Case study - Australia Tax

Mr George Sykes was born in Australia and had lived here all his life. He successfully applied for a position in Singapore to help operate a branch office of his Australian employer. On 1 December 2010, he was transferred to the position for a minimum of two years.

George was accompanied by his wife, Karen, but their sixteen-year-old daughter, Stephanie, stayed in Perth to finish her schooling and attend boarding school.

Arrangements were made for her to travel to Singapore for all school holidays. the Sykes made a decision not to sell their jointly owned house and chose to rent it out for the period of their absence. George maintained a small bank account balance of $5,000 in Australia as an emergency fund. His salary of A$90,000 a year was paid by his employer from Australia into his bank account in Singapore, with the exception of an amount A$10,000 which George had requested his employer to pay direct to his father in Perth to cover his father's medical expenses. Singapore tax was paid on the salary.

George worked successfully in Singapore, returning to Australia three times a year for brief visits to report to his employer. However, due to financial problems the branch office was forced to close and George and his wife returned to Australia on 31 March 2012. Net rent (rental receipts less expenses) on the Australia house for the period1 July 2011 to 31 March 2012 is A$14,000.

REQUIRED:

Do complete all the test.

(a) Advise George of his likely residency status for Australian income tax purposes for the year ended 30 June 2012 (5m)

(b) Assuming George would be treated as a resident, identify and briefly discuss the tax issues (consequences) that would arise. (1.5m)

(c) Assuming George would be treated as a foreign resident (non-resident) identify and briefly discuss the tax issues (consequences) that would arise.

(d) Idnetify and briefly discuss any other relevant issue(s) to be considered in determining George's Australian tax liability for the year ended 30 June 2012 (1m).

LECTURE'S NOTES:

1. Common law test- "Reside" means any place you stay habitually more than temporary

2. Domicile test - Country of birth, Australia?

3. Were you living in Australia more than 6 months/ 183 days?

4. Did superannuation contribute?

Consequences of the Test:

(A) Resident

1. Income sourced in or outside of Australia is accessible

2. Enjoy tax-free threshold of A$18,200

3. Subject to ML & MLS (Levie and Surcharges)

4. Enjoy tax-offset

Non-Resident:

1. Income sourced in Australia only are assessable

2. No tax free threhold- charge the first dollar

3. No ML or MLS

4. No tax-offset