Residence and Resources

Question: Discuss whether Kit is a resident of Australia and how his salary and investment income would be taxed. Answer: Case Study 1 Issue In this case, the first aim is to determine the tax residency status of a Chilean citizen Kit as per the given information and the second aim is to find the various tax treatments available in an Australian tax law for the derived income of Kit from various sources. Rule The tax treatment of a taxpayer in Australia depends on the residency of that person in terms of the deductions available and also the sources of income contributing to the assessable income. The taxation consideration extended for an Australian tax resident is in regards to the various sources of income. These sources also play a pivotal role in the examination of the extent of tax liability. The conditions to be satisfied for tax residency are described in section 6 (1) ITAA, 1936. In addition to that, tax ruling TR 98/17 provides various tests that can test the tax residency status of a person, with significant conditions (Sadiq et. al., 2015). A brief discussion about these tests is carried out as follows (ATO, 1998). 1) Superannuation test This test applies to those officers who are on frrign deputation and hence are not covered by any other test. For Australian tax residency status, it is required that the individual must contribute to either the Public Sector Superannuation Scheme or the Commonwealth Superannuation Scheme on a regular basis. Besides this, it is also required that the individual must contribute to these schemes on regular basis (Sadiq et. al, 2015). 2) 183 day test There are basically two specified conditions that need to be fulfilled by the given taxpayer to secure tax residency through this test (Gilders et.al., 2015). The concerned taxpayer must reside on the land of Australia for the minimum time period of 183 days in the assessment period. The intention of the taxpayer to settle in Australia going ahead without reference to whether it actually happens or not. 3) Domicile test This test is usually used when the taxpayer has Australian domicile and living outside from Australia because of personal or professional commitments. In this test, there are two imperative conditions that need to be satisfied by the taxpayer in order to confirm the tax residency status (Gilders et. al., 2015). The concerned taxpayer must have a domicile of Australia as per Domicile Act 1982. The taxpayer must have his/her permanent abode situated in Australian territory. As per the information provided by tax ruling IT2m650, the location of permanent abode of the taxpayer is a major concern that can be significantly examined using the factors highlitghted in the ruling (ATO, 1991). 4) Residency test There are no specified conditions available for this test that can be directly applied to the taxpayer to determine the tax residency status. Therefore, the final judgments of the court in relevant case along with tax rulings are the only source to spot the critical factors (Barkoczy, 2015). In this test, the citizenship of the taxpayer plays a vital role along with the relative magnitude of the taxpayer in regards to personal or professional bond and social relationship within Australia and with the country of origin. The time period, frequency and purpose of foreign visit are critical especially if the visiting place is a country of origin also the location of the stay of the taxpayer as a permanent residence. Application 1) Superannuation test This test is not applicable because Kit is not an officer and did not involve in the schemes described earlier also he did not live in Indonesia due to any Australian governments commitments. 2) 183-day test As per the given information, it can be concluded that Kit did not stay in Australia for 183 days in a financial year. Hence, Kit has not passed this test. 3) Residency test In this case, it is given that Kit is possessing Chilean citizenship, although; he is a PR of Australia. However, he is working on the coast of the Indonesia because of professional commitment. In other hand, Kit is having a house in Australia where his family resides also he has a joint bank account with his wife in an Australian bank where he receives his salary. After considering all the respective factors, it can be said that Kit is having tax residency in Australia. 4) Domicile test As Kit is an Australian PR as per the given specification, but due to professional commitment with a US based company, he is bound to work outside Australia. Kit satisfies both the imperative conditions of Domicile act . Kit has an domicile of Australia since he has the PR of Australia. Kit frequently visits Australia to meet his family after each three months of his work in Indonesia. Kit or his wife is not having any intention to settle in the foreign territory or in the country of origin on the permanent or temporary basis and hence has a permanent residence in Australia. After discussing all the tests shown above, it can be concluded on the basis of Domicile test and Residency test that Kit is recognized as a tax resident of Australia. Since, Kit is recognized as a tax resident of Australia, thus, the income received from various sources i.e. domestic and foreign would be considered for tax purpose. In this case study, two major sources of income have been discussed namely dividend income coming from his shares in his country of origin i.e. Chile and his salary coming from working in the oil rig neat Indonesia. Thus, the salary and shared would be considered for taxation purpose and hence, would be taxed as per the section 6(5) ITAA 1997. Also, if the market price of these shares goes high and shares are liquidated, then also the income would be treated as capital gains and levied capital gains tax. References Barkoczy,S 2015.Foundation of Taxation Law 2015,7th edn, CCH Publications, North Ryde Deutsch, R, Freizer, M, Fullerton, I, Hanley, P, Snape, T 2015. Australian tax handbook, 8th edn, Thomson Reuters, Pymont Gilders, F, Taylor, J, Walpole, M, Burton, M. Ciro, T 2015. Understanding taxation law 2015, 8th edn, LexisNexis/Butterworths. Sadiq, K, Coleman, C, Hanegbi, R, Jogarajan, S, Krever, R, Obst, W, and Ting, A 2015,Principles of Taxation Law 2015,8th edn, Thomson Reuters, Pymont.