Discuss whether Robert is a resident of Australia for tax purposes and how his income from salary and investment taxed

Home, - Resident of Australia for tax purposes

Question - Robert, a chief executive officer of an American Company specializing in management consultancy, comes to Australia to set up a branch of his company. Robert was recruited for this job in Australia and signed a contract with the company in Sydney. Although the length of his stay is not certain, he leases a residence in Brisbane for 12 months. His wife accompanies him on the trip, but his teenage daughter, having just commenced college, stay in Newyork. He and his wife have a joint account with National Australia Bank in Australia. Robert's income from a consultancy is paid directly into this account. Robert rents out the family home. Apart from the absence of his children, Robert's daily behaviour is relatively similar to his behaviour before entering Australia. All his family other investments, including a share portfolio that generates dividend income, remain in the USA.

Discuss whether Robert is a resident of Australia for tax purposes and how his income from salary and investment would be taxed.

Answer -

The first factor to consider for tax purposes is to identify whether Robert is an Australian citizen. As per the definition of an ordinary residence under section 6(1) (a) ITAA36, it is a valid question of degree and fact. It is a valid argument that Robert is an Australian resident due to reasons such as he lives in Australia, has some degree of abode permanence, his immediate family resides in Australia, they have a house and a bank account in Australia.

These factors that serve to be as legally valid proofs for Robert's ordinary citizenship in Australia 'outweigh' the other factors that prove Robert 's connection with USA, factors such as the fact that Robert holds a US citizenship, spends time in the USA, his daughter residing in the USA and him maintaining a share portfolio in the US. Another considerable factor is that he seems to be based in the US entirely for Employment purposes (Pillay bv FC of T 2013 ATC 10-324). Based on Robert's stay in the USA it cannot be concluded that his immediate family and he are not residents in Australia as physical presence in Australia is a major factor to be considered.

Based on the rule in FC of T v French (1957) 98 CLR 398, under the source rules, Robert seems to have his source of salary and wage income deriving from overseas. Regularly, the source of a service income is derived from the place where the services have been rendered in (FC of T vEsftathakis 79 ATC 4256, French). As per this source rule, then an argument arises that since the contract was made in Australia, the income is sourced in Australia (FC of T v Mitchum (1965) 113 CLR 401).

According to the decision made in Esquire Nominees Ltd (as Trustee of Manolas Trust) v FC of T 73 ATC 4114, the source of dividend income is considered as the source of the profits from which the dividends were paid. In Philippines, dividends earned from a share portfolio are considered to be most likely paid from profits made out from a foreign source.

As a resident, Robert is liable to pay tax on income from all sources, including investment income from USA and salary and wage income from USA. In the case of when taxes have been applied overseas then a person can avail foreign income tax offsets.

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