IS THE TAXPAYER A RESIDENT?
NBMust be assessed on a year to year basis
Double Tax Agreements
FOUR TESTS under Section 6COMMON LAW TESTS / STATUTORY TESTS
If a taxpayer is not a resident of Australia by either virtue of the common law or domicile tests, the application of the second sub-paragraph of paragraph (a) of the definition of 'resident' must be applied
INCOME ON ORDINARY CONCEPTS / DOMICILE PERMANENT PLACE OF ABODE / 183 DAY TEST / COMMONWEALTH SUPERANNUATION
Intention or purpose of presence [must be more than mere presence as a traveler, even if that includes obtaining casual employment to pay for the trip]
Family and business/employment ties
Maintenance and location of assets; [includes matter such as owning or purchasing housing and establishing bank accounts]
Social and living arrangements [include enrolling children in school and joining sporting or community organisations] / The intended and actual length of stay in a foreign country. An unspecified or substantial (> 2 years) overseas stay is likely to be considered a permanent place of abode outside Australia
Establishment of a home outside Australia; and
Durability of association with Australia e.g. maintenance of bank accounts, education of children / A person will be resident under this test if they are either continuously or intermittently in Australia for more than half the year of income unless the Commissioner is satisfied
the person's usual place of abode is Australia; and
the person does not intend to take up residence in Australia / Its application depends entirely upon membership of the Commonwealth government Superannuation schemes establish pursuant to specific statues listed or having a specific relationship to such a person
RESIDENTNON-RESIDENTThe assessable income of a resident includes ordinary income (direct or indirect) and statutory income (s 6-5(4)) from all sources , whether in or out of Australia
Certain foreign employment income is not subject to Australian taxation
Certain dividends income by companies from other companies in and carrying on business in a comparable tax jurisdiction is exempt / The assessable income of a non-resident includes ordinary income (derived directly or indirectly (6-5(3)) and statutory income (6-10(5)) for all Australian sources
A specific provision can override this
The observation that ss128A-128R will tax income that flows from Australia on a withholding tax basis irrespective of the source of income, where that constitutes interest, dividends not fully franked or royalties
IS THE PERSON A RESIDENT?
YESNOSource Irrelevant Section 6-5 / Income must be sourced in Australia
Remuneration for services rendered
Is the source of remuneration for services rendered -
(a) the place where the contract is made,
(b) the place where the contract is performed,
(c) the place where the payment is made
or some combination of these factors requiring apportionment / Financial Transactions
As in every case, the identification of the source of this income is a practical matter of fact involving an examination of all the circumstances
Matter of substance not form
Thorpe Nominees / Income from business
Certain types of natural resource income
Interest payment secured by a mortgage over Australian property
Profits from certain import and export sales
General Provisions; Non-statutory source rules
Sale of real estate
Sale of tangible property
IS THE SOURCE OF INCOME AUSTRALIAN?
YESNOThe taxpayer includes the whole amount as assessable income. / The taxpayer does not include the portion sourced in Australia in taxable income.
DERIVATIONIS CASH RECEIPTS OR ACCRUAL EARNINGS THE APPROPRIATE METHOD?
WHAT IS THE TAXPAYER'S METHOD OF EARNING AN INCOME?
Income from trading
Generally income arising from the trading activities of a commercial undertaking must be brought to account on an earning/accruals basis
significant role that commercial and accounting principles J Rowe & Sons
It is necessary to determine whether the consequence is that a debt has been created or whether the taxpayer is obliged to take further steps before becoming entitled to payment.
USUALLY ACCRUAL EARNINGS / Remuneration for personal exertion
there was nothing in the taxpayer's business which resembled stock in trade;
outstanding on the expenditure side did not correspond to and were not naturally connected without outstanding earnings on the earning side;
There was no fund of circulating capital; and
Receipts were, in substance, a reward for professional skill
The method used to be used depends on its 'actual appropriateness' and in particular, whether it provides a 'substantially correct reflex of the taxpayers 'true income'
CASH RECEIPTS / Payments in advance
What is the position where payments are received by the taxpayer in advanced to being earned/
Are the payments (assuming that they are of an income nature) derived in receipt of only when earned?
CAN BE BOTH Arthur Murray (NSW) Pty Ltd / Wage and salary earners
For employees the time of derivation is when the income is actually received, irrespective of the period of time which the payment covers
CASH RECEIPTS / Rent, interest and other income from property
In the case of income derived from property the normal time of derivation of that income is as and when it is actually received
CASH RECEIPTSACCRUAL EARNINGSTaxpayer brings to account as assessable income all cash income actually or constructively received in the income year. / The actual receipt of the money irrelevant.
Derived the income when the taxpayer has earned the right to payment of the sum.