Tax Residency Status Period Commencing

Question: Describe about the Tax Residency Status for Period Commencing. Answer: Issue The relevant issue in the case is to opine on the tax residency status of Joan for the period commencing from January 2014 until her return to Australia in July 2016. Further, the implications of the tax residency status on the respective tax obligations also need to be highlighted. Relevant Law The subject of tax residency is dealt with in Section 6(1), ITAA 1936 which narrates the various test for the residency determination of individuals which have been elaborately explained in the tax ruling TR 98/17 (ATO, 1998). The tax residency determination is significant as in accordance with Section 6-5(2), ITAA 1997, for Australian tax residents, income from all sources (irrespective of the fact that it may be generated domestically or from abroad) would be considered for taxable income computation (Barkoczy, 2016). The relevant legislation and relevant ruling suggests that namely four tests may be applicable for tax residency determination as outlined below (Nethercott, Richardson Devos, 2016). Domicile Test Normal Test of Residency 183 day test Superannuation Test The relevant test from the above are discussed above. Domicile Test The domicile test is used for the tax residency determination of Australian residents. The essential conditions that the given taxpayer needs to comply within the given assessment year are highlighted below (Woellner, 2014). The taxpayer must be a holder of Australian domicile in a manner sanctioned under the Domicile Act 1982. Additionally, the permanent abode of the given taxpayer must be located within Australia at the time of assessment. The determination of domicile possession is a straight forward task with no ambiguity, however high subjectivity may be involved with regards to permanent abode location. In this regard, the critical factors to be taken into consideration for location determination are summarised below (ATO, 1991). The difference between the length of actual stay abroad compared to the intended stay duration abroad. The intent on taxpayers part to return to Australia after accomplishment of a defined task. The act of abandoning the residence in Australia. The act of establishing residence in a foreign country The continuity of the stay abroad along with the underlying duration. Further, as indicated by the verdict extended in the F.C. of T. v. Applegate (1979) 9 ATR 899 case, in the event the expected duration of stay is expected to be greater than 2 years, then for the period of stay abroad, the tax authorities tend to consider that the taxpayer has a permanent residence abroad even though there may be intention on taxpayers part to return to Australia at the completion of the obligation (Coleman et. al., 2016). Resides Test or Normal Test of Residency This test is primarily deployed for tax residency determination of foreign residents. This is primarily used for those individuals whose country of origin is not Australia but come to Australia for a variety of reasons. The underlying residency of these individuals is determined by considering the following factors (Barkoczy, 2016). Extent of significance for which taxpayer has come to Australia Extent of ties in various spheres such as professional and personal which taxpayer maintains in Australia Nature of social arrangement that the person has in place when in Australia. The stay duration in Australia and the visit frequency to country of origin during the assessment period. Fact and Application The relevant facts related to the given situation are outlined below. Joan is an Australian resident and works for an Australian company based out of Melbourne as the chief accountant. In January 2014, Joan is entrusted with the task of establishing a factory for the employer in Vietnam for which, she goes to Vietnam with her husband. However her son continued stay in the Melbourne located family home. The couple has intention to return to Australia post the establishment of factory which would take three to four years. Joans husband gets employment in Vietnam and also an apartment is leased for four years. Joan returned to Australia in January 2016 after which she went to a Europe trip for six months before returning to Australia in July, 2016. For the whole period i.e. from January 2014 to July 2016, the Australian domicile of Joan was intact as intention to return in Australia was always intact. Tax residency status FY2014 While the domicile condition is met being an Australian resident, but since Joans expected stay in Vietnam is expected to be longer than 2 years, hence it is fair to expect that there has been a shift in the permanent abode from Australia to Vietnam as apparent from IT 2650. Hence, for FY2014, Joan would be considered a foreign tax resident. Additional proof to this is provided by the fact that both have started socialising in Vietnam indicating the intent to stay in Vietnam for long. Tax residency status FY2015 While the domicile condition is met being an Australian resident, but since Joans expected stay in Vietnam is expected to be longer than 2 years, hence it is fair to expect that there has been a shift in the permanent abode from Australia to Vietnam as apparent from IT 2650. Also, Joans husband has found an employment in Vietnam only. Further, during the year Joan did not visit even once to Australia. Hence, for FY2015, Joan would be considered a foreign tax resident. Tax residency status FY2016 While the intended stay duration was 3 to 4 years, Joan finished her professional obligation earlier and returned in January 2016. Besides, considering the presence of son, job for Australian company and house in Melbourne, significant ties are maintained in Australia. The Europe trip of six months is done with the intent of a casual traveller since Joan keeps moving from one city to the other and hence this purpose is not significant. Thus, in line with the domicile test and the resides test, it would be fair to conclude that Joan for this year would be an Australian tax resident. Income tax implications For the period from January 1, 2014 to June 30, 2015, the employment income is derived from Vietnam and hence would not be taxable in Australia as per Section 6-5(3). However, as per Section 6-5(2), for FY2016, the employment income would be taxable in Australia. References ATO 1991, IT 2650, Australian Taxation Office, Available online from https://www.ato.gov.au/law/view/document?Docid=ITR/IT2650/NAT/ATO/00001 (Accessed on October 4, 2016) ATO 1998, TR 98/17, Australian Taxation Office, Available online from https://www.ato.gov.au/law/view/document?Docid=TXR/TR9817/NAT/ATO/00001 (Accessed on October 4, 2016) Barkoczy,S 2016,Foundation of Taxation Law 2015,8th eds., CCH Publications, North Ryde Coleman C, Hart G, Jogarajan S, Krever R McLaren J, Sadiq K 2016, 9th eds., Principles of Taxation Law, Thompson Reuters, Sydney Nethercott, L, Richardson, G Devos, K 2016, Australian Taxation Study Manual 2016, 4th ed., Oxford University Press, Sydney Woellner, R 2014, Australian taxation law 2014, 8th eds., CCH Australia, North Ryde