Taxation Law Assignment: Case Of Ascertainment Of Residential Status
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Further to the telephonic discussion and meetings regarding advice on residential status and inclusion of income earned from Saudi Arabia, suggestionsconcerning the same are provided as follows –
Summary of advice
Relevant facts and circumstances on which advice is based is explained under the heading of detailed analysis, this section of taxation law assignment contains only summary of advice provided to you. If you do not understand any fact or situation and not accordance with understanding, then you can immediately contact us as this may create an impact upon the advice provided.
In summary, the advice is as follows –
It is advisable that it would be a better decision that offers made by Australian Taxation authorities related to makingself-amendment within 28 days should be accepted by you. Although, you are not considered as resident of Australia, as per the ordinary test and 183 days test.However, you are satisfying criteria of domicile test of residency, and it would depend on your capability to convince ATO that you possess a permanent place of residence in a foreign country. Still, I think it is not possible in your situation. The reason behind the same is that there are some assets have been kept by you in Australia. Further, on your all records, permanent address belongs to the resident of Australia, which is sufficient evidence for Australian Taxation Authorities.
Detailed analysis of advice
This section of taxation law assignment contains issues, relevant rules, application of the regulations in the current scenario, and conclusion of the facts.
In the present case scenario of taxation law assignment, the issue is related to the ascertainment of the residential status of a person named as Mr Nguyen. The issue arises because of –
- He has filed income tax return as a non-resident of Australia, even if he is getting monthly payment in Australian Bank Account and his address with other authorities also remain same. Further, he also maintained a permanent place of residence in Australia.
- As a part of his divorce, he kept permanent residence in Australia; which has been purchased in the year 1990.
Usually, ascertainment of whether a person is resident of Australia or not is achievedthrough considering the facts and situation of the person in light of some common law as well as statutory test explained below. For instance, an individual who spends exceeding half year of the financial year in Australia is probably to be a resident of Australia according to these tests.
Common law test:
According to this test, an individual is considered as a tax resident of Australia; if they reside in the country as per the ordinary meaning of the word explained in the Income Tax Assessment Act 1936, subsection 6(1). Concerning this, the ordinary concept of residency considers the overall circumstances of the person in a relevant financial year, consisting of –
- The main objective of the presence of person in Australia.
- The range to which family, business, and employment is connected with Australia .
- The location and maintenance of asset of individual.
- The communal and living procedure of individual.
In case if a person does not fall within criteria of a resident of the country as per common law test, then he/she also considered a resident of Australia, only if anyone following situation has been satisfied by the person as per subsection 6(1).
Domicile test: A person is considered as resident of Australia, if the permanent place of residence in Australia, except if Australian Taxation Authorities satisfied that person’s lasting place of home is situated at a foreign nation . In the legal case of Henderson v Henderson undertaken in the present context of taxation law assignment, it has been stated that, an individual retains the domicile of choice except he/she acquires residence of choice in another country.
183-days: It is applicable for the individual who is reaching to Australia. He/she is considered as resident of the country as per this test only if they are present in Australia for a period of exceeding 183 days of the income year, whether in a continuous manner or parts . A person might be said to have a constructive residence of the country, except if it would be stated that their ordinary place of residence is not in Australia and there is not any intention of taking up house here. Further, if there is already the existence of a permanent place of home in Australia, then in such case, this test would usually not applicable notwithstanding of several days spent by a person in Australia .
Commonwealth superannuation test: It applies to the employees of the Australian government working at the overseas post of Australia and who is also a member of the CSS or PSS scheme . It does not seem to apply to members of PSSAP scheme. In this situation, an individual, and their spouse, and children below the age of 16 years are regarded to be a resident of the country notwithstanding any other aspects .
In the legal case, Levene v IRC, place of abode is referred to residence of individual at which he/she lives with their family .
Based onthe above tests, the residential status of the person is determined. Apart from this, in the legal case, Harding v Commissioner of Taxation (2018), states about the permanent place of residence in anoverseasnation and Australian domicile . In this case of taxation law assignment, the applicant had left Australia and engaged in working in Saudi Arabia as an engineer, initially for a year, but it was extended over time. The Australian Taxation Authorities had issued notice to the taxpayer to include income generated from Saudi Arabia in the income tax return filed in Australia. It was stated in the above legal case, that applicant is not considered as resident of Australia as per the ordinary test of residency, but domicile test would be applied to an individual who is regarded as a non-resident as per with the ordinary examination . In the above case, it has been contended by the judge that applicant had made a concession that Australian domicile has been retained by him, which may have been demonstrating of long term intention of the applicant concerning the future existence in the country. As per Domicile Act 1982, Section 10, if a person intentionally acquired a residence of choice in a nation is considered as apurpose to create his/her residence in that nation for an indefinite period. Overall it has been held that –
- Section 6(1) of the ITAA would not apply to a person who went from Australia with the aim to never coming back to reside but not created the essentialobjective to purchase a domicile of choice. Notably, for Section 6(1), it is required that there should be a permanentplace of residence exterior to the Australia.
- In the comparative manner, the meaning of permanent word should be applied, which must be in contrasted with temporary.
- Place of abode means residence at which a person reside. Thus, an individual may have a place of residence at a particular area, but they shift from house to house .
In the above case, it has been stated that the, permanent place of residence has not been possessed by the person as per the criteria prescribed under Domicile test, and thus he is classified as resident of the country.
Application of law
In the present case scenarioof taxation law assignment, it can be noted that Mr Nguyen was born in Australia, but moved for employment in Saudi Arabia as an engineerinitiated from 05 July 2016. He also did not have any intention to resign from the company in the near term. However, he also kept a permanent place of residence in Australia and did not rent out. Based on above relevant laws, it can be stated that, as per the standard law test or residency test, Mr Nguyen is not considered as resident of Australiabecause his departure from Australia to Saudi Arabia is not in temporary nature, and he also did not have any intention to resign from such job. Ordinarily, he lives in Saudi Arabia. Place of residence of a person is ascertained by where a person lives usually. Therefore, Mr Nguyen does not satisfy the criteria of common law test or residency test, and thus he is not considered as resident of Australia according to this test.
Although, if Mr Nguyen satisfies one of the conditions prescribed under statutory tests such as 183 days or domicile test, then in such a situation, he is considered as an Australian resident. It can be stated that Mr Nguyen returns to Australia only for one month, therefore as per the 183 days test of residency, he is also not considered as resident of Australia. Moreover,it has been seen that concept of residency in the Domicile test has been expanded and he/she is regarded as Australian resident if they have a permanent place of residence in Australia, except if it is satisfied by the commissioner that Mr Nguyen possesses a permanent place of residence in a foreign country such as Saudi Arabia.
House in Australia
It can be said herein taxation law assignmentthat Mr Nguyen is maintaining a continuous connection with Australia; it is becausehe possessed a house in Australia. If a person established a residence at a specific place, then in such case, he/she did not essentially terminate to be resident of that place due to the fact that they are absent in physical manner . Similarly, in this case, scenario, Mr Nguyen did not rent out his premises while working ina foreign country. He returned to Australia in every year for a month to spend time with children as well as family. Along with this, he also did not form any required intention regarding making of Saudi Arabia his residence for an indefinite time. If Mr Nguyen had made such a choice, then in such case, he would have lost domicile in Australia.
Mr Nguyen is working as a full-time employee in Saudi Arabia. It is quite usual that location of full-time work is considered as the main and primary element for the ascertainment of the usual place of residence of the person,however, at the time of ascertainment of residential status, it is not only the one factor that is required to be taken into account.
Coming back to Australia
Mr Nguyen returns to Australia in every financial year and satay with children and maintenance of a residence in the country, which reflects the regularity of the association principle.
Mr Nguyen is maintaining a bank account in Australia, and payment of salary was deposited in this account only.
Some other matter
Along with the above aspects, he also kept a registered car in the garage of his house, and also did not make any changes in the address of diving license, hand back his gun license. Along with there is not any information has been provided to the Australian Taxation Authorities that he was terminating tax residency status of Australia.
The aforementioned analysis presented in the taxation law assignment clearly shows about the residential status of Mr Nguyen. Although, as per reside test he is not considered as resident of the country, but he satisfy the criteria given in Domicile test, and thus classified as resident of the country. The reason behind the same is that he is maintaining a permanent place of residence at Australia, and also coming in each year for seeing his son. Moreover, the property also not has been rented out. Therefore, it has been concluded that Mr Nguyen did not have any permanent place in Saudi Arabia as per required in the Domicile Test. Consequently, he should be classified as resident of the country for the purpose of application of income tax provision in the 2017 and 2018 in the income years. He should not enter into audit to defend his present opinion that he is considered as a foreign resident who does not require to pay income tax on income that is generated from the foreign nation such as Saudi Arabia. Based onthe above-detained analysis done in this taxation law assignment, it is advisable to the Me Nguyen he should agree on the advice provided by ATO with an opportunity to make changes in the income tax return filed in the year 2017 and 2018 by agreeing that he was resident and filing amendments.