Question

Issue 1: Billy Orange was born in Adelaide and usually resides in Adelaide with his family.

For 6 month in the 2015/16 year and all the 2016/17 income year he and his family have been living in Samoa. The children attend the local school and his wife works in the local shop while he works on a fishing boat.

They bought a house in Samoa and have stayed in the one place.

Question :Is Billy a resident of Australia in the 2016/17 year?

Issue 2:

Hans Kruger has been living in Queensland for 10 months in the 2016/17 financial year. He usually lives in Germany and is in Australia working at various mining sites throughout Queensland. He has a 12 month visa and at the end of the 12th month he intends to return to Germany and study mining engineering using the skills he has gained through working.

Question : Is Hans a resident under the 183 day test?

Issue 3:

Gregory Power is a highly regarded baseball prospect. During the American off season he first travelled to Mexico to play in the Fall League for 2 months and then decides to come to Australia and play in the Australian Baseball League in December, January and February to play for the Adelaide Chomp. He signs the contract in Switzerland, which stipulates he is to be paid $45,000 for the 3 months. He joins the team shortly after. The contract states he is to be paid monthly into a bank account in the Turks and Caicos Islands. Gregory is impressed with Australia and decides to purchase a home unit at Glenelg. His plan is to use it as a base during the home and away series and rent it out for the remainder of the income year. Discuss with reference to the residency tests and source rules whether:

• Gregory is liable for taxation on the $45,000 for his baseball skills

• Gregory is liable for tax on the rental income received during the balance of the year

Answer 1

In order to qualify the tax resident test a person has to pass the resident test.If he does not satisfy this test he will still be considered as Australian resident if you satisfy one of three statutory tests :

1) Domicile test
2) 183-day test
3) The commonwealth Superannunation test.

Issue 1 - Although Billy Orange was born and stayed for most part in Adelaide, from half of 2015/16 and 2016/17 he moved to Samoa and did not satisfy the resident test, nor any of the three statutory tests.He and his family has taken a home is Samoa both him and his wife are working there and children's go to school in Samoa, hence Billy is not a resident of Australia for FY 2016/17.

Issue 2 - In order to determine the taxability of Hans Kruger under 183 days test, we have to look at the conditions under the 183 days test that says : If he arrives in Australia for more than half of the income year, whether continuosly or with breaks.

He may be said to have a constructive residence in Australia, unless it can be established that his usual place of abode is outside Australia and has no intention of taking up residence in Australia. Given the facts Hans Kruger exceeded 183 days in Australia but do not have a constructive residence in Australia hence he is not considered as resident in Australia.

Issue 3 - We are to assess the tax residency status of Gregory Power in relation to the residency test as well as source rules, as far as residency test is concerned since he decides to purchase a house in Australia and use it as a base which satisfies his intention and purpose.

Since he is now considered as resident his income earned in Australia and anywhere in the world will be taxable in Australia., so $ 45,000 of income from baseball as well as his rental income will be offered to tax in Australia.