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Residency status and taxation in Australia

Issue

Amount Ellie should include in her assessable income in Australia during the year ended 30 June 2021

Whether the amounts are (i) ordinary income, (ii) discuss the source of income and (iii) discuss derivation.

Law and Application

Residents are taxed on worldwide income whereas non-residents and temporary residents are generally taxed on Australian-sourced income only.

A person’s liability to Australian tax is determined by residennce status for taxation purposes and the source of income derived by that individual. Income tax is levied at progressive rates on an individual’s taxable income for the year, which is calculated by subtracting allowable deductions from the total assessable income.

A person’s liability to Australian tax is determined by residence status. A person can be a resident, non-resident, or temporary resident for Australian tax purposes.

A resident of Australia generally refers to an individual who enters Australia with the intention of remaining for more than 6 months (or who actually spends more than 6 months in Australia during an income year). A temporary resident is a resident of Australia who is on a specific temporary visa and meets other prescribed conditions. A non-resident of Australia is generally someone who spends less than 6 months in Australia. The general rule is that a person who is a resident of Australia is assessable on worldwide income.

Non-residents are assessed on income derived directly or indirectly from sources in Australia (subject to the interaction of a double tax agreement). Temporary residents are assessed on employment income from all sources derived after arrival in Australia and all Australian-sourced investment income (subject to the interaction of a double tax agreement). Extended business travelers are likely to be considered non-residents of Australia for tax purposes unless they enter Australia with the intention to remain for more than 6 months.

Australian resident for tax purposes

  • have always lived in Australia or you have come to Australia and live here permanently
  • go overseas temporarily and you do not set up a permanent home in another country

There are four statutory tests to determine your residency:

  • Resides test
  • Domicile test
  • 183-day test
  • The commonwealth superannuation test.

Resides test

The primary test of tax residency is called the resides test. If you reside in Australia, you are considered an Australian resident for tax purposes and you don't need to apply any of the other residency tests.

Some of the factors that can be used to determine residency status include:

  • physical presence
  • intention and purpose
  • family
  • business or employment ties
  • maintenance and location of assets
  • social and living arrangements.

If you don't satisfy the resides test, you'll still be considered an Australian resident if you satisfy one of three statutory tests.

Domicile test

You're an Australian resident if your domicile (the place that is your permanent home) is in Australia, unless we are satisfied that your permanent place of abode is outside Australia.

A domicile is a place that is considered to be your permanent home by law. For example, it may be a domicile by origin (where you were born) or by choice (where you have changed your home with the intent of making it permanent).

The domicile test is the first statutory test. You are an Australian resident if your domicile is in Australia, unless we are satisfied that your permanent place of abode is outside Australia.

There are two steps to this test:

  1. Determine your domicile
    • If not in Australia, the domicile test is not satisfied.
    • If in Australia, go to step two.
  2. Determine your permanent place of abode
    • If not in Australia, the domicile test is not satisfied.
    • If in Australia, you are considered an Australian resident for income tax purposes.

Types of residency status

183-day test

This test only applies to individuals arriving in Australia. You will be a resident under this test if you're actually present in Australia for more than half the income year, whether continuously or with breaks.

The 183 day test is the second statutory test.

Under this test, if you are present in Australia for more than half the income year, whether continuously or intermittently, you may be said to have a constructive residence in Australia unless it can be established that:

  • your usual place of abode is outside Australia
  • you have no intention to take up residence here.

In this test, we must be satisfied that your usual place of abode is outside Australia. This is different to the first test (domicile) that requires us to be satisfied that your permanent place of abode is outside Australia.

This test applies to Australian Government employees working at Australian posts overseas and who are members of the CSS or PSS schemes. It does not apply to members of the PSSAP scheme. If this is the case, you (and your spouse and children under 16) are considered to be a resident of Australia regardless of any other factors.

If your residency status changes during the year

If your status has changed from resident to foreign resident during the income year, answer 'yes' to the question 'Are you an Australian resident?' on your tax return.

This ensures you are taxed at resident rates for the income year. You are entitled to a pro-rata tax-free threshold for the number of months you are an Australian resident.

To claim a tax offset for a dependent spouse, you must both be Australian residents for tax purposes. You will need to reduce your claim to take into account the period you were both foreign residents.

Conclusion

Foreign residents do not have to pay the Medicare levy. In your tax return you can claim the number of days in the income year that you are not an Australian resident as exempt days.

From the date you cease to be an Australian resident, there is no need to show your foreign-source income in your tax return. Also, all Australian-sourced interest, dividends and royalties you received after you ceased to be an Australian resident are subject to the withholding tax provisions as a final tax. They should not be included in your tax return.

  • In the given case,Catherine does not satisfies the basic resides test because she went overseas temporarily, she resides only few days in Australia.
  • but she did not set up a permanent home in another country and don’t haveintention and purpose to stay abroad for long period, also her family still stays in Australia only,
  • If she don't satisfy the resides test, still be considered an Australian resident if she satisfy one of three statutory tests.
  • She satisfies the domicile test here, because she is an Australian resident if her domicile the place that is your permanent home is in Australia.
  • A domicile is a place that is considered to be your permanent home by law. For example, it may be a domicile by origin (where she were born), so she satisfies this test.
  • But she is not satisfies 183 days test, she lives less than 183 days during the income year ended 30 June 2021, but this is not relevant for her here.
  • As per the rules, if individual satisfies any of the statutory test, qualifies residence of Australia and taxable for global income. 

Issue

Stating whether the amounts are (i) ordinary income, (ii) discussing the source of income and (iii) discussing derivation

Law and Application

If you earn more than the tax-free threshold amount defined by the federal government, any sort of income that is subject to income tax is called taxable income. Assessable income is defined as any quantity of money that fits one or more of the following criteria: the amount of money that is subject to tax In a financial year, if you receive money from any source (whether in or outside of Australia) at any point during that year (regardless of where the money came), you are deemed to have received money from that source. Ordinary income is defined as any money received in exchange for the performance of personal services, as specified by the Income Tax Assessment Act 1997 (Cth), and is subject to taxes under the Australian taxation laws. Having statutory income means that you have money in your bank account or receive money from your employer that is not ordinary income, but is included in your assessable income as a result of a tax law regulation that applies to you, such as a salary or income received in exchange for providing personal services, but is not included in your assessable income as a result of an applicable tax law regulation. In accordance with Section 10.5 of the Income Tax Assessment Act 1997, statutory income includes a variety of assets including capital gains, dividends, and franking credits, among others. Allowances and redundancy payouts, for example, are also included in the definition of statutory income (Cth).

Because exempt income is excluded from a tax payer's assessable income, that money is not included in the taxpayer's assessable income, which includes both the taxpayer's regular income and their statutory income but does not include the exempt income of the taxpayer.

taxable income for the individual who made the deduction is the amount remaining after all permissible deductions have been removed from assessable income. The amount of money that is left over after this operation has been finished is referred to as assessable income. As a rule, regular income is constituted of earnings that are congruent with common sense ideas of what it means to be successful, such as wages and salaries. Traditional accounting principles include a range of factors when assessing whether or not a particular amount of money should be considered as income.

Conclusion

Several factors must be considered when determining whether or not an amount of ordinary income should be included in a taxpayer's assessable income for a specific income year, including where the money is sourced, whether or not the taxpayer is an Australian tax resident, and how the income was generated. If particular provisions in the income tax legislation state that a specified amount of ordinary income should be included in a taxpayer's assessable income, it is also feasible for a certain amount of ordinary income to be included in a taxpayer's assessable income. In the Australia, statutory income refers to earnings that do not fall into the category of ordinary earnings and that are normally counted as assessable earnings as a result of a specific provision in the tax code. 

Cite This Work

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My Assignment Help. (2022). Ellie's Essay Assessed Income In Australia For Year Ended June 30, 2021.. Retrieved from https://myassignmenthelp.com/free-samples/law3130-revenue-law-and-practice/australian-resident-for-tax-file-A1D4CB6.html.

"Ellie's Essay Assessed Income In Australia For Year Ended June 30, 2021.." My Assignment Help, 2022, https://myassignmenthelp.com/free-samples/law3130-revenue-law-and-practice/australian-resident-for-tax-file-A1D4CB6.html.

My Assignment Help (2022) Ellie's Essay Assessed Income In Australia For Year Ended June 30, 2021. [Online]. Available from: https://myassignmenthelp.com/free-samples/law3130-revenue-law-and-practice/australian-resident-for-tax-file-A1D4CB6.html
[Accessed 24 February 2024].

My Assignment Help. 'Ellie's Essay Assessed Income In Australia For Year Ended June 30, 2021.' (My Assignment Help, 2022) <https://myassignmenthelp.com/free-samples/law3130-revenue-law-and-practice/australian-resident-for-tax-file-A1D4CB6.html> accessed 24 February 2024.

My Assignment Help. Ellie's Essay Assessed Income In Australia For Year Ended June 30, 2021. [Internet]. My Assignment Help. 2022 [cited 24 February 2024]. Available from: https://myassignmenthelp.com/free-samples/law3130-revenue-law-and-practice/australian-resident-for-tax-file-A1D4CB6.html.

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