Taxation Law (ACC3005) Assignment: Residency, Dividends Analysis

This taxation law assignment addresses two key problem questions. The first question analyzes the residency status of an individual, Jack, under Australian taxation law, referencing "section 6 (1), ITAA 1936" and various residency tests including the common law test, domicile test, and 183-day test, and superannuation test, along with the implications of the Double Taxation Agreement. It then determines the source of Jack's income based on the location of his employment contract and the performance of services. The second question focuses on the taxation of dividends paid to a non-resident, Eliza, by an Australian resident company, examining the application of the imputation system and the withholding tax implications. The analysis considers Eliza's non-resident status and how it affects the taxation of franked and unfranked dividends, and the eligibility of franking credit offsets. The assignment concludes with a summary of the tax implications for both Jack and Eliza, based on their respective situations.

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

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Table of Contents
Answer to question 1:.................................................................................................................2
Issue:......................................................................................................................................2
Rule:.......................................................................................................................................2
Application:............................................................................................................................5
Conclusion:............................................................................................................................7
Answer to question 2:.................................................................................................................7
Issues:.....................................................................................................................................7
Rule:.......................................................................................................................................7
Application:............................................................................................................................8
Conclusion:............................................................................................................................9
References:...............................................................................................................................10

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Answer to question 1:
Issue:
Is the taxpayer considered as the Australian resident within the meaning of “section 6
(1), ITAA 1936”? Is the taxpayer liable for the taxation based on the source of income
derived from the Australian source?
Rule:
As per the “section 6 (1), ITAA 1936” the resident of Australia refers to the person
that has their domicile in Australia unless the taxation commissioner is satisfied that an
individual permanent place of abode is outside of the Australia (Barkoczy 2018). “Section 6
(1), ITAA 1936” also includes those person as the Australian resident that has actually been
in Australia, constantly or intermittently for more than six months of the income year, unless
it is content by the taxation commissioner that the person’s normal place of living is out of
Australia and there is not any intention of taking up the place of residence in Australia.
To determine the definition of resident under “section 6 (1), ITAA 1936” there are four
alternative test; namely
a. The common law residency test
b. The domicile test
c. 183 days’ residency test
d. The commonwealth Superannuation fund test
The common Law Test: Under the common law test there are certain relevant
considerations that need to be considered. This includes the behaviour when an individual is
present in Australia and whether it is consistent with that of a resident (Grange, Jover-
Ledesma and Maydew 2014). The quality as well as the character of behaviour signifies that
way a person arranges their economic and domestic affairs as the part of regular living. When

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it is found that the daily behaviour of a person is identical to before coming in Australia, they
are considered to be resident of Australia. When an individual’s behaviour reflects the facts
of their existence or routing of establishing their living, then an individual is treated as
residing here (Kenny 2015). Even though these persons treat themselves as the permanent
resident in their home nation or might regard themselves as the resident of their home nation
for taxation however their behaviour temporary in Australia may reflect that they Australian
resident for taxation purpose.
A person intention or the purpose of living in Australia helps in ascertaining under the
resides test whether an individual is residing here in Australia. A well-settled determination
particularly the employment might help in supporting the intention of residing in Australia. A
visa notation on the passport is the reflector of a person’s intention or purpose of residing in
Australia. Evidently in “Miesegaes v IRC (1957)” it was held that a person that comes to
Australia to take up the pre-arranged employment opportunities is held as resident if their
stay is consistent with living in Australia (Harris et al. 2015).
Another factor under the common law test that indicate that the person is living in
Australia is their existence of families. A person that enters into the Australia for taking up
the employment contract and maintains the behaviour that might reflect that a person is the
resident here (Krever 2015). A person that is dwelling in Australia for a considerable period
of time based on employment contract would be treated as Australian resident.
Under the common law test the maintenance and location of the assets is another
determinative factor in residency test. Employment of a residence in Australia which a person
purchases or maintains submits that a person has established a household in Australia
(Morgan, Mortimer and Pinto 2016). Other assets include the bank accounts which further

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adds weightage to the persons having establishment or behaviour that is constant with living
in Australia.
Under the common law test the social and living arrangement also forms a
determinative factor in deciding the residential status. This includes the arrangement of
jointing a sports community organization or enrolling the children in School.
Finally, under the common law test the period of physical presence in Australia is also
determinative in ascertaining the residency (Sadiq and Coleman 2015). When ascertaining the
residential status of a person if an individual visit for six months or more will be treated as
Australian resident based on their behaviour while in Australia.
Domicile Test:
Under the Domicile Test if an individual is having their domicile in Australia then an
individual is regarded as Australian resident despite they live in foreign. As held in “FCT v
Applegate (1979)” the court stated that permanent do not signifies everlasting or forever and
determined accurately every year (Sadiq et al. 2014). Under the Domicile Test relevant
consideration such as;
a. The period as well as the continuousness of a person’s existence on foreign nation
b. Any purpose of returning back to Australia
c. The permanency of a person’s association that he or she has with the particular place
in the Australia.
The 183 days Test:
A person will be held as the Australian occupant if the person has been actually living
in Australia on a continues basis or in breaks for six months of the income year except when

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the commissioner is satisfied that he or she has a residence out of Australia and not intended
to take up the Australian residency.
The Superannuation Test: The superannuation test is applied to those that are eligible
commonwealth public servants.
As held in “FCT v Mitchum (1965)” income obtained from professional services
such as specialized knowledge or creative skills it is necessary to determine the source where
the contract is made (Woellner 2015). Under “section 23AG, ITAA 1936” income obtained
from the overseas employment by the Australian residents overseas are excluded from
taxation in Australia.
Application:
As evident in the current situation of Jack held the German passport that permitted
him to reside and work in Australia. During the time he stayed in Australia he was employed
with the Australian based company and worked as the Marine engineer. To determine the
residency test of Jack reference to “section 6 (1), ITAA 1936” has been made to conduct the
four alternative test.
The common law residency test:
Jack ever since the arrival in Australia the quality as well as the character of
behaviour signifies that way Jack arranges his economic and domestic affairs as the part of
regular living. The visa notation on the passport is the reflector of Jack’s intention or purpose
of residing in Australia under the work contract as the marine engineer with the Australian
company. Citing the event of “Miesegaes v IRC (1957)” Jack will be treated as the
Australian resident since he arrived Australia to take up the pre-arranged employment and his
stay is consistent with living in Australia (Bankman et al. 2018). Furthermore, the existence

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of Jack’s wife and children further indicates that he is dwelling in Australia for a considerable
period of time based on employment contract and will be treated as Australian resident.
Besides this Jack also maintained his apartment in Sydney which submits that Jack
has established a household in Australia. Other assets include the bank accounts which
further adds weightage that Jack is having establishment or behaviour that is constant with
living in Australia. In addition to this, the social and living arrangement of Jack included
joining a sports community as held the membership with the local golf club.
Domicile Test:
Under the Domicile Test Jack has the place of residence in Australia. With reference
to “FCT v Applegate (1979)” during his stay in China for work purpose the period as well as
the continuousness of Jack’s existence on foreign nation was relatively short and was
temporary in nature (Miller and Oats 2016). Jack always had the intention of returning to
Australia and the durability of association with Australia was permanent in nature. Therefore,
Jack has successfully satisfied the Domicile Test and will be held as Australian resident
within the meaning of “section 6 (1), ITAA 1936”.
The 183 days: Jack was in Australia for only three months therefore he is not eligible under
this test.
The superannuation test: This test does not apply in circumstances of Jack.
Sources of Income:
Under the circumstances of Jack his employment services were performed in China.
Referring to the judgement made in “FCT v Mitchum (1965)” the source of income obtained
by Jack was in Australia as the contract was entered into by Jack here in Australia prior to
departing China to render his professional services. With reference to the DTA agreement

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under “section 23AF of the ITAA 1936” the employment income earned by Jack will be
exempted from domestic taxation. As Jack is an Australian resident the overseas employment
income provide by Australian residents overseas does not attract tax liability in Australia.
Conclusion:
On a conclusive note, Jack will be held as the Australian resident under “section 6 (1)
of the ITAA 1936” since he has satisfied the “Common Law Test” of residency and
Domicile Test. The income obtained by Jack will be excluded from taxation in Australia
under “section 23AG of the ITAA 1936” based on the Double Taxation Agreement.
Answer to question 2:
Issues:
Are dividends paid to the non-resident from the Australian resident company will be
considered assessment?
Rule:
According to the Australian Taxation Office dividends are usually held for taxation on
basis of whether the shareholders is the Australian resident or the non-resident of Australia.
Dividends that are paid to the shareholders by the Australian resident’s companies are held
for taxation under the system known as the imputation system (Ato.gov.au 2019). Under the
imputed dividend system tax paid by the company might be imputed or attributed to the
shareholders. The taxes that are paid by the company is distributed to the shareholders in the
form of franking credits attached to the dividends that is received by the resident taxpayer.
The Australian taxation office on the other hand states that non-residents individuals
are also paid or credited with the franked dividends or the unfranked dividends from the
resident companies of Australia (Schmalbeck, Zelenak and Lawsky 2015). However, these
dividends are taxed in a different manner from that of the resident shareholders. According to

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the Australian taxation office, if an individual is a non-resident of Australia, the franked part
of the dividends that is paid or credited will not be held for Australian income tax and
withholding tax. Whereas the unfranked portion of the dividend would be considered for
withholding tax (Buenker 2018). The non-residents are not allowed to claim any franking tax
offset for the franked dividends. The non-residents are not allowed to use any amount of the
franking credit that is attached to the dividends to lower their amount of taxation that is
payable on other types of Australian Income.
On the other hand, the Australian taxation office also states that a non-residents are
not allowed to claim any expenditure that is occurred in obtaining the dividends that are not
taxable in Australia this includes the dividends that must not be show in their Australian tax
returns (Schenk 2017).
Application:
As evident in the current case study of Eliza she accompanied her husband when her
husband’s office was transferred to Singapore. The length of Eliza’s physical absence from
Australia along with the surrounding circumstances states that she is not consistent with
living in Australia even though she has retained her family home by renting out (Mertens and
Montiel Olea 2018). Eliza’s permanent place of residence is out of Australia because of the
length of time she has committed to spend in overseas nation.
Later she borrowed $100,000 from Commonwealth Bank so that she can purchase the
shares in Global AIH. She also received dividend for the shares bought in the company. As
Eliza is a Non-Australian resident the dividend income derived by her will not considered for
Australian Income and withholding tax. She will also not be entitled to any franking tax
offset and cannot use any franking dividends to reduce the amount of tax payable from her
leased apartment in Sydney.

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In addition to this, the interest on loan from the Commonwealth Bank will not be
subjected to deduction from her Assessable Income in Australia and she cannot include any
dividend in her Australian tax return.
Conclusion:
Conclusively, as Eliza is considered as non-resident of Australia the dividend income
received by Eliza will not be subjected to Australian income and withholding taxes.
Furthermore, she would not be allowed to claim deduction for the interest expenses occurred
in deriving the dividends.

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References:
Ato.gov.au. 2019. You and your shares 2018. [online] Available at:
https://www.ato.gov.au/forms/you-and-your-shares-2018/?page=13 [Accessed 20 Jan. 2019].
Bankman, J., Shaviro, D.N., Stark, K.J. and Kleinbard, E.D., 2018. Federal Income Taxation.
Aspen Casebook.
Barkoczy, S. 2018. Foundations of Taxation Law 2019 eBook. Melbourne: OUPANZ.
Buenker, J.D., 2018. The Income Tax and the Progressive Era. Routledge.
Grange, J., Jover-Ledesma, G. and Maydew, G. 2014. Principles of business taxation.
Harris, J., Graw, S., Gilders, F., Kenny, P. and Van der Waarden, N. 2015. Theory and law in
the regulation of business.
Kenny, P. 2015. Australian tax 2015. Chatswood, N.S.W.: LexisNexis Butterworths.
Krever, R. 2015. Australian taxation law cases 2015. Pyrmont, N.S.W.: Thomson Reuters.
Mertens, K. and Montiel Olea, J.L., 2018. Marginal tax rates and income: New time series
evidence. The Quarterly Journal of Economics, 133(4), pp.1803-1884.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.
Morgan, A., Mortimer, C. and Pinto, D. 2016. A practical introduction to Australian taxation
law. North Ryde [N.S.W.]: CCH Australia.
Sadiq, K. and Coleman, C. 2015. Principles of taxation law 2013. Sydney, N.S.W.: Lawbook
Co.Thomson Reuters.
Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W. and Ting, A.
2014. Principles of taxation law 2014.

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Schenk, D.H., 2017. Federal Taxation of S Corporations. Law Journal Press.
Schmalbeck, R., Zelenak, L. and Lawsky, S.B., 2015. Federal Income Taxation. Wolters
Kluwer Law & Business.
Woellner, R. 2015. Australian taxation law select 2015. North Ryde, N.S.W.: CCH Australia.