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Question:

Discuss whether Kit is a resident of Australia and how his salary and investment income would be taxed.Explanations of the respective outcomes reached  by the courts in the following cases which all involving sales of land.

Answer:

Case Study 1 – Residence and Source

As per the “Australian Taxation Law” Under the “Residency - the 183 day test”, if some are in reality present in Australia for large portion of the salary year, whether constantly or occasionally, then that person might be said to have an useful habitation in Australia unless it could be set up that: “your usual place of abode is out of Australia and you have no aim to take up living residence here” (www.ato.gov.au(a), 2016).

The expression “usual place of abode” must not be given the same or comparable importance as the expression “permanent place of abode”. The expressions “usual and abode” must be given their conventional and characteristic implications (www.ato.gov.au(a), 2016).

The “Macquarie Dictionary” gives the accompanying definitions (www.ato.gov.au(a), 2016):

Therefore the presence in Australia should not be persistent for the reasons for the “183 day test”. All the days you are physically in attendance within Australia amid the income year would be calculated.

AS per this rule, Kit is foreign resident in Australia (www.ato.gov.au(b), 2016). Because

“Residency - the resides test”
  • though kit has a residential house in Australia and his wife and kids resides here, these reasons are not noteworthy enough
  •  he is not physically in attendance in Australia for a substantial period of the income year, as well as
  • he during holidays either meets his family in Chile, or in Australia, or on holiday around South America.
“Residency - the domicile test”
  •  he has not decisively confirmed that his abode of choice is in Australia
  •  his activities point to that his absence from Australia is indefinite,
  • he gets one month off from every three months from work, and his visits to Australia also adds influence to the end drawn.
“Residency - the 183 day test”
  •  he was in Australia for only three month which is less than 183 days of an income year. He was in Australia for only 90 days approx.

Thus this makes Kit a foreign resident in Australia. As per “Australian Taxation Law” In case you are a nonresident in Australian for taxation purposes, you are just taxed on your “Australian-sourced” earnings, so you for the most part don't have to announce earnings you get from out of Australia in your “Australian tax return”. “Foreign residents” are taxed in Australia on earnings earned from their Australian ventures.

Tax collection of a “non-resident of Australia” is thusly limited to that salary or those expenses that have a nexus with Australia. Earnings of a “non-resident” that is not got from Australia or Australian sources won't be liable to Australian tax assessment. Earnings inferred by a nonresident comprising of capital gains (other than direct or indirect investments in real property) and organization dividends paid from profits which have been liable to taxation would by and large be exempted from tax. Interest would be taxed at concessional rates or, sometimes, not in any manner. Distributions from managed investment funds would be taxed at concessional rates under late government declarations. People holding a “temporary residence visa” (which could keep going for up to 4 years) are dealt with for tax purposes as non-residents. As a rule, overseas source earnings going to “non-residents” through Australia conduit would likewise be exempted (www.offshoreinvestment.com, 2008).

Therefore, you should lodge a tax return only on the off chance that you have Australian pay, including: “employment wage; rental wage; Australian pensions and annuities, unless exclusion is accessible under Australian tax law or a tax treaty; capital gains on Australian assets”. You can overlook any pay from which “non-resident withholding tax” has been deducted, for example, “bank interest and unfranked dividends” (www.ato.gov.au(c), 2016).

But where a contract is made in Australia the income is considered to be sourced from inside Australia for tax purposes. However, there is a combination of some of the following situations which are applied to the contract executed by the nonresident: like the contract for services was signed in Australia, “rental proceeds” from Australian real estate possessed by a nonresident person is considered to have an Australian source and is thus taxable in Australia. But if the resident agent only required out customers and it was the foreign principal who discussed and carried out the contract then the contract were considered to made outside Australia and thus the tax purposes as the source of earnings would be out of Australia (www.offshoreinvestment.com, 2008).

As a limited exemption to the rule, a worker would not pay tax in Australia on his earnings if:

Therefore, Kit is a foreign resident, and his earning is not earned from Australian ventures. His alary comes in the joint account he has with this wife in “Westpack Bank in Australia”. He has signed the contract in Australia, but the company is a non resident in Australia it is UK Company and thus Kit is not liable to pay taxes under ATO. But his possessed real estate property shall be taxed as it was considered to have an Australian source and thus taxable. This is how Kit‟s salary and investment income shall be taxed.

Case Study – 2 – Ordinary Income Californian Copper Syndicate Ltd V Harris (surveyor of Taxes) (1904) 5TC 159

 

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