Taxation Law Report: Australian Residency for Tax Purposes

This report analyzes the concept of residency for Australian taxation purposes, addressing its significance in determining an individual's tax liability. It delves into the relevant legislation, primarily the Income Tax Assessment Act 1997 (ITAA 1997) and the Income Tax Assessment Act 1936 (ITAA 1936), al...Read More

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

1AUSTRALIAN TAXATION LAW
Table of Contents
Issue.............................................................................................................................................2
Relevant Laws..............................................................................................................................2
Application...................................................................................................................................4
Conclusion...................................................................................................................................4
References....................................................................................................................................6

2AUSTRALIAN TAXATION LAW
Issue
The issue in the given situation is to determine what constitutes the residency of an
Individual for taxation purposes. It is also necessary to determine the manner in which this
process is undertaken. Apart from it, it is also essential to understand who cannot be considered
to be a non-resident for taxation purpose and additional related issues in determining their tax
liability. This would be done with the help of necessary taxation regulations and the decisions
from previously existing case laws.
Relevant Laws
According to s6-5(2) of ITAA 1997, if a person is considered an Australian resident for
taxation purposes, then the ordinary income earned by them from all direct and indirect sources
is assessable for taxation purposes (Legislation.gov.au 2020). Similarly, s6-5(3) suggests that for
a non-Australian resident, the ordinary income only consists of the income directly or indirectly
derived by them through all sources in Australia during a given financial year. The main
legislation for determining the residency of a person is the Section 995-1 of ITAA 1997 and
Section 6(1) of ITAA 1936.
As per s6 (1) of ITAA 1936, an Australia resident includes an individual other than a
company who reside in Australia. Other than that, it comprises of an individual who have a
Australian domicile unless they succeed in satisfying the Tax Commissioner that they have a
permanent place of abode outside Australia. A person who has a place of abode outside Australia
but resides continuously in Australia for a period exceeding one-half of the year is considered as
an Australian resident unless they are able to prove otherwise. Other people considered as
residents include the individual who is part of a superannuation scheme formed by a deed under
Superannuation Act 1990. A spouse suitable for the purpose of Superannuation Act 1976 and the

3AUSTRALIAN TAXATION LAW
spouse or children below 16 years and eligible for superannuation are also considered as
residents of Australia.
In order to determine the residence of an individual, four exhaustive tests are conducted
by the ATO (Ato.gov.au 2020). To be an Australian resident, satisfying any one of the tests is
usually considered to be sufficient. The tests are as follows:
 Ordinary Concepts Test: Under the Ordinary Concepts test, a person who is considered
to be residing in Australia is considered an Australian resident.
 Domicile Test: Even if an individual is residing outside Australia, but has a permanent
place of abode in Australia will be considered as a resident of Australia.
 The 183-day test: If a person has been unceasingly or irregularly residing in Australia
for more than a half of the year of income is considered as a resident of Australia despite
having a permanent place of abode not within the country.
 The Superannuation Test: As stated above, a person eligible under the Superannuation
Act 1990 or any other eligible employee for its purposes are considered as an Australian
resident.
While the above tests are mostly used in determining the tax residency, the main area of
controversy is the term ‘resides’ and its interpretation over the years. One of the important cases
in this regard is Miller v FCT, where the court held that the matter of residence was a question of
degree and fact (Ato.gov.au 2020). The other important case laws in this regard include Levene v
IRC, IRC v Lysaght and Joachim v FCT (Ato.gov.au 2020). Joachim, in particular was
prominent. In this case, the taxpayer was held as an Australian resident despite his absence from
the country. This was because of his intent to treat Australia as his home. Some of the prominent
factors which are taken into consideration by the court include the physical presence of the

4AUSTRALIAN TAXATION LAW
individual, incidence and period of visits, resolve of visits and the upkeep of a place of abode in
Australia.
Application
The above tests, when applied to define the tax position of an individual vary on the basis
of the nature and facts of the cases of the individual. One of the first tests is the Domicile Test.
Section 10 of the Domicile Act 1982 suggests that an individual is said to be a resident of
Australia if they cannot demonstrate a permanent place of abode out of Australia. Hence, any
individual X, living outside Australia but continues to maintain his residency within Australia
will be considered as an Australian resident. These activities include an extended stay outside
Australia for more than two years and not returning to the country for a long time. However,
there are no fixed factors for an individual and they differ on the basis of the facts of an
individual’s case. As held in Baker v FCT, the superannuation test applies to the members of the
superannuation fund and their families, which includes Commonwealth public servants. The 183
day test suggests that an individual should be physically present in Australia for more than half
of the year. If the individual is not residing in Australia as per the ordinary concepts, then their
place of abode is considered to be out of Australia. A temporary resident who is not a resident of
Australia within the definition of the Social Security Act 1991 and their spouse is not an
Australian resident as per the Act are considered as residents of Australia for taxation purposes.
Conclusion
Based on the above discussion, it can be said that the Australian resident for tax purposes
is an extremely broad term. It just does not include the people who are residing within Australia
in the ordinary meaning of the word. People who are residing outside Australia but continue to
maintain their domicile within the country are also considered as residents of the country. Other

5AUSTRALIAN TAXATION LAW
relevant tests included as a part of the residency test of an individual include the 183-day test and
superannuation test. Any individual that satisfies any of the four tests of residency is considered
as an Australian resident.

6AUSTRALIAN TAXATION LAW
References
Ato.gov.au. (2020). Legal Database. [Online] Available at:
https://www.ato.gov.au/law/view/document?Docid=TXR/TR9817/NAT/ATO/00001 [Accessed
29 Feb. 2020].
Ato.gov.au. (2020). Legal Database. [Online] Available at:
https://www.ato.gov.au/law/view/document?Docid=ITR/IT2650/NAT/ATO/00001 [Accessed 29
Feb. 2020].
Ato.gov.au. (2020). Residency tests for tax purposes. [Online] Available at:
https://www.ato.gov.au/Tax-professionals/Prepare-and-lodge/Tax-Time-2019/Before-you-
lodge/Residency-tests-for-tax-purposes/ [Accessed 29 Feb. 2020].
Legislation.gov.au. (2020). Income Tax Assessment Act 1997. [Online] Available at:
https://www.legislation.gov.au/Details/C2017C00336/Controls/ [Accessed 29 Feb. 2020].