ACC304 Taxation Law

Question:

This assignment comprises two problem questions. These require students to  apply legal principles, cases and legislation to problem questions

Case 1

Jack Pondage at all relevant times held a German passport.  From the time of his first visit Australia in 2007 until the end of the 2018 income year, he held a visa which permitted him to live and work in Australia. ACC304 Taxation Law

During the time he was in Australia, Jack worked under contract as a marine engineer on a sea-going barge owned by an Australian company.  Subsequently, the barge was leased to a Malaysia-based company, Ocean Development Ltd (OD), for use in carrying out work in China.  Jack accepted employment with OD and left Australia on 8 July 2017, leaving his son and wife in Australia.  He worked for Ocean Development Ltd for nine months in China and earned AUD $90,000.  He then terminated his contract and returned to Australia where he stayed for the rest of the income year.  On his arrival back in Australia he entered into a partnership business with his wife.

Accommodation provided for Jack in China by his employer was of a temporary or transitory nature in the form of single men’s quarters or barracks.  Meals were also provided.  Ocean Development Ltd.’s office in Malaysia paid Jack’s wages into his bank account in Australia, after deducting tax required to be paid in Malaysia.  Jack paid no income tax in China.  Jack’s assets in Australia are his home in Sydney, an investment residential unit in Randwick, a super policy with AMP, listed shares, bank accounts and membership of a local golf club. Jack intended to be absent from Australia for approximately nine months and was in fact away for that period only.

Required:

For the 2017/2018 tax year:

  • Is Jack a resident or non-resident of Australia? Refer to the relevant legislation and cases.
  • Determine the source of income Jack received while he was working in China?

Question 2

On 10 July 2017, Timothy Tower was transferred to the Singapore office of his company, Global AIH Ltd, for five years.  His wife Eliza accompanied him to Singapore.  In Singapore they lived in a house owned by the company and leased their Sydney residence.  While residing in Singapore Eliza borrowed $100 000 from the Commonwealth Bank on 1 December 2017, to fund the purchase of 50 000 shares in Global AIH.

During the 2017/2018 tax year Eliza received $5 000 as her share of net rental income (after deductions) from the lease of their Australian home, and $2 500 in fully franked dividends from Global AIH.  She incurred no other expenses in deriving the rental income, but her interest payments on the Commonwealth Bank loan amounted to $5 650. ACC304 Taxation Law

Required:

Advise Eliza Tower for the Australian tax consequences of these transactions. (Hints: you need to do some research on the tax consequence of dividends paid to a resident and non-resident)

 

Answer:

Case 1

Issues 

The assessment of income is based on the residential status of the person. The income tax assessment act 1997 specifies the several provisions related with the changeability of the income tax in case of a resident or non-resident person of Australia (Wilkins, 2015). The present study revolves around determining the residential status of the person named as Jack. Jack has the visa from his first visit Australia in 2007 until the end of 2018 income year. Jack is working as a marine engineer on a seagoing barge owned by an Australian company; subsequently, the barge was leased to a Malaysian company for use in carrying out work in China. Jack accepted the employment and left Australia on 8 July 2017. However, his son and wife remain in Australia. Further, he terminated the contract return to Australia after giving none month services in China. In China, the accommodation provided by the company was in a temporary nature. In Australia, he owned the residential investment unit.

Taxation Provisions

It is possible for the person that he/she may consider as the resident of the two countries at the same time. It generally happens in a situation where the person is working in another country for more than 183 days and whose permanent residence in their home state (Burkhauser, Hahn, and Wilkins, 2015). ACC304 Taxation Law

Residential Status

The income tax is charged on the basis of the residential status of the person.  The Income Tax Assessment Act 1997 defines the norms and regulations for ascertaining the residential status of the person. As per the Income Tax Assessment Act 1936, subsection 6(1), a person is regarded as the resident of Australia, if he/she lives in Australia in the ordinary sense (Chardon, Freudenberg, and Brimble, 2016). As per the case law R v Hammond (1852), place of residence is the place where the person lives with his family. The taxation ruling 98/17 of the income tax states the residential status of the person who coming to Australia such as tourist, migrants, and students studying in Australia, pre-arranged employment contract and many others and prescribed the conditions in which the person is regarded as the resident of Australia (Richardson,Taylor, and Lanis, 2015).  The residential status is determined by considering the overall situation of the individual, which includes the following aspects –

  • The reason for living in Australia by the person.
  • The extent to the commercial transaction, business and services established in Australia.
  • The possession held by the individual in Australia (Kudrna, Tran, and Woodland, 2015).
  • The extent to which individual is connected with the social activities in Australia.

Moreover the normal meaning of the word ‘resides’ is defined under subsection 6(1) of the income tax assessment act 1936.  If the person does not satisfy the condition prescribed under the common law test of residency, then also he/she may consider the resident of the Australia if he/she satisfies any conditions given under the statutory test of residency, which is defined under subsection 6(1) if the Income tax Assessment Act 1936 (Boyd, 2018).

 


(a)Residency according to ordinary concept

Whether the individual is regarded as the resident or non-resident, is based on several factors. It is the question of fact, which includes the following aspects –

  • The effects of the individual are preserved in Australia or in the country of origin.
  • The place of permanent residence is in the country of origin and is accessible by him /her as required (Matthew, 2018).
  • Whether the individual carried out any activity in the country of origin.
  • If the person is not living in Australia because of the commercial and business purpose, then it is not the sufficient condition that he/she not considered as the resident.
  • The extent to which the bank account transactions or any possession held by the individual in Australia.
  • Whether any commercial or business is established in Australia by the migrants (Enticott, & et al. 2016).

All the above aspect should be taken into account for determining the residency status of the person.

(b)The domicile test

If the person possesses the permanent residence in Australia, then he/she considered as the resident of Australia, except if the commissioner is satisfied that the person owns the permanent house on any other country. According to the Domicile Act 1982, the person gets the residency by the choice if the individual build the house for an indefinite period in Australia (Henderson V Henderson 1965).

(c)The 183days test

A person is considered as the resident of Australia if he/she resides in Australia for more than 183 days in a tax year either for a continuous period or in parts.

(d)The superannuation test

The superannuation test is regarded as the alternative method of an ordinary test of residency. This method is generally applicable to the person who works outside Australia for the government of Australia. If the person because of the superannuation acts 1976 working outside Australia then also he/she comes within the category of the resident of Australia. Further, the spouse and his children below the age of 16 years are also regarded as the resident of Australia.

Apart from the above provision, the government of Australia also entered into the double taxation avoidance agreement with many countries, which leads to the avoidance of the tax twice. In other words, it can be said that double taxation avoidance agreement leads to the avoidance of the double tax by the taxpayer on their income generated from the residency country as well as from the source country.