For tax purpose, in what circumstances are individuals and companies treated as residents of Australia

Question 1 - For tax purpose, in what circumstances are individuals and companies treated as residents of Australia? Explain based on the Income Tax Assessment Act 1936 (Cth) and relevant case law.

Answer -

Any individual maybe defined as a resident of Australia upon the satisfaction of the tests given as under-

The resides test - it is considered to be one of the primary test where any individual is considered to be a resident if he/she resides in Australia.

Domicile test-if the individual has any permanent establishment, i.e., his home in Australia, he shall be considered as President of the country for taxation purposes purposes.

Half year test - if an individual resides in Australia for a continuous period of 183 days almost in a particular financial year, he shall be considered as the resident of the country.

Any business organisation having its permanent establishment, business activities, management and control, voting power in Australia shall be considered as a corporate resident of the country.

Question 2 - Referring to relevant statutory provisions and common law, discuss whether the following amounts would be as an allowable deduction against assessable income.

a) Provision of doubtful debts of $4,200 for a detective agency.

b) Speeding fines of $ 700 paid by an owner to a driver.

c) An amount of $1,000 paid to a solicitor for preparing a partnership deed.

d) Travel cost of a business executive to attend a trade fair in Munich paid by the employer.

e) Newspapers purchased by an accountant who advises clients on financial and investment matters.

Answer -

a. If the detective agency can prove the basis of creating doubtful debts is bad in nature, such expenses shall be allowable for the financial year.

b. Speeding fines incurred by the owner is not deductible expense under the ATO.

c. Amount paid to solicitor for hiring professional services in preparation of partnership deed shall be considered as a capital expenditure and hence would not be tax deductible.

d. Travel to Munich is business related and hence all travel expenses associated with business activities are allowable expenses under Australian taxation law.

e. Accountant providing professional services to his clients cannot claim any deductions for the expenses on purchasing newspaper under the income tax assessment act 1997.

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