividend from the Global AIH, which is regarded as the Australian
organization.
5 Kenny, P, Australian tax 2013. in , Chatswood, N.S.W., LexisNexis Butterworths, 2013.
6 Morgan, A, C Mortimer, & D Pinto, A practical introduction to Australian taxation law. in ,
North Ryde [N.S.W.], CCH Australia, 2013.

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An Australian resident firm that has taken the decision of joining the imputation
system of Australia may credit the shareholder with the franked dividend. As has been found
in the present study the receipt of dividends by Eliza in completely franked as the full amount
of dividend carries franking credit. Eliza is treated as non-resident of Australia since she will
be residing outside of Australia for a span of five years7. As a rule, Eliza being a non-resident
of Australia the amount of franked dividend received by Global AIH is an exempted income
together with the withholding amount of tax.
Eliza will be disallowed to any franking tax offset relating to the franked amount of
dividends received. Therefore, Eliza will not be permitted to use the amount of franking
credit to reduce tax which is outstanding on other income derived in Australia and would not
be entitled to any tax refund from franking credit.
On the other side it was found that Eliza received rental income from her property
which was leased in Australia. The Australian taxation office defines that an individual
receiving rental income by renting out their property would be required to keep their records
and should determine the expenses that can be claimed as permissible deductions8. As a
general rule, a taxpayer is under obligation of paying tax on the rental income generated from
the rental property and must report income in their tax return. Similarly, the receipt of rental
income from her residence which is leased in Australia and she did not occur any expense in
generating such income. Therefore, the rental income generated from the lease of property
would be included in the tax return and will be liable for tax.
7 Woellner, R, S Barkoczy, S Murphy, C Evans, & D Pinto, Australian taxation law 2014. in .
8 Braithwaite, Valerie, ed. Taxing democracy: Understanding tax avoidance and evasion.
Routledge, 2017.

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A person can bring forward the claim of an allowable deductions for the amount of
interest charged on the money which is borrowed by Eliza to purchase shares in Global AIH
and other related investments through which a person generates taxable income. In the
current situation of Eliza, it can be stated that she loaned out a sum of $100,000 to acquire
shares. Because of this, she incurs $5650 as interest expense and she can allowable
deductions under section 8-5 of ITAA 19979. The expenses incurred by Eliza was for
generating the taxable income and as a result, she would be allowed allowable deductions
under the act.
9 Woellner, R, Australian taxation law 2012. in , North Ryde [N.S.W.], CCH Australia, 2013.

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Reference List:
Barkoczy, S, Foundations of taxation law 2014. in .
Braithwaite, Valerie, ed. Taxing democracy: Understanding tax avoidance and evasion.
Routledge, 2017.
Coleman, C, & K Sadiq, Principles of taxation law 2013. in .
Graetz, M, & D Schenk, Federal income taxation. in .
Grange, J, G Jover-Ledesma, & G Maydew, 2014 principles of business taxation. in .
Kenny, P, Australian tax 2013. in , Chatswood, N.S.W., LexisNexis Butterworths, 2013.
Morgan, A, C Mortimer, & D Pinto, A practical introduction to Australian taxation law. in ,
North Ryde [N.S.W.], CCH Australia, 2013.
Woellner, R, S Barkoczy, S Murphy, C Evans, & D Pinto, Australian taxation law 2014. in .
Woellner, R, Australian taxation law 2012. in , North Ryde [N.S.W.], CCH Australia, 2013.