Evaluating Residential Conditions Of Australian Tax Residents - An Essay.

Residential Status Tests in Australia

Question:

Discuss About The Relevant Tax Residents Residing In Australia?

The report mainly focuses in identifying the residential condition of Jenny in both 2015-2016 and 2016-2017 fiscal years. Therefore, the overall staying condition and decisions that is made by Jenny in Australia during the period of the state is evaluated, which could help in determining whether she is a resident of Australia or not. This determination of the overall residential condition is mainly essential, as Australian taxation authority takes relevant tax from residents residing in Australia. Furthermore, lump sum amount is also evaluated, which could help in determining whether the income is assessable income or not.

The situation mainly arises when relevant residential condition of Jenny needs to be evaluated, which is essential for identifying her current residential condition. Furthermore, Jenny was staying hotels for 3 months, after which she rented house near the office for joining it Australian division.  Moreover, under section 995-1 of ITAA 1997, Australian residence that resides in the country are liable to pay the relevant Income Tax on the income generated in the current fiscal year[1]. According to the Australian taxation authority, residential condition of an individual could be identified in three distinct ways. This determination of the residential condition is essential for imposing the relevant Income Tax, which needs to be imposed on individuals working and residing in Australia. There are different types of residential test mentioned Under Residency test section 6(1) of ITAA 1936, which could help in identifying residential status of Jenny in Australia[2].

• Jenny's singer and has no dependent
• Jenny is originally working in Hong Kong
• Jenny has temporarily travelled in Australia for 3 months staying in different hotels
• Jenny has entered in Australia on 25th April 2016
• For the work related purpose Jenny has been travelling to different cities in Australia
• Currently Jenny has accepted for working in Australia for 9 months
• Jenny has rented a flat near the office for the purpose are staying in Australia for 9 months
• Jenny has been transferring all the personal belongings to Australia
• Jenny has a limited travel plan, where She goes out every week from Sydney due to work related measure

Ordinary residence test is mainly considered to be one of the first primary tests that need to be conducted for determining residential condition of an individual. With the help of ordinary residence test, it is determined whether an individual is liable to pay all the relevant Income Tax to the Australian government. Evaluation of the situation mainly states that journey in the first half of 2016 was mainly travelling in hotels for 3 months period. This does not consider that Jenny is an ordinary residence of Australia, which states that different residential test could be used to identify the residential condition of Jenny[3].

The other residential identification method is the 183-day rule, which is mainly used in identifying the relevant residential condition of an individual living in Australia for conducting business in Australia. The main criteria of the test is to determine whether an individual have decided in Australia for more than 183 days. This rule is mainly essential as it allows the Australian government to tax individual who stay in the country throughout the year for business purposes. Currently, Jenny is staying only for 3 months that is 90 days, which does not comply with the 183-day rule test, which is used in identifying residential condition of an individual. Therefore, under the 183-day rule overall residential condition of Jenny is not confirmed as an Australian citizen for the year 2015-2016[4].

Evaluation of Residential Conditions of an Individual

Under the Domicile Test individuals, residential condition is evaluated, and their intention for residing in the country is estimated. Therefore, under the domicile test if an individual is considered positive then he/she needs to be relevant taxes to the Australian government. The evaluation of Jenny’s case mainly indicates that she does not have any kind of residence place for the first 3 months. This mainly indicates that the domicile test is negative for Jenny's case and she is considered a non-resident of Australia[5].

Superannuation test is mainly considered one of the last tests that need to be conducted by the Australian government to consider whether the individual comes under the Australian taxation bracket. The super animation test is mainly used for individuals that have been employed by the government and working outside the country. Therefore, this test mainly helps in identifying the relevant residence that needs to pay the income tax to the Australian government. However, Jenny is not considered to be under any kind of Government Employment, which exempts her from the superannuation test[6].

From the evaluation of the entire relevant residential test that is used in Australia, Jenny is not considered to be a resident of Australia under any circumstances for the year 2015-2016. Therefore, it could be understood that no relevant Income Tax needs to be paid by Jenny to the Australian government, as she is not considered a resident of the country[7].

The relevant evaluation is mainly conducted for the fiscal year 2016-2017, where the residential condition of Jenny is mainly identified. The ordinary residence test mainly indicates that Jenny is not considered a permanent residence of Australia, which directly nullifies the ordinary residence test. Hence, other measures of calculating the residential status of Jenny needs to be evaluated, which would help in determining whether adequate Income Tax needs to be paid by Jenny or not. Under the Australian taxation office TR 98/17 the different factors that need to be evaluated for identifying the residential condition. Moreover, different cases such as IRC v Lysaght [1928] AC 234 and Levene v IRC [1928] AC 217 could be used in evaluating the residential condition of an individual[8]. The cases could be used in evaluating the residential condition of Jenny and whether she should relevant Income Tax according to the ordinary residence test.

The evaluation of jenny’s case under the 183-day rule could help in identifying her actual residential position. Therefore, the evaluation would mainly help in identifying whether Jenny is liable to pay the income tax to the Australian government for the fiscal year 2016-2017.  Jenny from July 2016 as rented residential plot for staying in Australia for 9 months, which is required by the company where she works[9]. This directly indicates that Jenny is going to live more than 183 days in Australia with certain gaps that will be conducted by short trips. In addition, relevant cases such as Dempsey and Commissioner of Taxation (2014) AATA 335 and the Engineering Manager and Commissioner of Taxation (2014) AATA 969 mainly states the actions that need to be taken by individuals that comply with in 183 days. Therefore, it could be understood that under the 183-day rule Jenny is considered resident of Australia, where she needs to be relevant income tax to the Australian government. There are certain exemptions 183 day test results, exemption is if  Jenny states that she does not want to stay in Australia then new 183 day test is nullified. In addition, there is no confirmation from Jenny that she wants to reside in Australia not, where it is assume that Jenny is considered a resident of Australia and needs to be all the relevant income tax imposed by the Australian government[10].

Assessing an Individual's Tax Liability as a Resident or Non-Resident

Under the Domicile test, it is considered that Jenny has rented one of the apartments near the office, which directly States no intentions of staying in Australia for longer duration. The Domicile test mainly evaluates whether an individual is willing to stay in Australia for more period and intense to become resident of that country[11]. Therefore, under the domicile text Jenny has complying with the requirements, as she is rented one of the apartments for living in Australia for a short duration.

Jenny is not considered under the superannuation test, and she does not work for Australian government and is residing outside the Australian premises[12].

Thus, from the evaluation it could be identified that Jenny for the first three month is not considered a resident of Australia, as she does not fulfil any kind of residential test.  However, under the Domicile test and 183 day test, for the next 9 months Jenny is considered a resident of Australia. This mainly indicates that relevant income tax needs to be paid on the incomes that are generated on the stipulated period[13].

Under s 6-5 of ITAA97, relevant income is mainly identified as ordinary income, which is taxable under the income tax method. Moreover, certain cases are there which could be used in identifying the accessible income of an individual. Under FCTv Woite (1982) 13 ATR 579, individuals over on income identified. In the current scenario the individual is provided with 100,000 salaries which directly come under the assessable income, where relevant Income Tax needs to be paid to the Australian government[14]. The individual for changing the job position receives certain other incomes. The income of 400,000 is the main issue it needs to be evaluated and identified whether it comes under assessable income or not.

The evaluation of cases such as Woite and Jarrold v Boustead (1963) 41 TC 701, and Brent v FCT (1971) 125 CLR 418 could mainly be helpful in identifying whether the lump sum income is a part of assessable income or not[15]. There is no exclusive right that is provided to the person handing over 400,000, which directly states that the amount comes under ordinary income. Before it could be understood that the overall payment of 400,000 directly comes under assessable Income, where relevant Income Tax needs to be paid by the individual. The evaluation of case Smith v FCT (1987) 19 ATR 274 mainly states that relevant test could be conducted to identify whether an income taxable income or not. Therefore, both the annual salary and lump sum amount is considered under section 6-5 of the assessable income[16].  

Conclusion:

From the valuation of the overall assignment, relevant residential test can be identified which can help individuals to detect whether they are liable to pay income tax in Australia.  However, Jenny is mainly considered a resident of Australia by using two test such as domicile test and 183-day test. This is mainly helps in identifying a residential condition of Jenny for the next 9 months starting from July. Therefore, the lump sum amount that is identified assignment also needs to be considered under assessable Income, as individual is not providing any kind of valuable goods of the money. Hence, the overall lump sum amount will be considered under Income Tax, where relevant taxes need to be paid for that income.

References:

Ato.gov.au. (2017). Work out your tax residency. [online] Available at: https://www.ato.gov.au/Individuals/International-tax-for-individuals/Work-out-your-tax-residency/ [Accessed 12 Sep. 2017].

Chomik, R. and Piggott, J., 2014. Means testing pensions: The case of Australia. Michigan Retirement Research Centre Policy Brief, Michigan Retirement Research Centre, University of Michigan.

Chomik, R., Piggott, J., Woodland, A.D., Kudrna, G. and Kumru, C.S., 2015. Means testing social security: Modeling and policy analysis.

Creagh, S., 2014. National standardised testing and the diluting of English as a second language (ESL) in Australia. English Teaching, 13(1), p.24.

Doherty, P.D., Baxter, J.M., Godley, B.J., Graham, R.T., Hall, G., Hall, J., Hawkes, L.A., Henderson, S.M., Johnson, L., Speedie, C. and Witt, M.J., 2017. Testing the boundaries: Seasonal residency and inter-annual site fidelity of basking sharks in a proposed Marine Protected Area. Biological Conservation, 209, pp.68-75.

Ferguson, S., Giuseppi, C. and Australia, T.A., 2017. Submission to the Department of Immigration & Border Protection.

Graham, M., McKenzie, H., Lamaro, G. and Klein, R., 2016. Women’s reproductive choices in Australia: Mapping federal and state/territory policy instruments governing choice. Gender issues, 33(4), pp.335-349.

Knoch, U., 2017. Research in language assessment. Language Teaching, 50(1), pp.138-142.

McKinley, D.W., Hess, B.J., Boulet, J.R. and Lipner, R.S., 2014. Changes in certification requirements and examinee characteristics are likely to influence the validity of the evidence associated with interpretations made based on test data. We examined whether changes in Educational Commission for Foreign Medical Graduates (ECFMG) certification requirements over time were associated with changes in internal medicine (IM) residency program director ratings and... Advances in Health Sciences Education, 19(1), pp.129-142.

McMillan, K., 2017. ‘Affective integration’and access to the rights of permanent residency: New Zealanders resident in Australia post-2001. Ethnicities, 17(1), pp.103-127.

McNamara, T., Khan, K. and Frost, K., 2015. Language tests for residency and citizenship and the conferring of individuality. Challenges for language education and policy: Making space for people, pp.11-22.

Mytaxresidency.com. (2015). Australian Tax Residency: a rare win for the taxpayer` | MyTaxResidency.com. [online] Available at: https://mytaxresidency.com/Recent-ruling-provides-Australian-expats-with-hope-for-non-residency-claims [Accessed 12 Sep. 2017].

Robertson, S., 2017. Infrastructures of insecurity: Housing and language testing in Asia-Australia migration. Geoforum, 82, pp.13-20.

Rumsey, M., Thiessen, J., Buchan, J. and Daly, J., 2016. The consequences of English language testing for international health professionals and students: An Australian case study. International journal of nursing studies, 54, pp.95-103.

Tizi, S. and Nixon, R.L., 2016. Patch testing in Australia: Is it adequate?. Australasian Journal of Dermatology, 57(3), pp.192-198.

Zanardo, N., Parra, G.J. and Möller, L.M., 2016. Site fidelity, residency, and abundance of bottlenose dolphins (Tursiops sp.) in Adelaide's coastal waters, South Australia. Marine Mammal Science, 32(4), pp.1381-1401.

[1] Ato.gov.au. (2017). Work out your tax residency. [online] Available at: https://www.ato.gov.au/Individuals/International-tax-for-individuals/Work-out-your-tax-residency/ [Accessed 12 Sep. 2017].

[2] Mytaxresidency.com. (2015). Australian Tax Residency: a rare win for the taxpayer` | MyTaxResidency.com. [online] Available at: https://mytaxresidency.com/Recent-ruling-provides-Australian-expats-with-hope-for-non-residency-claims [Accessed 12 Sep. 2017].

[3] Robertson, S., 2017. Infrastructures of insecurity: Housing and language testing in Asia-Australia migration. Geoforum, 82, pp.13-20.

[4] Doherty, P.D., Baxter, J.M., Godley, B.J., Graham, R.T., Hall, G., Hall, J., Hawkes, L.A., Henderson, S.M., Johnson, L., Speedie, C. and Witt, M.J., 2017. Testing the boundaries: Seasonal residency and inter-annual site fidelity of basking sharks in a proposed Marine Protected Area. Biological Conservation, 209, pp.68-75.

[5] Ferguson, S., Giuseppi, C. and Australia, T.A., 2017. Submission to the Department of Immigration & Border Protection.

[6] McNamara, T., Khan, K. and Frost, K., 2015. Language tests for residency and citizenship and the conferring of individuality. Challenges for language education and policy: Making space for people, pp.11-22.

[7] Zanardo, N., Parra, G.J. and Möller, L.M., 2016. Site fidelity, residency, and abundance of bottlenose dolphins (Tursiops sp.) in Adelaide's coastal waters, South Australia. Marine Mammal Science, 32(4), pp.1381-1401.

[8] Rumsey, M., Thiessen, J., Buchan, J. and Daly, J., 2016. The consequences of English language testing for international health professionals and students: An Australian case study. International journal of nursing studies, 54, pp.95-103.

[9] McKinley, D.W., Hess, B.J., Boulet, J.R. and Lipner, R.S., 2014. Changes in certification requirements and examinee characteristics are likely to influence the validity of the evidence associated with interpretations made based on test data. We examined whether changes in Educational Commission for Foreign Medical Graduates (ECFMG) certification requirements over time were associated with changes in internal medicine (IM) residency program director ratings and... Advances in Health Sciences Education, 19(1), pp.129-142.

[10] Tizi, S. and Nixon, R.L., 2016. Patch testing in Australia: Is it adequate?. Australasian Journal of Dermatology, 57(3), pp.192-198.

[11] Knoch, U., 2017. Research in language assessment. Language Teaching, 50(1), pp.138-142.

[12] McMillan, K., 2017. ‘Affective integration’and access to the rights of permanent residency: New Zealanders resident in Australia post-2001. Ethnicities, 17(1), pp.103-127.

[13] Chomik, R. and Piggott, J., 2014. Means testing pensions: The case of Australia. Michigan Retirement Research Centre Policy Brief, Michigan Retirement Research Centre, University of Michigan.

[14] Graham, M., McKenzie, H., Lamaro, G. and Klein, R., 2016. Women’s reproductive choices in Australia: Mapping federal and state/territory policy instruments governing choice. Gender issues, 33(4), pp.335-349.

[15] Chomik, R., Piggott, J., Woodland, A.D., Kudrna, G. and Kumru, C.S., 2015. Means testing social security: Modeling and policy analysis.

[16] Creagh, S., 2014. National standardised testing and the diluting of English as a second language (ESL) in Australia. English Teaching, 13(1), p.24.