Whether or not a taxpayer or an amount is subject to tax in Australia depends on whether or not the taxpayer is a resident of Australia for income tax purposes, and whether or not the amount has its source in Australia.
When a taxpayer is a resident of Australia for income tax purposes, they are assessable on income from all sources. However, when a taxpayer is a non-resident of Australia, they are generally only assessable on Australian-sourced income.
The definition of resident of Australia therefore contains four distinct tests, and only the last test is clearly objective. There are a number of cases which deal with the interpretation of the first three tests.
Test 1: Resides in Australia
Whether or not a person resides in Australia is the primary test for residency, and is known as the common law test.
Test 2: The domicile test
The domicile test, together with the later two tests listed above in the s 6(1) definition of resident, extend the ordinary definition of “resident” or “resides”.
Test 3: 183-day test
A person who is in Australia for a total period of more than half of an income year will be treated as a resident unless it can be established that their usual place of abode is outside Australia and that they do not intend to take up residence in Australia.
Test 4: Commonwealth superannuation test
This is an objective test which merely requires membership of a specified superannuation scheme
In addition to the above, if you are a tax resident you may also be classified as a temporary resident. You are a temporary resident if:
- you hold a temporary visa granted under the Migration Act 1958
- you are not an Australian resident within the meaning of the Social Security Act 1991, and
- your spouse (if applicable) is not an Australian resident within the meaning of the Social Security Act 1991.
The benefit of being classified as a temporary resident is that only Australian sourced income is generally taxed.
Resident companies
A “resident company” is defined in s 6(1) of ITAA 1936 as a company that is either:
- incorporated in Australia, or
- while not incorporated in Australia, carries on business in Australia, and has either
- its central management and control in Australia, or
- its voting power controlled by shareholders who are residents of Australia.
Trust estate
In order for a trust estate to be a resident, s 95(2) requires that either:
- a trustee of the trust estate is a resident at any time during the year of income or
- the central management and control of the trust estate is in Australia at any time during the year of income.
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