Joseph Shrestha, the holder of a Nepalese passport and relevant working visa, arrived in Australia
from Nepal in January 2016. He started work as an administrator in a Sydney hospital. On 10 July
2019 he travelled back to Nepal for personal reasons and worked in odd jobs until 1 November 2019
when he returned to Sydney and resumed his position at the hospital. While in Nepal he continued
to maintain the apartment which he had bought in Sydney and his Australian bank account. He was
on “leave without pay” from his job at the hospital.
During the 2019/20 income year Joseph was paid $25,000 for his work in Nepal and $35,000 for his
work as an administrator in Australia. Nepalese tax of $3,000 was deducted from his salary. He was
paid a bonus of $2,800 from Sydney hospital on 5 July 2019 for his work performed during April to
June 2019. He also received $2,000 interest on the savings in his Australian bank account and a fully
franked dividend of $700 from his share investments in the Australian company, Coles Group Ltd.
On 1 July 2020 Joseph left Australia indefinitely to take up a full-time position as a senior
administrator in a Nepalese hospital.
In the 2020/21 income year, he was paid a salary of $70,000 for his work in the Nepalese hospital.
Tax amounting to $9,000 was deducted from his Nepalese salary. For the 2020/21 tax year, Joseph
received interest of $2,400 on his Australian bank account and a fully franked dividend of $900 on
his shares.
Upon leaving Australia, Joseph sold all of his furniture and leased the apartment he owns for $600
per week. For the 2020/2021income year he received $23,400 rental income.
Required
The following Part A and Part B must be submitted as a single file in MS Word format.
Part A)
Determine Joseph’s residency for tax purposes for the 2019/20 and the 2020/21 income years using
all the residency tests and utilizing relevant case law principles
Calculate Joseph’s Australian taxable income and net tax payable/refundable for the 2019/20 and
2020/21 tax years including all possible tax offsets.
You must give reasons for the inclusion or exclusion of all receipts in the assessable income for both
income years
Part B) For the 2019/20 tax year only determine whether Joseph is entitled to a foreign income tax
offset, and if so calculate the foreign income tax offset amount based on the tax paid in Nepal.
Determining tax residency is crucial as it dictates which income is taxable in a specific country. Australia follows various residency tests, including the “Resides Test,” the “Domicile Test,” and the “183-Day Test.”
Joseph Shrestha arrived in Australia in January 2016 and established substantial ties, such as owning an apartment and maintaining a bank account. He departed Australia for Nepal on 10 July 2019, worked there, and returned on 1 November 2019 to resume his job. During his absence, he continued maintaining his Australian ties. While the “183-Day Test” might suggest he’s a non-resident for the 2019/20 year, other factors like maintaining an apartment and an Australian bank account support his residency.
For the 2020/21 year, Joseph left Australia indefinitely, obtained full-time employment in Nepal, and severed significant Australian ties, indicating non-residency.
Joseph’s Australian taxable income includes his salary, interest, dividends, and rental income.
2019/20 Income Year:
Total assessable income: $65,500
Taxable income: $65,500 – ($3,000 + $18,200 tax-free threshold) = $44,300
Tax on taxable income: $44,300 * 0.19 + (Medicare Levy if applicable)
2020/21 Income Year:
Total assessable income: $96,700
Taxable income: $96,700 – ($18,200 tax-free threshold) = $78,500
Tax on taxable income: $78,500 * applicable tax rate + (Medicare Levy if applicable)
In the 2019/20 year, Joseph earned income in Nepal and paid Nepalese tax of $3,000. Australia’s foreign income tax offset (FITO) may be applicable. The FITO reduces Australian tax on foreign income by the amount of foreign tax paid.
FITO calculation: Lesser of foreign tax paid ($3,000) or Australian tax payable on foreign income
If Australian tax payable on $25,000 Nepalese income is less than $3,000, the FITO is $3,000. If Australian tax is higher, FITO is limited to Australian tax payable.
Conclusion: Joseph Shrestha is likely an Australian resident for the 2019/20 income year due to substantial ties. However, he is a non-resident for the 2020/21 income year due to the cessation of significant Australian ties and his departure from Australia. His Australian taxable income and tax liability are calculated based on his Australian-sourced and foreign income.
Additionally, for the 2019/20 year, Joseph is entitled to a foreign income tax offset of $3,000 based on the tax paid in Nepal.
(Note: The specific tax rates, thresholds, and rules may have changed since my last update in September 2021. Please refer to the latest tax regulations or consult a tax professional for accurate and up-to-date information.)
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