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Residence
The residency rules for the purposes of Australian income tax law are a combination of common law principles and statutory rules in ITAA 16. The definition of ¡§Australia resident¡¨ in sec 5-1 of ITAA 17 merely adopts the definition of ¡§resident¡¨ (or ¡§resident of Australia¡¨) in sec 6 (1) of ITAA 16, which itself partly adopts common law principles.
Residence and source as criteria for liability
A taxpayer, whether an individual or a company, who is a resident of Australia is generally assessable on ordinary and statutory income derived from all source whether in or out of Australia (ITAA 17 sec 6-5; 6-10). There are some important exceptions to this rule, for instance, for overseas employment income, approved oversea projects and certain temporary residents (foreign income exemption for temporary residents effective from 1 July 00).
Help with essay on Taxation¡§What criteria have been considered in the courts in deciding if an entity is a resident or non-resident of Australia for tax purposes?¡¨
Income earned by some foreign companies and non-resident trusts is attributed to resident taxpayers and taxed on an accruals basis, that is to say, it is taxed in the hands of resident taxpayers when it is derived, not when it is remitted to Australia. Income earned by resident taxpayers from certain other foreign investments may also be taxed on an accruals basis.
In general, however, it will be imperative to determine whether or not the taxpayer concerned is a resident of Australia and then to determine the source of the income concerned.
Residence of individuals generally
Section 6(1) of ITAA 16 provides four exhaustive tests of residence for individuals. In summary, an individual is a ¡§resident of Australia¡¨ for Australia domestic tax purposes if he or she satisfies any of the following tests.
(a) The individual is a resident of Australia according to ordinary concepts ¡V this test arises from the use of the words ¡§who resides in Australia¡¨ in the preamble portion of the definition before the specific statutory inclusions.
(b) The individual is domiciled in Australia unless the Commissioner is satisfied that the person¡¦s permanent place of abode is outside Australia.
(c) The individual has been in Australia for more than one-half of the income year, namely in excess of 18 days, unless the Commissioner is satisfied that the individual¡¦s usual place of abode is outside Australia and that he or she does not intend to take up residence in Australia.
(d) The individual is a member of certain Commonwealth Government superannuation scheme or is the spouse or child under 16 of such an individual.
Consequently, an individual who does not fall within any of the three specific rules (i.e. to 4 above) may nevertheless be treated as a resident of Australia on the basis of the common law concept of residence. There are a number of cases dealing with this issue but none seems to and establish any specific principle that is of general application Lysaght v IRC (18) and Levene v IRC (18).
Ordinary concepts of residence
An individual is an ¡§Australian resident¡¨ if he/she resides in Australia (the primary or ¡§ordinary concepts¡¨ test of residence) or satisfies one of three statutory residence tests. Residence in the primary sense is quite different from domicile, nationality and citizenship.
The primary test for deciding residency status is whether the individual ¡§resides¡¨ in Australia according to the ordinary meaning of that word. Whether a person ¡§resides¡¨ in Australia is essentially a question of fact and degree and there is no one rule which will determine the issue in every case. The dictionary definition of ¡§reside¡¨ is ¡§have one¡¦s settled abode, dwell permanently or for a considerable time, live in or at a particular place¡¨. It is not necessary for a person to reside in a particular structure such as a house. While physical presence alone may be insufficient evidence of residence, it does seem to be a prerequisite to a finding of residence in a particular place.
A person may be resident in more than one place. An individual may be held to be resident in Australia, even though living permanently abroad, if the individual visits Australia for part of the year as part of the regular order of his/ her life. Conversely a shipman, for example, will be resident in Australia if he maintains a family home in Australia at which the shipman spends time while in Australia, even though absent from the country for most of the year.
The circumstance under which an individual entering Australia will be treated as ¡§residing¡¨ here are considered in Taxation Ruling TR 8/17. The ruling is relevant to most persons entering Australia, including, academics teaching or studying in Australia, students, tourists and those on pre-arranged employment contracts.
The period of physical presence or length of time in Australia is not, by itself, decisive; individuals are considered to be residing in Australia when their behavior over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here. The Commissioner considers that six months is a ¡§considerable time¡¨ for these purposes. When behavior consistent with residing in Australia is demonstrated over a considerable time, an individual is regarded as a resident from when that behavior commences.
While each case must be considered on its facts, the following factors are useful in describing the quality and character of an individual¡¦s behavior
(a) the intention or purpose of the person¡¦s presence in Australia;
(b) the extent of the person¡¦s family or business/ employment ties with Australia;
(c) the maintenance and location of the person¡¦s assets; and
(d) the person¡¦s social and living arrangements.
Individuals who migrate to Australia are regarded as residents as soon as they arrive. The factors which the Commissioner regards as relevant to determining whether a business migrant is a resident according to ordinary concepts are set out in Taxation Ruling IT 681.
The question of residence at common law is clearly one of fact and a number of items will need to be considered in reaching a conclusion. For instance, it may be necessary to look at such matters as the person¡¦s usual place of abode, the location of the person¡¦s family, where his or her personal effects are kept and the purpose, frequency and duration of visits, the nationality and citizenship of the individual and any social ties that he or she may have with Australia.
Where a person is a resident according to ordinary concepts, the 18-day test will arguably not apply. Therefore, intending migrants would only be treated as commencing to reside in Australia from the date of their first arrival and not for the whole of the income year that would have occurred under the 18-day test. Thus, part-year residency is possible where a person becomes a resident under ordinary concepts. This consistent with the approach taken in Ruling TR 8/17, which state that a ¡§migrant who comes to Australia intending to reside here permanently is a resident from arrival¡¨ (para 16).
If a person becomes or ceases to be a resident during an income year, the tax-free threshold applicable to residents is pro-rated.
As a rule, the Commissioner will treat overseas students studying in Australia as residents where the course of study extends beyond 6 months Ruling TR 8/17.
Residence ¡V Three statutory tests
If a person does not reside in Australia within the ordinary meaning of ¡§reside¡¨, that person may nevertheless be a resident of Australia for tax purposes if any one of three additional statutory tests in the definition of ¡§resident¡¨ in ITAA 16 sec 6(1) is satisfied.
Domicile and permanent place of abode test
Under the first of these tests, that is domicile and permanent place of abode test, a person whose domicile is in Australia is deemed to be a resident of Australia unless the Commissioner is satisfied that the person¡¦s permanent place of abode is outside Australia.
Even if an Australia domicile is established, the individual will still not be treated as a resident of Australia for tax purposes if the Commissioner is satisfied that the individual¡¦s permanent place of abode is outside Australia. This is a question of fact to be determined in light of all the circumstances of the particular case.
The 18-day and usual place of abode test
Under the second statutory test, constructive residence in Australia is attributed to a person who is actually present in Australia for a total period of more than half the year of income, unless it can be established that the person¡¦s usual place of abode is outside Australia and that there is no intention to take up residence here. This is called the ¡§18 day¡¨ test. The test applies in relation to the relevant income year rather than a calendar year. The person¡¦s presence in Australia need not be continuous for these purposes, i.e. all the days the person is present in Australia during the income year will be counted (Taxation Ruling IT 681).
The fact that a taxpayer does not have a usual place of abode in Australia does not necessarily mean that the taxpayer must have a usual place of abode somewhere else. In FCT v Executors of the Estate of Subrahmanyam (001), the Full Federal Court commented that a person may be a ¡§bird of passage¡¨ and have no usual place of abode anywhere (and thus prima facie be a resident of Australia if present here for at least 18 days).
Commonwealth superannuation scheme test
An individual is a resident under the third statutory test if he/ she is a contributing member (or is the spouse or child under 16 of a person who is a contributing member) of the superannuation fund for Commonwealth Government officers. Its application relies on membership of the Commonwealth Government superannuation schemes established pursuant to the specific statutes listed, or having the specified relationship to a member of such a scheme.
There are some differences of opinion as to whether a person who is actually in Australia for more than 18 days in an income year is resident only for that time during which he or she is actually present or for the whole income year.
Part-year resident
Where a person resides in Australia within the ordinary meaning of the term for less than one-half of the income, that person would be treated as a resident of Australia only during the actual time he/ she is present in Australia. This means that the person would not be assessable to ordinary Australia tax on foreign source income derived during the period he/ she was not actually in Australia.
Where, however, the individual has been present in Australia for more than half of any income year and is constructively a resident of Australia within the 18 day test, the position is not clear. The early cases suggested whole year residence in such a situation, but more recent authority would suggest that the person is only resident while actually in Australia.
Legislative changes such as the pro-rating of the tax-free threshold and the concept of sufficient residency for companies under the imputation provisions, in respect of which part-year residence is clearly contemplated by the drafter, would seem to reinforce this conclusion, although the issue cannot be said to be entirely free from doubt.
Where a person is a resident of Australia for only part of the year, the tax-free threshold which applies to residents is only available on a pro-rated basis.
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