Determining Residency Status For Taxation Purposes And Fringe Benefit Tax Implications

Residency status determination for taxation purposes

The existing case study is concerned with the ascertainment of the residential status of Daniel for the purpose of taxation. It is evidently understood from the current case study it is noticed that Daniel is employed with the Mining Capital Corporation and resided in Malaysia. However, he was provided the opportunity of growing in Australia for the purpose of his employment. The term “resident” and “resident of Australia” is defined under the “subsection 6 (1) of the ITAA 1936” (Pinto, 2013).

The manner in which an individual organizes their domestic and economic state of matters as the portion of their life becomes an important aspect in ascertaining the status of residency. An individual is regarded as the Australian resident who has been residing in Australia or has been essentially been present in Australia either unceasingly or intermittently for no less than half of the income year except the commissioner is content that individual permanent place of residence is outside Australian and does not intends to take up the habitation in Australia.

The “income tax ruling of IT 2607” is aimed at establishing the with the objective of defining the residency status for the purpose of income tax for a person entering in Australia (Robin, 2017). To determine the residential status of Daniel the following test has been performed to establish whether or not he is resident of Australia for the taxation purpose;

1. The domicile test
2. The 183 day test
3. The commonwealth superannuation test

Domicile can be defined as the legal concept that has been defined under the “Domicile Act 1982”. According to the rules of common law an individual acquires the domicile by birth of their origin representing a nation as their permanent place of abode. However, the rules is subjected to certain kind of exceptions (Barkoczy et al., 2016). The exception to the rules defines that a person in accordance of their own choice in another country or by the procedure of law. As obvious from the existing reading of Daniel, it is noticed that Daniel decided to apply for the permanent visa of residing in Australia following the return of their son from US to Perth.

According to the common law stated under “section 10 of the Domicile Act 1982” the purpose of the individual to obtain the residence of their choice in a nation, which the person intends to make their home indefinitely (Tran-Nam & Walpole, 2016). In order to determine the domicile of an individual it is necessary to understand the intention of the person in accordance with subsection 6 (1) where an intention intends to make their home indefinitely.

Assessment of Taxable Income of Daniel

As held in the case of “Henderson v. Henderson (1965) 1 All E.R. 179” the intention of an individual should be in accordance of acquiring domicile in a nation of their own choice (Coleman & Sadiq, 2013). Similarly, in the present case study of Daniel it can be stated that he will be considered as the Australian resident under the Domicile Act 1982 since he intended to stay in Australia by applying permanent visa. Citing the reference of Bell v. Kennedy (1868) it can be stated that the intention of Denial is in accordance of acquiring the domicile of his choice in a nation where he intends to make his home indefinitely in that nation.

The 183-day test defines that a person having physical presence in Australia for no less than half of the income year either continuously or in breaks will be treated as the resident of Australia. An exception to this rule is that except it is recognized that the permanent home is out of Australia and do not have the intention of taking up the house in Australia. The judgement passed in the case of “F.C of T v. Applegate (1979)”, the expression relating to place of abode give rise to the physical surroundings in which a person resides (Harris et al., 2015). Similarly, when a person does not reside in Australia in accordance with the ordinary test he or she will be considered to be the resident of Australia if present in Australia for period no less than six months during the income year. An exception to this rule is that, a person will not be considered as the Australian occupier except the commissioner is content that the individual normal home or residence is out of Australia and do not have the intention of taking up the habitation in Australia (Kenny, 2013).

An assertion can be bought forward by stating that the Denial on arriving to Australia has been present constantly for more a period of six months. Additionally, in spite of having the usual place of abode outside of Australia have evidently expressed the intention of staying in Australia by taking up the residence or residency in Australia (Keyzer et al., 2014). It can be stated that the Denial has been physically existent in Australia for more than the period of six months during the income year and will be considered as the Australian resident under the 183 day-test.

The superannuation test provides that some Australian government personnel employed at the Australian post foreign will be considered as the Australian residents (Krever, 2013). It is understood from the current case study it is understood Daniel is employed in the subsidiary of the Multinational firm in Australia and will be regarded as working under the Australian government at the Australian foreign post. Therefore, he will be considered as the Australian resident under the superannuation test.

Fringe Benefit Tax Implications for Joyce

Conclusion

The study evidently provides that Daniel will be considered as the Australian resident since he has satisfied the criteria of the residential test performed. The study has evidently put forward the intention of Denial in taking up the residence in Australia and hence he will be treated as the Australian resident.

Computation of Taxable Income of Daniel
For the year ended 2016
Particulars	Sections	Amount ($)	Amount ($)
Assessable Income
Gross Salary Received	Section 6-5 of the ITAA 1997		250000
Australian Sourced Rental Income
Rent from house in Perth	Section 6-5 of the ITAA 1997		40000
Rental Income from Property in Malaysia	Section 6-5 of the ITAA 1997		24000
Australian sourced interest income
Interest from Australian Bank	Section 6-5 of the ITAA 1997		3000
Interest from Malaysian Bank	Section 6-5 of the ITAA 1997		8000
Receipt of Bonus	Section 6-5 of the ITAA 1997		15000
Australian Sourced Dividend Income
Dividends from Mining shares	Section 6-5 of the ITAA 1997	3640
Gross up Franking Credits	Section 6-5 of the ITAA 1997	1560	5200
Dividends from BHP Shares	Section 6-5 of the ITAA 1997	2858
Franking Credits	Section 6-5 of the ITAA 1997	2142	5000
Total Assessable Income			350200
Allowable Deductions
Work Related Expense	Section 8-1 of the ITAA 1997		2500
Total Allowable Deductions			2500
Total Taxable Income			347700
Tax on Taxable Income			129697
Add: Medicare Levy			6954
Less: Franking Credits in BHP Shares			2858
Less: Franking Credits in Mining Shares			1560
Total Tax Payable			132233

The present case study is associated with the study of determining the fringe benefit significances of Joyce who is regarded as the resident of Australia. The present case study will analyse the fringe benefit implications as well as the income tax consequences for the various transactions which is listed in the case. The case study will consider the guidelines of “ITAA 1997 and ITAA 1936” to determine the tax implications of the relevant transactions (Mangioni, 2014). Additionally, numerous taxations rulings, case laws and interpretative decisions of Australian taxation office is taken into the account to arrive at the income tax or fringe benefit implications. In determining the fringe benefit implications, the “Fringe Benefit Tax Assessment Act 1986” has been referred in the study of Joyce.

As evident from the current case study of Joyce, it is noticed that she received salary that also contained the benefit of superannuation. As defined under “section 6-5 of the ITAA 1997” income that are derived according to the ordinary concept will be included in the assessable income of the taxpayer (Morgan et al., 2014). The salary derived by Joyce will be having income tax consequences and will be counted in the taxable proceeds in relation to the ordinary concept under the “section 6-5 of the ITAA 1997”. Additionally, the contribution made by the employer will not be considered as taxable at the time of contribution.

The superannuation contribution represents income tax consequences and under “section 8-1 of the ITAA 1997” it lay down that the taxpayer is allowed to claim allowable deductions for income tax purpose for any expenditure that is incurred at the time of gaining taxable income of the taxpayer (Nethercott et al., 2013).  Evidently in the current situation Joyce can claim allowable deductions for the superannuation contribution made by her.

The fringe benefit tax is applicable for the benefit that is provided by the employer to the employee including their employee’s family or other associates. These kinds of benefits generally forms the part of the salary or wages package (Sadiq, 2016). In the present situation of Joyce, it is noticed that the employer paid the school fees of Joyce children. Therefore, it can be said that amount of school fees paid will be regarded as fringe benefit and will attract tax liability.

Travel expenditure deduction for employees under ITAA 1997

The draft ruling of TR 2017/D6 defines the circumstances when the expenditure incurred by the employee on travel will be considered as for deductions (Woellner, 2013). The draft ruling defines the principles for determining whether an employee will be able claim an allowable deduction for the travel expenses occurred under “section 8-1 of the ITAA 1997”. “Section 8-1 of the ITAA 1997” define that outlay sustained for the purpose of executing the employee’s work and no portion of such expenditure is incurred for private, domestic or capital nature then such expenditure are entirely deductible. The travel expenditure incurred by Joyce will be considered entirely deductible under “section 8-1 of the ITAA 1997”. 

From the current case study, it is noticed that Joyce incurred a membership fees for marketing institute that was paid by his employer. The amount of membership fees paid represents fringe benefit and will attract tax liability under the FBTAA 1986. The membership benefit for Joyce represents Tier 1 benefit (Woellner et al., 2014). On the other hand, it is noticed that the employer paid gym membership for Joyce which represents a fringe benefit and will attract Fringe Benefit Tax in respect of the FBTAA 1986.

“Section 7 of the FBTAA 1986” provides the circumstances where the use of car is regarded as taxable fringe benefit. By virtue of the definition provided under the “sub-section 136 (1)” use of car made by an employee or any other associate that does not have any association in the course of generating taxable revenue of the employee will represents a personal use (James, 2016). As evident from the current case study it is noticed that Joyce also the used car for private purpose other than using it for business purpose and the expenditure incurred for private use will not be considered as allowable deductions.

To determine the taxable benefit of the car operating cost method is undertaken in the current context. The business journey in respect of sub-section 136 (1) is subtracted from the private use for the application of the operating cost method. Citing the reference of “Lunney and Hayley v FCT (1958) 100 CLR” acknowledged that private expenditure incurred on car will not be considered for as allowable deductions (Barkoczy et al., 2016). If the expenditure is incurred entirely for business purpose, then an allowable deduction can be claimed entirely for the purpose of income tax. Similarly, the cost incurred by Joyce in this context for the private kilometres travelled will be regarded as private expenditure and no deductions can allowed in such context. Therefore, a fringe benefit tax liability will originate for the private use of car by Joyce.

Conclusion

On arriving at the conclusion, it can be stated that the transactions reported by Joyce will attract fringe benefit tax liability under FBTAA 1986. Additionally, Joyce can also claim an allowable deduction on the certain transactions under section 8-1 of the ITAA 1997 that has income tax implications.     

Operating Cost Method
In the Books of Joyce
For the year ended 2016-17
Particulars	Amount ($)
Total Kilometres Travelled	20000
Distance travelled for Business use	12000
Distance travelled for Private use	8000
Percentage of Business Use	60%
Expenses:
Fuel charges per month	2400
Servicing	3600
Registration	750
Insurance	700
Total Operating Cost	7450
Gross Taxable Value (A)	2980
Employee Contribution (B)	1800
Taxable Value of the Fringe Benefit	1180

Computation of Fringe Benefit
In the Books of Joyce
For the year ended 2016
Particulars	Amount ($)
Superannuation Benefit	14250
Payment of School Fees	15000
Traveling Cost	40000
Marketing Cost	750
Gym Membership Cost	288
Ipad	1100
Loan to Joyce	22000
Airline Membership	440
Aggregate Value of Fringe Benefit	93828
Fringe Benefit Taxable Amount	182190
Tax Payable	88362

Reference List

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Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. Australian taxation law 2014.