Assignment Solutions on CLWM4100 Taxation Law

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As Yvonne wants to understand her tax situation, she first is required to acknowledge if she is a resident of Australia for tax purposes or not. The terminology of “resident of Australia” or just “resident” has been defined by the Income Tax Assessment Act 1936 in subsection 6(1).

Yvonne Merrick is a British citizen who left Britain and moved to Australia on a working visa on January 2015. On 10 July 2017 she travelled back to the UK for personal reasons and worked in odd jobs until 1 April 2018 when she returned to Brisbane and resumed her position at the hospital. Merrick bought and maintained a permanent residence in Brisbane and holds an Australian bank account (ATO 2020). The taxation period in Australia starts on 1 July and ends on June 30 (Income Tax Assessment Act-1997 2020).

Resides test

1. For the taxation year 2017/18

The primary test of tax residency is called the ‘resides test’. If you reside in Australia, you are considered an Australian resident for tax purposes and you don’t need to apply any of the other residency tests. Some of the factors that can be used to determine residency status include:

• Physical presence: Merrick was present in Australia from year 2005
• Intention and purpose: Merrick was living in Australia on a working Visa and earning his livelihood here.
• Family: NA
• Business or employment ties: Work as an administrator in a Brisbane hospital
• Maintenance and location of assets: Merrick has a house in Brisbane

AS per resides test, Merrick can be considered to be an Australian resident for the taxation year 2017/18 as per taxation laws (Applegate per Franki J 79 ATC at p.4309; 9 ATR at p.902).

Domicile test

Yvonne Merrick is not an Australian resident because his domicile is not in Australia, he has a place that is his permanent home in Britain, the same 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.).

2. For the taxation year 2018/19

Yvonne left Australia on 1 July 2018, which is the first day of the taxation year 2018-19. He left Australia for an indefinite period and for the whole year, did not return into the territories of Australia. He took-up a full-time position in a UK hospital at the post of senior administrator (ATO 2020).

As per the above discussion and considering Yvonne is a British domicile, he cannot be considered to be an Australian resident for taxation purposes and all of his Australian income will be taxed as a foreign resident for the taxation year 2018-19. Also, since 1 July 2018 Yvonne left Australia indefinitely, therefore on the basis of 183 days test, Merrick cannot be considered to be an Australian resident for the taxation year 2018/19 (Henderson v. Henderson [1965] 1 All E.R.179).

Part 1): Calculation of Merrick’s Australian assessable income for the 2017/18 and 2018/19 tax years.

3. For the taxation year 2017/18

• Calculating Merrick’s Australian assessable income

Taxation Year	2017/18
Particulars	Assessable	Non Assessable
Income From Salary
UK (Foreign) Income	28500
Work as hospital administrator in Australia	15000
Bonus	12000
Interest from savings from bank	2000
Fully franked dividend		700
Total	57500	700

 

1. Notes:

• ATO defines foreign employment income as income earned by a resident of Australia while working in a foreign country on an employment basis. The income includes wages, salary, bonuses, allowances and commissions. The income might be paid by an Australian or an overseas employer (Braithwaite & Reinhart 2019).

• As per ATO, a tax payer is required to report all of its foreign income from any type of employment (excluding prescribed exceptions) in the annual tax return. It will include both exempt income and assessable income. The taxpayer is required to do this even he/ she has paid taxes in the country where the taxpayer has earned such income (ATO 2020).

4. For the taxation year 2018/ 19

Taxation Year	2018/19
Particulars	Assessable	Non Assessable
Rental Income	26000
Interest from savings from bank	2400
Fully franked dividend		900
Total	28400	900

Part 2): Advice to Yvonne regarding foreign tax paid in the UK for the 2017/18 tax year and calculation of tax offset amount.

Calculating foreign income tax offset

Income from UK work	25000
Foreign taxes paid	4500
tax on Australian Income of 15000	0
Tax offset	-1000
Assessable income	28500

 

1. The tax payer can claim foreign income tax offset as per ATO’s guidelines in its return.

2. (a)For claiming tax offset on foreign income of up to $1,000, the tax payer is just required to record the correct amount of income tax paid in foreign country.

(b)However Merrick has paid higher foreign tax, and to claim higher offset, he has to work out his foreign income tax offset limit. As per above calculation he can only claim offset of $1000 only (ATO 2020).

3. As per ATO, the Australia government has taxation treaties with various other countries to avoid double taxation which must be considered while filing return as it can crucially impact the amount of tax Yvonne will be required to pay (Australian Government 2019). Yvonne is required to ensure that his financial institutions (e.g. his bank) in Australia have his updated residency status and overseas address so they will be able to make correct deductions of amount of taxes.

Reference

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