The purpose of the secondment was to establish networks with existing Australian clients

Home, - Discuss residency and source issues

Question - Jack is an accountant for an international accountancy firm based in Fiji. He has investments in Fiji comprising of his own home, a rental property, shares in local companies and cash deposits in high interest-bearing bank accounts. On 1 February 2020, Jack was transferred to the firm's Brisbane office on a temporary three-month secondment. The purpose of the secondment was to establish networks with existing Australian clients that have indicated the possibility of investing in Fiji. During the secondment period, Jack remained an employee of the Fiji office, and his salary was paid into his Fiji bank account. While Peter's intention was to return to Fiji at the conclusion of his secondment, he sought and was successfully offered a permanent position in Brisbane. In early June 2020, he became an employee of the Brisbane office. His relocation involved purchasing an apartment in the Brisbane suburb of Ascot, renting out his own home in Fiji and transferring a sum of cash to a high interest-bearing bank account in an Australian bank. Discuss residency and source issues.

Answer -

In the given case, Jack works for an international accountancy firm based in Fiji. All his investments, home, shares, cash and bank accounts are in Fiji itself. He was transferred to the Brisbane office of the same firm on February 1, 2020. For the financial year 2020-21, Jack has stayed in Australia for a period of five months or 150 days. Also, he was offered a permanent position in the Brisbane office from June 2020. He relocated to Brisbane, purchased an apartment and transferred certain sum from his Fiji's bank account to an Australian bank. He also let out his property in Fiji.

A person can be a resident in Australia without being a citizen. In order to determine residency status for the purpose of taxation, certain tests can be used. The first one being resides test, if a person besides in Australia, he is considered an Australian resident and other Residency tests need not be applied. Factors determining Residency include physical presence, intention and purpose, family, business or employment ties, maintenance and location of assets, social and living arrangements. The next test is the domicile test. When a person has a permanent place of abode in Australia, he is considered to be an Australian resident. Another test, is the 183-day test which applies to individuals who will be considered a resident if they are present for more than half the income year in Australia, be it continuously or with breaks. The last is the Commonwealth superannuation test which is applicable to Australian government employees who work at Australian post overseas and are members of the CSS or PSS schemes.

In the given case, Jack stares in Australia for less than 183 days in the financial year 2020-21. Also, he is a resident of Fiji as understood from the given facts. Therefore he will not be considered a resident for tax purpose for the given year and only his income in Australia shall be taxable for the year under Australian taxation. However, it should be noted that Jack was offered a permanent position in Brisbane in early June 2020 and since then he is a resident of Brisbane. Therefore, in the given case his residency status has changed during the income year. He will therefore be taxed at resident rates for the period of June 2020 and shall be eligible for pro-data tax free threshold.

For the following year, starting from July 2021, Jack being a permanent resident of Brisbane and having assets in Brisbane shall be regarded as a resident of Australia for tax purposes. Therefore, his residency status is different for both the income years. Only after determination of the residency status, shall tax rates be applicable accordingly on Jack's income.

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