Topic 1 – Introduction, Residency and Source

Extra Practice Questions

Complete the following questions from the text and then check your answers on the next page. Please
note: these answers are provided by the textbook publishers.

Question 4.3

Question 4.6

Question 4.8
 Answers

Question 4.3

Refer to Ruling TR 98/17. The first issue here is to determine whether Fred is a resident of Australia
for tax purposes. The relevant rules are the residency tests in s 6(1) of ITAA36. Applying the tests
to Fred’s situation:

Ordinary resident test

Fred will be a resident under this test if he is taken to “reside” in Australia during the relevant period.
There is no single test for determining whether Fred “resides” in Australia and it is necessary to look
at all relevant facts and a number of factors to determine whether Fred resides in Australia. These
factors have been identified by the Australian Taxation Office in TR 98/17.

The factors that would support Fred being an Australian resident include his physical presence in
Australia, his wife accompanying him on the trip and the maintenance of a home in Australia.
However, it could also be argued that Fred is not a resident of Australia as he has maintained his
home in London and is only renting it out while he is away; his children are in London and he
maintains investments overseas.

On balance, it is likely that, following cases such as IRC v Lysaght [1928] AC 234 and Levene v IRC
[1928] AC 217, Fred would be considered a resident of Australia for tax purposes as he “resides”
here during the relevant period.

183-day rule
Regardless of whether Fred is considered to reside in Australia or not, he will definitely be a resident
for the relevant year as he satisfies the 183-day rule. He has been in Australia for more than 183 days
and although he doesn’t appear to want to take up residence in Australia, his usual place of abode is
in Australia.

Domicile test and superannuation test

These tests are not relevant to Fred on the facts.

In conclusion, it is likely that Fred will be a resident of Australia for tax purposes as he resides here
and has been in Australia for more than 183 days. As a resident, he will be taxed on his income from
all sources including the rent from the UK property and interest from his investments in France. Any
double taxation issues may be resolved by the Australia–France DTA or Fred may have to claim a
foreign income tax offset for tax paid overseas.

Question 4.6

The first issue here is to determine whether Misha is a resident of Australia for tax purposes. The
relevant rules are the residency tests in s 6(1) of ITAA36. Applying the tests to Misha’s situation:

Ordinary resident test

From the facts, it would appear that Misha does not “reside” in Australia during the relevant period
as she does not demonstrate any of the factors that would point towards her residing in Australia.

Domicile test
From the facts, we can assume that Misha’s domicile is Australia and, as such, she is automatically a
resident of Australia under the domicile test unless she has a permanent place of abode overseas.
During the period that Misha rents a flat in the UK, she clearly has a permanent place of abode
overseas and will not be treated as a resident of Australia for tax purposes under the domicile test.
However, for the two years when she is travelling in Europe and North America, she would not have
a permanent place of abode overseas and will be a resident of Australia under the domicile test.

183-day rule and Superannuation test

Not relevant on the facts.
In conclusion, Misha would not be a resident of Australia for the three years when she has a flat in
UK but would be a resident for the two years when she is travelling.

Question 4.8

The first issue here is to determine whether Peter is a resident of Australia for tax purposes. It is
necessary to determine his residency for two separate periods:

 From 1 February 2017 to 30 April 2017, being his initial secondment period; and
 From early June 2017, when he relocates to Australia.

The relevant rules are the residency tests in s 6(1) of ITAA36. Applying the tests to Peter’s
situation:

Ordinary resident test

From the facts, it would appear that Peter does not “reside” in Australia during his three-month
secondment period. During this period, he does not demonstrate any factors suggesting a residence
in Australia. Of note, the facts state that Peter’s secondment was only temporary and he had an
intention to return to Vanuatu at the end of his secondment.
However, from early June 2017, the facts suggest that Peter will satisfy the ordinary resident test. He
accepted a permanent position in Brisbane, purchased an apartment in Brisbane and has a high
interest bearing bank account in Australia.

Domicile test, 183-day rule and superannuation test

Not relevant on the facts.
In conclusion, Peter would not be a resident of Australia during the secondment period, but would be
a resident from the time he enters Australia in early June 2017.
The second issue here is to determine whether Peter will be subject to income tax in Australia on
income derived in either period. Sections 6-5 and 6-10 ITAA97 provide that a resident of Australia is
taxed on ordinary and statutory from all sources, while a foreign resident is taxed only on ordinary
income and statutory income sourced in Australia. Applying the tests to Peter’s situation - based on
the above, Peter will be:

 A foreign resident from 1 February 2017 to 30 April 2017 – taxed only on Australian source
income.
 A resident of Australia from early June 2017 – taxed on all sources.

1 February 2017 to 30 April 2017 - Peter derives a salary from working/providing services in
Australia. Despite payment being made into his Vanuatu bank account, the source of Peter’s salary
is generally taken to be the place of the performance of services: FCT v French (1957) and FCT v
Efstathakis (1979). It is therefore assessable in Australia as ordinary income.

From early June 2017 - Peter will be subject to tax on income from all sources, which in this case,
includes the rent earned from renting out his own home in Vanuatu.