Individuals thrive off producing income in order to meet their day-to-day needs and wants. Tax is imposed on these income producing activities to provide the government revenue. This involves identifying the various ranges of assessable income. The legal question which must be addressed is any of the income that was earned by these individuals assessable income under the Australian income tax assessment act? To answer this question, we must determine if a nexus exists between Australia and the person(s) being taxed by applying the concepts of Residency, Source and Derivation. 1. Residency.
Residency is important because it is the basis as to how the government will tax individuals. S6-5(2) and s6-5(3) ITAA97 states residents are taxed on all income while non-residents are taxed only on Australian sourced income. An individual is a resident if they satisfy the common law definition of residency. Similarly, residency exists if a person resides in Australia denoted by the legislation incorporating the common law notion. Additionally, a person can be a resident if they satisfy any one of the three statutory tests which include; Domicile, 183 day test and the Commonwealth employee Superannuation fund test as listed under s6(1) ITAA36. 1.1 Application of Residency.
In this case, Melinda and her husband were residing within Australia up until the point of 15th January 2009. Therefore, under common law, they were no longer residents because they ceased to be residing within Australia. However, they can still be considered residents if they satisfy one of the three tests under statutory law. The law states that ‘a person, other than a company, who resides in Australia and includes a person whose domicile is in Australia, unless the Commissioner is satisfied that his permanent place of abode is outside Australia; who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that his usual place of abode is outside of Australia and that he does not intend to take up residence in Australia; or who is a employee of a commonwealth superannuation fund.’ In this case study, prior to leaving for Dubai, the couple rented out their house in Australia rather than selling it. In addition, they chose to obtain a lease over a flat for a period of 2 years in Dubai. This indicates that they possessed the intention of returning to Australia after a particular period of time; most likely after 18 months. Therefore, under s6(1) ITAA36 Melinda and Aaron’s domicile still remains as Australia and consequently would be considered residents of Australia during the years 2008/2009, 2009/2010 and 2010/2011. Additionally, s6-10(4) ITAA97 specifies Australian resident’s assessable income includes all statutory from all sources, whether in or out of Australia. This means that no matter where these individuals are at the time of deriving income, it is all considered assessable due to the fact they are Australian residents. In order to alter this classification of residency, the couple would need to provide sufficient objective evidence to show intention to move their domicile away from their previous domicile outlined under s10 in the Domicile Act. That is, acquiring a domicile of choice in a country where there’s intention to make that country indefinitely their home.
Another factor which needs to be considered is where the income is being sourced. Personal services income is sourced where the service is being provided. Place of employment, employer’s current location and place of residency are irrelevant for this purpose. 2.1 Application of Source on the financial periods 2008/2009 & 2009/2010. 2.1.1 Financial period from 15th January 2009 to June 2010.
In this instance, only a portion of the total amount of income received during the financial years can be clearly sourced within Australia. The question must be considered as to...
Bibliography: Barkoczy, S., Evans, C., Murphy, S., Pinto, D. & Woellner, R., Australian Tax Law, 21st edition CCH.
Barkoczy, S., Core Tax Legislation & Study Guide, 14th Edition, CCH.
Income Tax Assessment Act 1936
Income Tax Assessment Act 1997
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