This assignment must be presented as an individual effort.

Introduction

Resident- Foreign resident

&

Tax offset

Name of the Student

No.

Miss. Yvonne Merrick, citizen of United Kingdom came to Brisbane, Australia for her Job in January 2015. Here she started working in Brisbane Hospital as administrator of the hospital. She owns an apartment here in Brisbane and she is living in that apartment. Till July 2017 she continuously worked in the same hospital and resided in the same apartment. In July 2017 she went to UK and worked there temporary and she came back to Australia in April 2018. Later in July 2018 she left Australia permanently.

We need to calculate her taxable income for the year 2017-18 & 2018-2019 from Australia tax perspective and for that matter first we need to understand that is she UK resident (foreign resident) or Australian resident for tax purpose of Australia taxation. Tax rates are on higher side if you are a foreign resident and earning in Australia.

Here are the rules for it: Below are the conditions under which a foreign resident can be considered as an Australian resident for Tax purposes (Handley & Maheswaran 2008):-

• If the person is continuously living in Australia.
• If the person have shifted in Australia and lives in Australia permanently.
• If the person is in Australia for more than 6 months and the person is in the same Job and same residence since then.

According to the above rules of Australia taxation system, Miss Yvonne Merrick is an Australian resident for tax purpose for the tax year 2017-2018. Further as an Australian resident a tax payer is required to pay taxes on her entire income weather earned in Australia or abroad. But if a tax payer is a foreign resident for tax purpose then they are required to pay taxes on earning from Australia only.

Under the tax year 2017-18 Miss Merrick is to be considered as an Australia resident because she is staying in Brisbane since 2015 i.e. since 2.5 years and she was in the same Job before leaving to UK in July 2017, and within that period she was living in the same house at Brisbane. Accordingly all her incomes earned in Australia or UK required to be added in her total assessable income in Australia accordingly to a resident of Australia for Tax purpose.

Fully Franked dividend comes with tax credits or franking credits of 30% tax (Balachandran & Vidanapathirana (2012). So $700 franked dividend received by her in tax year 2017-18 would be containing $1,000 of taxable income & $300 of tax deducted (franking credits)

Now for tax year 2018-19 she can’t be considered as Australian resident for tax purpose and she would be considered as a foreign resident for tax purpose. The reason is that in July 2018 she left Australia permanently and when she vacated her apartment also, sold her furniture & leased the apartment for rental income. Apart from that she took a full time Job in UK hospital, she didn’t return to Australia anytime after therefore she is to be considered as foreign resident for tax purpose for the year 2018 -2019 (Forsyth & Pham 2014). Accordingly when we calculate the assessable income for 2018-19, we would add only Australian earnings and she would be charged taxes as foreign resident.

Other UK income and tax deducted on that shall not be considered under Australia tax perspectives. She will also need to file a separate return in UK as UK resident

Tax deducted at UK of $4,500 (tax year 2017 – 2018)

In UK $4,500 was deducted from her salary. For that year Miss Merrick filed her return as Australian resident for tax purpose so this tax deduction would be counted as foreign Tax of $4,500. This amount of $4,500 can be adjusted in her return for tax year 2017 – 2018 under Tax offset category.

Tax offset is used, when you have gone in foreign city and earned there and from your payment a certain amount is deducted which is called as a foreign tax. Later on when you file your return in the origin country that foreign tax paid is adjusted with certain conditions, is known as Tax offset.

If your foreign income tax offset is up to $1,000 then you only required to take record the actual amount of foreign income tax paid. (Cannavan & Gray 2004) stated that however, if your foreign income tax amount is more than $1,000 and you would like to claim that then there is a calculation process for tax offset limit.

**Tax offset limit = Total tax payable – Tax payable on domestic income

Accordingly Miss. Merrick’s tax off set limit is $7,180 but only $4,500 was deducted is UK therefore total $4,500 shall be adjusted against the total at payable by Miss. Merrick. If she would have paid more taxes than $7,180 and all other incomes remained the same, she would be able to adjust the tax up to $7,180 only (up to the tax offset limit). Therefore it is understood that any foreign income tax paid can’t be refunded back it can only be adjusted up to tax offset limit and it can’t be carry forwarded (Barkoczy & Murphy 2010).

References:

Balachandran, B., & Vidanapathirana, B. (2012). Dividend reductions, the timing of dividend payments and information content. Journal of Corporate Finance, 18(5), 1232-1247.

Barkoczy, S. & Murphy, S., (2010). Australian taxation law. CCH Australia.

Cannavan, D., Finn, F., & Gray, S. (2004). The value of dividend imputation tax credits in Australia. Journal of Financial Economics, 73(1), 167-197.

Forsyth, P.,& Pham, T. (2014). The impacts of Australia’s departure tax: Tourism versus the economy?. Tourism Management, 40, 126-136.

Handley, J. C., & Maheswaran, K. (2008). A measure of the efficacy of the Australian imputation tax system. Economic Record, 84(264), 82-94.