International Tax

Question 1

Why is residence important?

Answer 1

Because it is needed to determine income tax liability for Australian and foreign residents

Question 2

What is the authority for an Australian resident’s assessable income including statutory and ordinary income derived indirectly/directly from worldwide sources?

Answer 2

• Authority for OI: Section 6-5(2) of the ITAA 1997
• Authority for SI: Section 6-10(4) of the ITAA 1997

Question 3

What is the authority for an foreign resident’s assessable income including statutory and ordinary income derived indirectly/directly from Australian sources?

Answer 3

• Authority for OI: Section 6-5(3)
• Authority for SI: Section 6-10(5)

Question 4

What are the 4 tests to determine residence for individuals? Where does this come from?

Answer 4

Resides test, domicile test, 183-day rule test, superannuation test - ITAA 1936 s 6(1)

Question 5

What are the factors relevant for deciding whether an individual ‘resides’ in Australia? Cite the cases also.

Answer 5

• Physical presence: Applegate, Miller
• Family, employment or business ties: Levene
• Maintenance of a place of abode and other assets: Levene
• Frequency, regularity and duration of visits: Pechey; and
• Habits and mode of life: Levene

Question 6

What are the two parts you have to establish for the domicile test?

Answer 6

There are two parts to this to establish whether a person is a resident.
1. A person’s domicile must be Australian; and
2. The Commissioner must be satisfied that the person’s permanent place of abode is not overseas

Question 7

What are the different types of domicile?

Answer 7

Domicile of origin, domicile of choice, domicile of dependency

Question 8

What are the tests to determine the residency of companies?

Answer 8

(1) incorporation test
(2) central management and control test
(3) control of voting power test

Question 9

Give a case summary for Applegate

Answer 9

Facts:
* Solicitor sent by employer to Vanuatu
* Left Australia with wife
* Moved into house under 12-month lease with option to renew for another 12
* Obtained residency permit for 2 years
* Solicitor didn’t own house in Australia and gave up lease before leaving, left no assets in Australia but retained membership in hospital fund
* Always intended to return after indefinite period but due to sickness returned to Australia after being away for 2 years
Held: Taxpayer could not be considered to be residing in Australia as he was not physically present

Question 10

Give case summary for Pechey

Answer 10

Facts:
* Taxpayer’s ordinary place of residence in Canberra
* Stayed in Territory of Cocos for 4 weeks, didn’t take family
Held: Court found he was non-resident of Cocos Islands, as his stay in the Territory was of a short and temporary nature

Question 11

Give case summary for Miller

Answer 11

Facts:
* Taxpayer worked and lived on fishing boat of Qld
* US Gov then hired boat for WWII and taxpayer stayed on as master of boat
* 1943 lived on boat, saying in Papua New Guinea coastal waters
* Carried supplies between ships at anchor and shore and was paid by US Government
Held: HCA man resides where he sleeps and lives; ∴ = non-resident

Question 12

Give case summary for Rogers

Answer 12

Facts:
* Taxpayer absent from UK on sea voyage for whole of income year

Held: still resides in UK, despite not being physically present, because that was where he had his home and family

Question 13

Give case summary for Re Iyengar

Answer 13

Facts:
* Taxpayer left his home in Australia in 2007 to move to Middle East to work as an engineer for company under 2 year contract with options to extend for periods of 6 months each
* Wife and son remained in Australia
* Taxpayer claimed he was a non-resident
Held: taxpayer was resident of Australia under ‘resides’ test. Maintained place of residence in Aus and continuity of association with Aus, together with an intention to return to Aus upon completion of ctt. AAT also said applicant considered Perth home at all material times remained his ‘family home’

Question 14

Give case summary for Levene

Answer 14

Levene v IRC [1928] AC 217
Facts: Tax payer had no fixed place of abode and lived in hotels in France and Monaco. He spent 4-5 months/year in UK seeking medical advice and visiting relatives.
Held: taxpayer was resident of UK with strong ties and physical presence

Question 15

Give case summary for Lysaght

Answer 15

Facts:
* Taxpayer worked many yrs for Co in England
* In 1919 partially retired and moved with family to Ireland into inherited estate
* Sold house in England and had no place of abode there
* Remained non-exec director of co and made monthly visits to UK for directors’ meeting
* He usually stayed for about 1 week for each meeting
Held: taxpayer was UK resident, as he ordinarily resided there, even though he had no settled abode in UK and had his home in Ireland

Question 16

What are the factors to consider when determining whether a permanent place of abode is overseas?

Answer 16

Consider
* Intention as to length of stay (3+ years intention) (Jenkins), 2 years may not be sufficient (Q68)
* Actual length of stay
* Abandonment of place of abode in Australia
* Acquisition of place of abode outside Aus
* Intention to make place of abode home
* Nature and quality of use made of place of abode
* Duration and continuity of present in place
* Durability of association (ties) with place do you own it, lease it or are you just staying there and ties family, children at school, employment, bank accounts

Question 17

What does permanent mean? Give authority

Answer 17

Does not mean everlasting but more than temporary or transitory, permanent = fixed and habitual place of abode (Applegate).

Question 18

Give case summary for Q68

Answer 18

Facts: Taxpayer, a bank officer, transferred overseas for two years and took his wife and children. They spent a week in a hotel and subsequently moved into a furnished house provided by the bank, and rented out their Australian house. They returned to Australia after two years.

Tribunal held: The taxpayer was a resident of Australia because place of abode was transitory or temporary and he relied on the bank leasing the house. The fixed two-year period lacked durability.

Question 19

Give case summary for Jenkins

Answer 19

Facts: The taxpayer and family intended to stay overseas in Vila for a set period of three years with an option to extend the term. The taxpayer in evidence stated that he intended to extend their stay overseas. He did not sell his Australian house, although he attempted to do so. Also, he retained furniture in Australia and received child endowment. Due to illness the taxpayer returned after 18 months.

Court held: That three years was more than temporary, thus he had a permanent place of abode outside Australia.

Question 20

What are the requirements for the 183-Day test

Answer 20

3 requirements
(1) A person must be physically present in Aus for more than half of year of income Comm satisfied that both
(2) Person’s usual place of abode is not o/s Aus
(3) Person does intend to take up residence in Aus

Exception: the usual place of abode is outside Australia and no intention to take up residence in Australia
* A person’s usual place of abode is their habitual place of residence when physically present in a country
* The intention of the taxpayer can be discerned by having regard to the taxpayer’s subjective intent and the surrounding objective circumstances

Question 21

Give summary of Superannuation test

Answer 21

A person = resident if they are a member of the superannuation scheme for Commonwealth public servants, also includes person’s spouse and children

Question 22

What is the incorporation test?

Answer 22

• A company incorporated in Australia will be a resident.

Question 23

What is the central management and control test?

Answer 23

This test requires that the company carry on business in Australia and that its central management and control be in Australia

Carry on business in Australia
‘Carry on business’ does not refer to day-to-day operation but to where the ‘brains’ of the business are located. If the central management and control are in Australia, then the business will be a resident (Malayan Shipping Co Ltd v FCT (1946) 8 ATD 75).

Question 24

What do you consider when determining where the central management and control is? Give authority

Answer 24

• Where directors meet to do business (Koitaki Para Rubber Estates) generally most important factor
• Where the real business activities are undertaken (North Australian Pastoral)
• Place of incorporation and location of registered office (Esquire Nominees v FCT)
• Residence of parent company

Question 25

Give summary for Koitaki Para Rubber

Answer 25

Facts: * Taxpayer incorporated in NSW and directors’ meeting and records held there * Owned rubber plantations in PNG * PNG manager had broad power to carry on business in PNG and reported to NSW * All rubber sent to NSW Held: Taxpayer was resident as no part of superior administration and control was in PNG. It was not a dual resident, as PNG ops were of subordinate nature rather than central

Question 26

Give summary for North Australian Pastoral

Answer 26

Facts: * Co incorp in NT and conducted cattle station in NT where had its registered office * Derived dividencds from two cos in Qld * Manager lived on station and most of day-to-day decisions, records kept in NT and sub-branch and duplicate records in Qld * 5/7 directors resided in Qld and director’ meetings held in Qld, although directors visited station HCA held: taxpayer = dual resident. Basic principle is where real business carried out. Business of co was essentially localised. Its success/failure depended on management by station manager. Real decisions undertaken in in NT, an meetings were in Qld for convenience.

Question 27

Give summary for Esquire Nominees

Answer 27

Facts: * EN = Norfold Island co app as trustee of discretionary trust that held shares. EN, as trustee, received dividend of $30,910 following from shares in Aus co. EN’s reg office in Norfolk Island. All directors resided there and all board meetings were held there. Accountants in Aus acted on behalf of Aus residents who were beneficial owners of taxpayer. Comm argued real controllers were Aus ∴ should be resident. Held: although directors acted in acc with Aus accountants, accountants had no control over how directors exercised their powers. Accountants had strong influence but that was all, so central management and control were in Norfolk Island.

Question 28

What is the shareholder test? What are the requirements

Answer 28

Test has two requirements: that company carry on business in Australia and that residents control the voting power * Carries on business means day to day business rather than management powers * Voting power is controlled by residents

Question 29

What are relevant factors for determining source of personal service income

Answer 29

Relevant factors for determining source of personal service income are: * Where services are rendered * Where ctt is negotiated and made; and * Where payment is made