IS THE TAXPAYER A RESIDENT?
NB
Must be assessed on a year to year basis
Double Tax Agreements
FOUR TESTS under Section 6
COMMON LAW TESTS
INCOME ON
ORDINARY
CONCEPTS
Intention or purpose of
presence [must be more
than mere presence as a
traveler, even if that
includes obtaining
casual employment to
pay for the trip]
Family and
business/employment
ties
Maintenance and
location of assets;
[includes matter such as
owning or purchasing
housing and establishing
bank accounts]
Social and living
arrangements [include
enrolling children in
school and joining
sporting or community
organisations]
DOMICILE
PERMANENT
PLACE OF ABODE
The intended and actual
length of stay in a
foreign country. An
unspecified or
substantial (> 2 years)
overseas stay is likely to
be considered a
permanent place of
abode outside Australia
Establishment of a home
outside Australia; and
Durability of association
with Australia e.g.
maintenance of bank
accounts, education of
children
RESIDENT
The assessable income of a resident includes
ordinary income (direct or indirect) and statutory
income (s 6-5(4)) from all sources , whether in or
out of Australia
Qualifications
Certain foreign employment income is not subject
to Australian taxation
Certain dividends income by companies from other
companies in and carrying on business in a
comparable tax jurisdiction is exempt
STATUTORY TESTS
If a taxpayer is not a resident of Australia by either
virtue of the common law or domicile tests, the
application of the second sub-paragraph of
paragraph (a) of the definition of 'resident' must be
applied
183 DAY TEST
COMMONWEALTH
SUPERANNUATION
A person will be
resident under this test if
they are either
continuously or
intermittently in
Australia for more than
half the year of income
unless the
Commissioner is
satisfied
the person's usual place
of abode is Australia;
and
the person does not
intend to take up
residence in Australia
Its application depends
entirely upon
membership of the
Commonwealth
government
Superannuation schemes
establish pursuant to
specific statues listed or
having a specific
relationship to such a
person
NON-RESIDENT
The assessable income of a non-resident includes
ordinary income (derived directly or indirectly (65(3)) and statutory income (6-10(5)) for all
Australian sources
Qualifications
A specific provision can override this
The observation that ss128A-128R will tax income
that flows from Australia on a withholding tax basis
irrespective of the source of income, where that
constitutes interest, dividends not fully franked or
royalties
IS THE PERSON A RESIDENT?
YES
Source Irrelevant Section 6-5
Remuneration for services
rendered
Is the source of remuneration for
services rendered (a)
the place where the
contract is made,
(b)
the place where the
contract is performed,
(c)
the place where the
payment is made
or some combination of these
factors requiring apportionment
NO
Income must be sourced in Australia
Financial Transactions
As in every case, the
identification of the source of this
income is a practical matter of
fact involving an examination of
all the circumstances
Matter of substance not form
Thorpe Nominees
Income from business
Statutory Provisions
Outgoing royalties
Certain types of natural resource
income
Interest payment secured by a
mortgage over Australian
property
Certain dividends
Profits from certain import and
export sales
Miscellaneous provisions
Capital Gains
General Provisions; Nonstatutory source rules
Sale of real estate
Sale of tangible property
Interest
Personal services
Capital Gains
Dividends
IS THE SOURCE OF INCOME
AUSTRALIAN?
YES
The taxpayer includes the whole amount as
assessable income.
NO
The taxpayer does not include the portion sourced in
Australia in taxable income.
DERIVATION
IS CASH RECEIPTS OR ACCRUAL
EARNINGS THE APPROPRIATE METHOD?
WHAT IS THE TAXPAYER'S METHOD OF
EARNING AN INCOME?
Income from
trading
Generally income
arising from the
trading activities
of a commercial
undertaking must
be brought to
account on an
earning/accruals
basis
significant role
that commercial
and accounting
principles J Rowe
& Sons
It is necessary to
determine whether
the consequence is
that a debt has
been created or
whether the
taxpayer is obliged
to take further
steps before
becoming entitled
to payment.
USUALLY
ACCRUAL
EARNINGS
Remuneration for
personal exertion
Carden
there was nothing
in the taxpayer's
business which
resembled stock in
trade;
outstanding on the
expenditure side
did not correspond
to and were not
naturally
connected without
outstanding
earnings on the
earning side;
There was no fund
of circulating
capital; and
Receipts were, in
substance, a
reward for
professional skill
The method used
to be used depends
on its 'actual
appropriateness'
and in particular,
whether it provides
a 'substantially
correct reflex of
the taxpayers 'true
income'
CASH
RECEIPTS
Payments in
advance
What is the
position where
payments are
received by the
taxpayer in
advanced to being
earned/
Are the payments
(assuming that
they are of an
income nature)
derived in receipt
of only when
earned?
CAN BE BOTH
Arthur Murray
(NSW) Pty Ltd
CASH RECEIPTS
Taxpayer brings to account as assessable income all
cash income actually or constructively received in
the income year.
Wage and salary
earners
For employees the
time of derivation
is when the income
is actually
received,
irrespective of the
period of time
which the payment
covers
CASH
RECEIPTS
Rent, interest and
other income
from property
In the case of
income derived
from property the
normal time of
derivation of that
income is as and
when it is actually
received
CASH
RECEIPTS
ACCRUAL EARNINGS
The actual receipt of the money irrelevant.
Derived the income when the taxpayer has earned
the right to payment of the sum.