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Taxation Law

Table of Contents

The Case Study of Swifty Taylor

Resides test

Domicile test

183-day test

Conclusion.

Reference.

Introduction to Swifty Taylor Case Study

Swifty Taylor is a citizen of Australia. She is currently single and has already moved to the USA in the taxation year 2018-19 for taking a secondment with Century 21, in New York City, the secondment is of 2 year. Also, Swifty has established herself as a highly successful real estate agent in Australia and thus she was offered with a US work visa on a temporary basis. I know Swifty as I have provided her with conveyance facilities on various sales transactions for her real estate firm. Swifty requires some taxation consultancy

The Case Study of Swifty Taylor

As Swifty wants to understand her tax situation, she first is required to ascertain her Residential status in Australia for tax purpose. The terminology of "resident of Australia" or just "resident" has been defined by the Income Tax Assessment Act 1936 in subsection 6(1).

Swifty is a citizen of Australia who moved to USA to take up a 2-year secondment with Century 21, in New York City. She has been offered a temporary work visa from US government.

While leaving Australia, Swifty was uncertain about the length of her stay in the USA; therefore she retained her permanent house in Australia and rented it. Apart from that she sold her car and retained her Australian bank account.

Swifty left Australia on December 29, 2018. For the financial (or taxation) year 2018-19, Swifty earned the following incomes:-

Taxation Year 2018/19

Particulars

Australian Income (in AU$)

US Income (in US$)

Income From wage and commission (AUD)

60000

90000

Profit (Long term Gain) from sale of Australian Shareholding

1200

 

Interest from savings from bank

600

200

Rental Income (200*4*6)

4800

 

The taxation period in Australia starts on 1st Day of July and ends on 30th Day of June. Swifty Taylor left Australia on December 29, 2018, that means in the Australian taxation year 2018-2019. Also for the FY 2018-19, Swifty stayed between July 1, 2018 and December 29, 2018 in the territories of Australian jurisdiction. Since, Swifty remains physically present in the nation as per the Australian taxation year, hence the following tests needs to be conducted to check the residential status of Swifty:-

Resides Test

The main test to heck the tax residency in Australia is known as the 'resides test' as per the taxation law. It states that, if a tax payer is residing in Australian territories, then the person will be considered to be an Australian resident for taxation purposes and the tax payer or Australian Taxation Organzation (ATO) are not required to conduct any of the other tests to check the residential status of such tax payer. Residential status depends on other factors also as listed below.:-

  • Physical presence: Swifty was present in Australia from her birth, she temporarily left Australia on December 29, 2018
  • Purpose and Intention: She lives her whole life since her birth in Australia, therefore there is an emotional attachment.
  • Family: Parents of Swifty still lives in the Australian territories and while she moved to USA, she stored all the furniture of her permanent Australian house at her parent’s house
  • Business or employment ties: She is a highly successful real estate agent in Australia
  • Maintenance and location of assets: Swifty owns a townhouse in Sydney and rented this property while moving to USA. She also own other personal belongings and have an Australian bank account

Now here an important point to be noted that while leaving the country Swifty was not certain that she was uncertain about the length of her stay in the USA and therefore, she retained her permanent house in Australia and rented it. However, later after moving to Australia, she made a lot of friends in the New York City of USA and enjoys the work at Big Apple. Also, she started loving the American lifestyle and considers extending her contract beyond 2 years, that means she is now certain to live a larger period of time in the foreign country.

All the previous point of resides test suggests that Swifty is an Australian resident considering the taxation laws of Australia. But, the resides test will not get satisfied because the length of Swifty’s physical absence from the territories Australia and the immediate circumstances (like establishment of a house overseas and renting out her permanent house in Australia) are not consistent with the residing test of Australian taxation law, irrespective that she has retained her Australian home.

Domicile Test

The domicile test is not satisfied because:

  • The permanent place of abode for Swifty will be considered to be outside Australia because:-
    • the length of time (2 years + uncertain extension period) that she has committed to spending in the foreign country
    • She has made a lot of friends in NYC and might establish a home overseas, and
    • She is enjoying the activities of the Big Apple
  • The fact that she has not sold her home in Australia, although relevant, is not concluding criteria to satisfy the outcome of the finding on the basis of the other factors instead It can be contradicted that she rented her house temporarily mainly for the period of her outstay.

A similar decision has been contended in the case of Udny v. Udny [1869] L.R.1 Sc.& Div. 441; Bell v. Kennedy [1868] L.R.1 Sc.& Div. 307 (H.L.).

The 183 Days Test

Since, Swifty moved to USA on December 29, 2018 before the taxation year for the Australia had been ended. Therefore, a 183 day test will also be required to be conducted. That means, Swifty will be considered to be a resident of Australia for tax purposes if she is actually present in Australia for more than half the income year. In the taxation year 2018-19, she stayed from July 1, 2018 to December 29, 2018, including the day of her departure. The total number of days comes out to be 182 days.

Therefore, Swifty cannot be considered to be an Australian citizen as per the 183 days test.

Conclusion on Swifty Taylor Case Study

Any obligation for tax liability arises annually in Australia. There arose a very important question that whether the taxpayer can be considered to be a resident of Australia or not. Various tests (as discussed above) are required to be conducted at every annual taxation period. The tests are based on the facts as applicable to the specific taxation year under consideration (Applegate per Franki J 79 ATC at p.4309; 9 ATR at p.902). However, various events that have taken place during the end of the income year can be taken into account in determining the Residency of the person.

Therefore, it can be stated that Swifty Taylor cannot be declared as an Australian resident for the taxation purposes for the income tax year 2018-2019 on the basis of the residential tests and hence her Tax liability is to be calculated accordingly considering her Residential Status.

Swifty as per the above analysis is a foreign resident, but has various sources of incomes from Australia as well; hence she will be required to lodge an Australian tax return. That means she is required to make the payments of taxes on all income that has been sourced from Australia. However, the income that has already been correctly taxed including interest, fully franked dividends, etc. will not be considered for tax liabilities.

Reference for Swifty Taylor Case Study

ATO. (2020). Deductions you can claim. Retrieved from https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/

ATO. (2020). General depreciation rules – capital allowances. Retrieved from https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/General-depreciation-rules---capital-allowances/

ATO. (2020). Legal fees. Retrieved from https://www.ato.gov.au/Individuals/myTax/2018/In-detail/rent/?anchor=Legalfees

ATO. (2020). Work out your tax residency. Retrieved from https://www.ato.gov.au/individuals/international-tax-for-individuals/work-out-your-tax-residency/

Australian Government. (2019). Australian taxation office. Retrieved from https://www.ato.gov.au/Rates/Individual-income-tax-rates/

Australian Government. (2019). Australian taxation office. Retrieved from https://www.ato.gov.au/individuals/income-and-deductions/deductions-you-can-claim/self-education-expenses/#twofif

Braithwaite, V., & Reinhart, M. (2019). The taxpayers' charter: Does the Australian tax office comply and who benefits? Centre for Tax System Integrity (CTSI), Research School of Social Sciences, The Australian National University.

Income Tax Assessment Act 1997. (2020). Act No. 38 of 1997 as amended. Retrieved from https://www.legislation.gov.au/Details/C2006C00472/d6093a59-8622-46b1-8d5b-6575302e5592

Applegate per Franki J 79 ATC at p.4309; 9 ATR at p.902

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