Australia’s income tax system adopts the resident and source principle. Two major exceptions to
the residence and source rule principles are CGT and international tax (not important).
Section 4-10 ITAA 1997: Tax Payable = (Taxable income x Tax rate) – Tax offsets
Section 4-15 ITAA 1997: (NET) TAXABLE INCOME = ASSESSABLE INCOME DEDUCTIONS
ASSESSABLE INCOME = ORDINARY INCOME + STATUTORY INCOME
Section 6-5 ITAA 1997 Ordinary Income: (resident and source); meaning of ordinary - refer to
Scott (1935)
Section 6-5(1) ITAA 1997 - Your assessable income includes income according to ordinary
concepts, which is called ordinary income.
Section 6-5(2) ITAA 1997 – If you are an Australian resident, your assessable income includes
the ordinary income you derived directly or indirectly from all sources, whether in or out of
Australia, during the income year. An Australian tax resident is taxed on worldwide income.
Section 6-5(3) ITAA 1997: If you are a foreign resident, your assessable income includes:
(a) the ordinary income you derived directly or indirectly from all Australian sources during the
income year; and
(b) other ordinary income that a provision includes in your assessable income for the income
year on some basis other than having an Australian source.
Section 995-1 ITAA 1997 - Australian resident means a person (includes company) who is a
resident of Australia for the purposes of ITAA 1936.
Section 6(1) ITAA 1936 - “Resident of Australia”
An individual is an Australian resident for tax purposes if he/she satisfies ONE of the four tests
(first common law, remainder statutory tests):
1. The primary test for deciding the residency status of an individual is whether the individual
resides in Australia, according to the ordinary meaning of the word “resides”.
ATO rule of thumb (not decisive – 6 months).
Ruling TR 98/17, para. 14 -Definition of reside: “To dwell permanently or for a considerable
time; to have one’s settled or usual abode, to live, in or at a particular place.
Key Cases:
Levene (1928)
Facts: The tax payer left England on medical advice, but returned for about five months per year
for medical treatment, to take part in religious ceremonies and to attend to his tax affairs. He had
no fixed place of abode, either in England or abroad and lived in hotels. The taxpayer was held to
be a resident of the UK until he took a lease on a flat in Monte Carlo.
Principles:
- The location of a person’s family, business and social ties will provide evidence of residence
- The purposes for going abroad were nothing more than temporary
Conclusion: He was a resident.
Lysaght (1928)
Facts: A taxpayer who spent considerable time abroad. In this case the taxpayer partially retired
and moved from England to an inherited estate in Ireland. He sold his home in England but
remained a non-executive director of the family company. He travelled to England for
approximately one week per month, staying in hotels, to attend board meetings.
Principles:
- A person maybe a resident on ordinary concepts if physically present for less than half years,
for the reason that his visiting to another place with frequency and regularity
- A taxpayer living in one jurisdiction but visiting another with frequency and regularity
Conclusion: He was a resident.
TR 98/17: Residency status of individuals entering Australia
Residency status is a question of fact and is one of the main criteria that determine an
individual’s liability to pay income tax.
- Migrant who comes to Australia permanently = resident.
Rule of thumb (para. 18)
- Live here continuously > 6 months: para 22.
- Behaviour consistent with residency (Factors mentioned below)
- Prima facie resident (first impression)
TR 98/17 (para. 20): Factors to consider (weigh up all the factors):
- Home (Permanent) – Renting? Hold property?
Family home in Australia and intention to treat Australia as home (Joachim (2002)).
- Physical presence – Longer in Australia, more likely resides in Australia.
- Frequency & regularity of movement – Lysaght (1928)
- Intention or purpose of presence/residence history
- Family, business and social ties (Levene (1928)); bank account
- Maintenance and location of assets, personal belongings
- Social and living arrangements
- Nationality (minor importance)
The other 3 tests are supplementary tests.
2. “Domicile” & “Permanent Place of Abode”
Whose domicile (the place where a person is deemed by law to have his/her permanent home) is
in Australia, unless the commissioner is satisfied that his permanent place of abode is outside.
(Domicile of origin = father’s domicile at birth & domicile of choice = act and intention to take
up a new jurisdiction as permanent home).