Answered Essay: Case study – Australia Tax

Case study – Australia Tax

Mr George Sykes was born in Australia and had lived here all his life. He successfully applied for a position in Singapore to help operate a branch office of his Australian employer. On 1 December 2010, he was transferred to the position for a minimum of two years.

George was accompanied by his wife, Karen, but their sixteen-year-old daughter, Stephanie, stayed in Perth to finish her schooling and attend boarding school.

Arrangements were made for her to travel to Singapore for all school holidays. the Sykes made a decision not to sell their jointly owned house and chose to rent it out for the period of their absence. George maintained a small bank account balance of $5,000 in Australia as an emergency fund. His salary of A$90,000 a year was paid by his employer from Australia into his bank account in Singapore, with the exception of an amount A$10,000 which George had requested his employer to pay direct to his father in Perth to cover his father’s medical expenses. Singapore tax was paid on the salary.

George worked successfully in Singapore, returning to Australia three times a year for brief visits to report to his employer. However, due to financial problems the branch office was forced to close and George and his wife returned to Australia on 31 March 2012. Net rent (rental receipts less expenses) on the Australia house for the period1 July 2011 to 31 March 2012 is A$14,000.

REQUIRED:

Do complete all the test.

(a) Advise George of his likely residency status for Australian income tax purposes for the year ended 30 June 2012 (5m)

(b) Assuming George would be treated as a resident, identify and briefly discuss the tax issues (consequences) that would arise. (1.5m)

(c) Assuming George would be treated as a foreign resident (non-resident) identify and briefly discuss the tax issues (consequences) that would arise.

(d) Idnetify and briefly discuss any other relevant issue(s) to be considered in determining George’s Australian tax liability for the year ended 30 June 2012 (1m).

LECTURE’S NOTES:

1. Common law test- “Reside” means any place you stay habitually more than temporary

2. Domicile test – Country of birth, Australia?

3. Were you living in Australia more than 6 months/ 183 days?

4. Did superannuation contribute?

Consequences of the Test:

(A) Resident

1. Income sourced in or outside of Australia is accessible

2. Enjoy tax-free threshold of A$18,200

3. Subject to ML & MLS (Levie and Surcharges)

4. Enjoy tax-offset

Non-Resident:

1. Income sourced in Australia only are assessable

2. No tax free threhold- charge the first dollar

3. No ML or MLS

4. No tax-offset

Expert Answer

 

a. Test of Residence:

For Mr. George Sykes to be Australian Resident, any of the 3 below mentioned conditions needs to be satisfied.

Test Requirement Analysis Conclusion
Domicile Test Permanent home is in Australia Sykes joined owned a house in Australia which he rented during his stay in Singapore Satisfied. Permanent home is Australia
183 days test Present in Australia for more than 183 days His stay in Australia:
31st Mar’2012 to 30th June 2012 = 91 days
Not Satisfied
Superannuation test Australian Govt employees working oversees He was not an Australian Govt. Employee Not Satisfied
Conclusion Sykes is an Australian resident for tax purposes as 1st condition – Domicile test is satisfed

b. Mr. Sykes taxable Income as a resident:

Since, Mr. Sykes is an Australian resident all income earned either within or outside Australia will be taxable in Australia. Assuming he earns no othe income, his total taxable income shall be:

Particulars Amt(A$)
Salary from Australia                                                                              90,000.00
Rental Receipt                                                                              14,000.00
Total Income                                                                            104,000.00

Futher, a tax free threshold of A$18,200 is applicable which will make the taxable income to 104000-18200 = A$85800

c.Mr. Sykes taxable income as a foreign resident:

Since, Salary is paid by an Australian Empoyer, it will be taxable in Australia. Further, Rent income received from house in Australia will be subject to Australuan income tax. However, no tax free threshold will be provided. Thus, the taxable income will be same as a resident without deducting A$18,200 i.e. A$104,000.

d. Oher issues that will be addressed (assuming George as resident) is tax paid to Singapore Govt. on Salary income. It will be adjusted while calculating Australian Income tax.

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