Introduction

LETTER OF ADVICE

20 December 2022

Private and confidential

Tax Advice & Co

Strand Road 12, Rare Street

Melbourne 2500

Mr. Jason

Strand Road 12, Rare Street

Melbourne 2500

Dear Mr. Jason

In adherence to our appointment and the discussions through email and over phone please check the attachment of the advice in association with the issues of yours

Advise Summary

The relevant facts, as well as assumptions are attached on which the following advise depends. If any facts or assumptions deems to be incorrect or not in terms of your understanding then please feel free to contact in this regard as this will influence the advise provided. In summary, the advise is provided as:

• Mr Jason needs to defend yourself as a non-tax resident
• The facts provided by Mr. Jason might depict that he is a tax resident but the same will depend on the facts provided by the Commissioner.
• It is of higher probability that Mr. Jason be a non resident through the adherence of the case law of Harding v Commissioner 2019

Issue

The issue rests with the fact that whether Mr. Jason was a non-resident of Australia for the purpose of tax for the year 2016, 2017 and 2018. It is a glaring question whether Mr Jason was not residing in Australia in the three years and whether you have purchased a permanent place elsewhere. Our advise in this regard is to ascertain whether Mr. Jason is a non resident considering the taxation purpose for the year 2016, 2017 and 2018 income years or in deciding whether you should undertake the offer of ATO for self amendment.

Relevant Law

1. Income tax Rates

The income tax rate depends on the taxpayer classification and is provided in the IT Rates 1961. Income tax rates comprises of the Australian Resident and Foreign Resident. Income tax principle levied in the Australia is classified into:

1. A resident of Australia will be taxable on worldwide for the purpose of tax
2. A registered foreign resident will be taxable on income that is of Australian source only for the purpose of income tax. The importance of residency as the applicable rate of tax on individual tax payer resides upon the status of residency [1]

1. How to ascertain the resident test?

The term resident as well as Australian resident is defined in the subsection 6(1) of the Income tax Act 1936. So far the individual is associated such terms are categorized in four test to determine whether an individual is a resident.

Concerning the issue of Mr. Jason, the focus is mainly on the test whether an individual who stay in Australia and the Test of Domicile as the test is mainly linked to the individual who mainly reside in Australia but the same left Australia for some time and not residing in Australia throughout the income year. A tax payer is needed to satisfy any of the following condition for getting treated as an Australian resident. In our case, we will not consider the case of 183 days and the test of superannuation as they are not relevant in provide appropriate justification to the case.

Another factor is the residence as per the ordinary concept

It is a common test to ascertain where the person resides. The word reside is not elaborated in the ITAA 1936 or 1997[2]. The question whether a person is an Australian resident is a question of fact, as well as degree. In tune to the issue of Mr Jason, we have included a wide range of factor as seen in the case of Joachim v FCT for ascertaining the ordinary residence.

• Domicile test

An individual will be termed as the Australian resident is the domicile is in Australia until the Commissioner is of satisfaction with the fact that the person comprise of a place that is permanent outside Australia. Majorly, the test of domicile happens to an individual who stays outside but does not change the domicile. As per section 10 of the Domicile Act 1982 it is provided that the individual should have a domicile in a country where he intends to make an indefinite place.

As per the case law of FCT v Applegate and FCT v Jenkins, the Commissioner issued Ruling that sets out a different element that is taken into consideration whether a taxpayer comprise of a permanent place of stay outside[3]. The benefit of the factor will vary as per the individual situation and no single decisive factor happens.

Arguments supporting residency

Through the application of the legislation and ruling, Mr Jason is subjected to tax rates of resident by the ATO. Factors that consider you as a resident is the fact that your primary residence which was purchased for a sum of $200000 in 1991 after divorcing. Hence in lieu to the ruling of IT 2650, para 3110 state that throughout the non appearance of the tax payer from Australia the home was let out and bank account was retained.

Hence, if Mr. Jason appears to be a Australian tax resident then you are bound to have a taxable income. The payment of Mr Jason is in link with the services employment and clearly denotes ordinary which is required to be taxed. Hence, considering the case of FCT v Cooke and Sherden (1980) 10 ATR 696 it is stated that the ordinary income appears to be cash or converted into tax. Thereby, out of four flight tickets, three will not be considered as ordinary income as the same is not cash or convertible into cash.

Arguments for non residency

On the contrary, in our opinion Mr Jason might be subjected to tax as non-resident. In 2019, the Full Court of Australia ascertained that the term permanent stay must be read through the reference to the individual permanent house or space however must be explained in an elaborative manner to whether an individual dwells in a specific country.

Conclusion

 As per the decision of Court in Harding v Commissioner of Taxation (2019) it is being ascertained that it is a win for Australian who wants to go on overseas duty. The Full Court has provided a better say through a focus on whether the tax payer has developed that they are dwelling in a foreign country in a permanent country. The overseas accommodation is applicable to the question and it is important to ascertain the fuller nature of the facts that determines whether the individual is a resident under the Australian tax.

We thereby advise Mr Jason to conduct an audit for defending the present view for being a foreign resident who does not require to pay Australian tax on the income from Saudi Arabia.

[1] Sadiq, K., Coleman, C., Principles of taxation law 2018. 11th ed. p.8

[2] Ato.gov.au. (2019). Legal Database. Taxation Ruling IT 2650 para 2 (a)

[3] Ato.gov.au. (2019). Legal Database. Taxation Ruling IT 2650 para 5