Taxation Law

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TAXATION LAW

WRITTEN GROUP ASSIGNMENT

PART A

ISSUE 1:

Is Andy a resident of Australia for the purpose of income tax?

RULE:

S6 (1) ITAA 36 – definition of “resident”

There are four alternative tests helping to decide whether a person is a resident of Australia or not. An individual needs to satisfy at least one test to prove residency.

(1) Common Law test; (2) Domicile test; (3) 183-day test; (4) Superannuation test

APPLICATION:

(1) Common Law test

According to ordinary concepts of “resident”, an individual should satisfy the “Common Law test”. In this particular case, Andy spends the last three years working in Thailand, having signed a contract with a Canadian company in Australia, which doesn’t fulfill the condition of “physical presence in Australia during the year of income”. But we also know that Andy’s wife and children have been living in Australia for the past three years and they even purchased a house two years ago. He has got an account in Commonwealth bank for his salary payment. These facts prove a residential living habit and a common resident living mode of Andy as well as “maintenance of a place of abode in Australia” during his stay. With a family tie in Australia, Andy’s behaviors over the span of physical presence show “continuity, routine or habit that is consistent with residing”. And as we acknowledge from the material that Andy has already been a permanent resident of Australia. This fact makes the frequency and duration of visits not substantial because of the previous residency, which was demonstrated in a precedent case IR commrs v Lysaght. So even if Andy may meet up with his parents in China from time to time every three months or spend most of the year working in Thailand, we can define a residency for his precious Permanent Residency. There is also one other factor to be taken into consideration that according to the Taxation Ruling TR 98/17, it is the “quality and character” of the presence that is decisive for the residency not the “length of time in Australia”. In short, Andy lives an Australian resident’s life in the past three years with his family’s presence. Although with a period of time not in Australia, Andy’s behaviors indicate residency. So Andy satisfies the “common law test”.

(2) Domicile test

According to the domicile test, a resident should be a person whose domicile is in Australia, unless the commissioner is satisfied that his permanent place of abode is outside Australia. The main focus of this test lies in the jargons of “permanent place of abode outside Australia”, the principle of which is set out in the case FC of T v Applegate. In Applegate’s case, the taxpayer was transferred to another country to set up a branch office for an indefinite period time. While he cut out most of his links in Australia, he leased premises and obtained residential status of the foreign country. When he got back because of illness, he was deemed non-resident. The court held that whether a person has a permanent place of abode outside Australia can be decided on the extent of the strength of association with the foreign country. Unlike the Applegate’s case where the taxpayer cut out almost all the links with Australia, Andy in the given case, purchased a house which was the domicile and had his family live in Australia. He came back during holidays to meet his family and there’s no clear sign of a strong indication as to the association with the foreign country he was working in. These facts can also be confirmed by Paragraph 23 of Taxation Ruling IT 2650 which gave concerns to “the intended and actual length of stay in the foreign country”, “establishment of a home outside Australia” and “the durability of association with Australia”. Andy stayed in the foreign country when he had to work, established temporary accommodation in the foreign country and managed his bank account and had his children educated in Australia, all of which deny the possibility of...
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