Discuss About The Proceeds Potential Deductions Is Carried?
The key objective of this discussion is to ascertain the tax residency of Jack for the year ending on June 30, 2016 in wake of the given facts.
The responsible statute for ascertaining the tax residency is the s.6(1) ITAA 1936. The conditions which the taxpayer needs to fulfil in order to be classified as tax resident of Australia are outlined. Also, the tax ruling TR 98/17 outlines these tests in detail. It is essential that for the year under consideration the concerned taxpayer must atleast satisfy one of the tests (ATO, 1998). The various tests are briefly discussed below.
This tax residency test is applied primarily for those taxpayer who have Australian domicile but owing to their commitments have to stay away from Australia. For satisfying this test, an individual taxpayer needs to primarily comply with following two terms (Barkoczy, 2017).
If any of the terms outlined above are not met, then the concerned taxpayer is not an Australian resident for tax purposes (Sadiq et.al., 2016).
The concerned statute does not highlight the contours of the word “reside”. Thus, the application of this test has to consider the various cases and tax rulings which provide the critical factors to be considered (Nethercott, Richardson and Devos, 2016).
Also, the social life that the concerned person has in Australia in comparison to the country of origin is considered relevant (Deutsch et. al., 2016).
This is a tax residency test which is only applicable for government officers stationed abroad on Federal government orders. Their tax residency on an annual basis is dependent only on one factor i.e. their continued participation in select superannuation schemes. Continuation of participation leads to Australian tax residency without considering any other factor (Woellner, 2014).
The application of this test is useful for foreign residents only. Complying with this test would require that the taxpayer must meet both the following conditions (CCH, 2013).
If the taxpayer fulfils only one of the above highlighted conditions, then the test would be failed and Australian tax residency would not be conferred as per this test (Gilders et. al., 2016).
From the given facts, it becomes apparent that Jack is a resident of Canada and hence would not have an Australian domicile. Also, he is not a government employee for Federal government in Australia. Hence, the domicile test and superannuation test are not applicable for Jack.
The given information suggests that from August 1, 2015, Jack changed employers and hence for the next 9 months he was outside Australia. However, for the remaining time, Jack was residing within Australia. It is apparent that for the full year, Jack only spent three months in Australia. Thus, the basic condition of Jack being in Australia for a minimum period of 183 days during FY2016 is not complied with. Thus, Jack fails to pass this test.
Considering the above, it would be prudent to conclude that Jack fails to satisfy this test.
Since Jack is not able to satisfy either of the four tests available for tax residency determination for individual taxpayers, hence he would be termed as a foreign tax resident.Considering the given facts and assuming Jack as an Australian resident, the objective is to compute his taxable income for the year ending on June 30, 2016.
The first aspect to note that is the impact of Australian tax residency which is outlined in s. 6(5)-3 ITAA 1997. In accordance with this, for an Australian tax resident, income and proceeds obtained from both domestic and foreign sources would be considered for taxable income determination (Barkoczy, 2017). Additional provisions which are relevant to taxable income computation are highlighted below.
The relevant tax treatment for the various proceeds and potential deductions is carried out below in conformity with the discussions carried out in previous section.
Hence, total taxable income for the year ending June 30, 2016 = 250000 + 100000 + 20000 + 5000 + 7600 – 2000 – 2000 – 1500 + 2000 = A$379,100
The taxable income for Jack for the year ending on June 30, 2016 amounts to A$379,100
ATO (1998), Rulings: TR98/17, ATO Website, [online] available at https://www.ato.gov.au/law/view/document?Docid=TXR/TR9817/NAT/ATO/00001 [Accessed October 01, 2017]
Barkoczy, S. (2017), Foundation of Taxation Law 2017, 9thed.,North Ryde: CCH Publications
CCH (2013), Australian Master Tax Guide 2013, 51st ed., Sydney: Wolters Kluwer
Deutsch, R., Freizer, M., Fullerton, I., Hanley, P., and Snape, T. (2016), Australian tax handbook 8th ed., Pymont: Thomson Reuters,
Gilders, F., Taylor, J., Walpole, M., Burton, M. and Ciro, T. (2016), Understanding taxation law 2016, 9th ed., Sydney: LexisNexis/Butterworths.
Nethercott, L., Richardson, G. and Devos, K. (2016), Australian Taxation Study Manual 2016, 4th ed., Sydney: Oxford University Press
Sadiq, K, Coleman, C, Hanegbi, R, Jogarajan, S, Krever, R, Obst, W, and Ting, A (2016) , Principles of Taxation Law 2016, 8th ed., Pymont:Thomson Reuters
Woellner, R (2014), Australian taxation law 2014, 7th ed., North Ryde: CCH Australia
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