Week 2 – Residence and Source
* Section 6-5(2) ITAA97 states that assessable income includes ordinary income derived directly/indirectly from all sources, in and out of Australia, during the income year. * Section 6-10(4) ITAA97 states that assessable income includes statutory income from all sources in and out of Australia.
* Section 6-5(3) ITAA97 states that assessable income includes ordinary income derived directly/indirectly from all Australian sources during income year * Section 6-10(5) ITAA97 states that assessable income includes statutory income from all Australian sources.
Definition of resident:
Section 995-1 ITAA97 provides that an Australian resident means a person who is a resident of Australia for purposes of ITAA1936.
Section 6(1) ITAA1936 contains tests of residency for both individuals and companies.
Individual Test for Residency Section 6(1) ITAA1936:
1. Ordinary concepts test
A common law test on a person who resides in Australia.
* Levene v IRC (1928)
The taxpayer, a UK resident, retired from business and sold his house. For the next two years, he lived in hotels in UK and for the following five years, he lived in hotels in UK and overseas. During the five years, he spent four to five months a year in UK for medical, family and religious purposes. The Court held that the taxpayer is a UK resident until he took up a lease on a flat in Monte Carlo. This is based on the fact that the overseas trips are temporary and the taxpayer still has ties in the UK.
* IRC v Lysaght (1928)
The taxpayer partially retired, sold his home in England and moved to Ireland. However, he remained a non-executive director of his family company. He travelled to England for a week every month, staying in hotels, to attend board meetings. The Court held that the taxpayer is a resident of UK on the basis that he frequently visited England and he still has ties with it.
Factors to consider in ordinary concept test (Ruling TR98/17): I. Physical appearance in Australia – It is necessary for taxpayer to spend some time physically in Australia during income year to be considered resident. II. If the person is a visitor, the frequency, regularity and duration of visits – IRC v Lysaght III. The purpose of visits to Australia and abroad – If person is a visitor to Australia, the purpose of visit may be considered. If the person is outside Australia, the purpose of absence may be considered. IV. Maintenance of place of abode in Australia for taxpayer’s use – Whether the person has a home in Australia determines whether he is a resident of Australia V. The person’s family, business and social ties – The location of family, business and social ties will provide evidence of residence VI. The person’s nationality – Nationality may be considered if other factors are not decisive
The Commissioner’s interpretation of ordinary concepts test (TR 98/17): I. Intention and purpose of presence – e.g does the person intend to establish a home in Australia? II. Family and business ties – e.g has the person bought their family with them? III. Maintenance and location of assets – e.g has the person sold their overseas home/asstes? IV. Social and living arrangements – e.g has the person taken a permanent accommodation? V. Physical presence – there must be sufficient time spent in Australia to reflect continuity (usually 6 months is considerable time)
2. Domicile test
Domicile means a country where a person considers his home.
This test usually applies to outgoing individuals where the person moves overseas but does not change his domicile.
Domicile Act 1982 states that an individual is an Australian resident if his domicile is in Australia unless the person’s permanent place of abode is outside Australia.
Section 10 of Domicile Act 1982 provides that the intention of the person to acquire domicile of choice in a country is...
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