Understanding Residency Status For Taxation In Australia

Factors in Determining Residency Status

We wish to bring your kind attention towards your status of residency in respect to the information that is provided by you. We seek to draw your attention towards the “Taxation ruling TR 98/17” that mainly deals with the instances of individuals that enters to Australia. The “Taxation ruling TR 98/17” provides the view of commissioner regarding the ordinary meaning of the term “resides” in context of the definition defined in “subsection 6(1) of the ITAA 1997”. The taxation ruling is usually applied to those persons that comes to Australia as the migrant within the scope of business migrants or workers that comes with pre-arranged contracts of employment.

According to the definition provided under the “section 995-1 of the ITAA 1997” a resident or the Australian resident means an individual that lives in Australia and includes those person that has their domicile in Australia, unless the commissioner of taxation content that an individual place of abode is out of Australia. We would also like to inform you that within the meaning of “section 6 (1) of the ITAA 1936”, the resident of Australia includes the person that is actually living in Australian either continuously or intermittently for a minimum of six months during the income year.

As understood from the events cited by you, it is understood that you were transferred to Australia with your wife Inda and children on 1^st July for three years. You also reported that a house was bought by you to live in Australia. Furthermore, you registered the telephone and electricity bill in your name. You should denote that “Taxation ruling TR 98/17” provides certain relative factors in determining whether the person is an Australian resident based on the behaviour while present in Australia. You must denote that the quality as well as the character of a person’s behaviour in Australia while in Australia helps in ascertaining whether the person lives in Australia. The factors include the quality of existence and the time as the important element in ascertaining whether a person lives in a place where they devote a portion of their lives. Instances quoted in “Reid v The Commissioner of Inland Revenue (1926)” held that the ordinary meaning of the term reside includes the quality and character of an individual’s presence in Australia.

A person’s purpose or intention of being in Australia helps in coming to conclusion whether the person resides in Australia. A person may have numerous reasons however there are only single purpose of being present in Australia. A well-settled purpose namely employment or education might support the objective of residing in Australia. The intention and the purpose of your presence in Australia is your employment which supports the intention of your and Inda’s residence in Australia.  Referring to the instances in “Miesegaes v Commissioners of Inland Revenue (1957)” you entered Australia based on your pre-arranged employment contract and your stay can be termed as consistent with living in Australia.

Meaning of ‘Resides’ according to TR 98/17 and ITAA 1997

We wish to further assist you and your wife Inda in determining the residency status by referring to the factor of “family and business or employment ties”. This factor helps in reflecting that an individual living in Australia is mainly because of the presence of family. Referring to the expression of court in “Peel v The Commissioners of Inland Revenue (1927)” an individual that arrives in Australian with a contract of employment or maintains a behaviour in consistent with residing here may be held as resident. The evidences provided by you suggest that you purchase a house to dwell in with your family. You further registered your telephone and electricity bill in your name. Therefore, your behaviour is consistent with residing here in Australia.

The “taxation ruling TR 98/17” provides that maintenance as well as location of assets is an indicator of residing within the ordinary meaning of the term resident. It is noteworthy to denote that the occupation of dwelling in Australia such as purchase or establishment of house in Australia reflects an individual behaviour is consistent with an Australian resident. Your purchase of house suggest the establishment of home in Australia which further adds weightage to the behaviour consistent with living in Australia.

Your social and living arrangements is another factor that we wish to consider to conclude upon your residency status. To support the explanation we wish to explain that social and living arrangements includes the way in which a person interacts with the surroundings while their stay in Australia which may reflect that you are living here. The arrangement might include joining the sporting or community associations or enrolling your children in school.

On the basis of the information furnished by you it is noticed that you have joined a local gym and local chess club. Your wife joined the part time employment by working as the sales manager and your also enrolled your children in school. Your social and living arrangement provides an indication that you are living in Australia since you and your wife Inda have interacted positively with the local surroundings. Elwood, citing the reference of “section 995-1 of the ITAA 1936” you and your wife Inda will be treated as the resident of Australia. This is because you and your wife Inda have satisfied the necessary factors relevant in determining the residency status of those that enters to Australia.

As your wife Inda and you are Australian resident inside the ordinary meaning of “section 995-1 of the ITAA 1936” the income derived by you and your wife Inda in the form of salary and rental income shall attract tax liability. On a concluding note, we anticipate that the advice rendered for your residential status has helped in serving your interest. We look forward to hear you soon. 

We wish to bring your kind attention towards your position of taxable income in respect to the information that is provided by you.

1. As stated under “section6-5 of the ITAA 1997” majority of the income that is earned by the taxpayer is regarded as ordinary income. The law court in “Scott v CT (1935)” explained that receipts must be treated in the ordinary sense and use of mankind. You reported the receipt of gross salary of $86,000. The amount constitute ordinary income under “section 6-5 of the ITAA 1997” and would be included for assessment.
2. As stated by ATO a person receiving reimbursement relating to car expenditure incurred for producing assessable income would be treated as income. You must include the car reimbursement in your tax return for determining the tax liability.
3. You further reported the receipt of bank interest in the form of income. With reference to “section 6-5 of the ITAA 1997”the bank interest derived by you would be treated as income under the ordinary concepts and would also attract tax liability.
4. According to the “Section 6(1) of the ITAA 1936” an Australian resident corporate firm may pay you with un-franked dividend. The un-franked dividend does not has any franking credit. Referring to “section 44 (1) of the ITAA 1936”the sum of un-franked dividend which you have received must be declared while filing tax return as it attracts tax liability.
5. We wish to inform you that “CGT event G1”takes place when a taxpayer reports any capital gains from the sale of shares. You reported capital gains from the disposal of shares and simultaneously incurred brokerage cost. The brokerage cost would form the part of the disposal of shares. Furthermore, the capital gains reported by you should be included for assessment purpose while filing tax return as it constitute an item of income.
6. As stated under the “subdivision 108-C”assets that are of personal use are held as the non-collectable assets which is mainly used for personal enjoyment and use. As defined under the “section 118-10(3)” any form of capital gains or loss that is made by the taxpayer with the cost base of asset below $10,000 should be disregarded. You reported a loss from the event of disposal of cricket bats. The cost base of asset is below the prescribed limit of $10,000 and hence the capital loss made by you will be disregarded.
7. As stated by the ATO a taxpayer is permitted to claim for deductions relating to the motor vehicle up to the proportion that is dedicated towards the derivation of the assessable income. As understood from the transactions reported by you, the motor vehicle had travelled for 7,420 kilometres and 95% of the use was dedicated towards business purpose. However, it is noticed that you have failed to maintain the log book for claiming deductions. Therefore, your deductions would be limited to 5000 kilometres with a standard rate of 66 cents per kilometre.
8. As defined under the general provision of “section 8-1 of the ITAA 1997”a taxpayer is entitled to claim an allowable deductions from their taxable income relating to the expenditure that is incurred in producing the taxable income. Based on the transaction reported by you it is noticed that you have occurred telephone costs of $1,400 out of which 60% of the telephone expenditure was dedicated for work purpose. Therefore, you can claim an allowable deductions for the 60% of the telephone bill incurred for work purpose.
9. As stated under “section 25-5 of the ITAA 1997”a taxpayer is allowed to claim specific deductions relating to the expenses that is occurred in preparing and managing tax return. As evident from the transactions reported by you, it is noticed that you incurred a cost of $400 on tax agent for managing your tax return. With reference to “section 25-5 of the ITAA 1997” you will be allowed to claim an allowable deductions for cost of managing your tax return.
10. As per the information furnished, you are not married and you do not have any private health cover. Therefore you shall be liable for Medicare levy surcharge of 1% from your taxable income since your income falls under the Tier 1 earner

On a concluding note we have attached your tax liability in the statement of advice. We hope that the advice rendered as helped in serving your purpose and hope to hear you soon.