Client often ask whether they are Australian resident for tax purpose or not. Generally, if a taxpayer is an Australian resident for tax purposes, all income earned both in Australia and internationally, is declared on the tax return. If a taxpayer is a non-resident for tax purposes, only all income earned in Australia is declared on the tax return. Also, for company registration purpose, Australian Company need to have local directors, which mean one director must be tax resident and has a residential address in Australia. That’s why we write this article to explain the main concept to help you understand the tax resident mean, which is different to the permanent resident we normally refer to. Generally, Australian Tax Office (“ATO”) consider you to be an Australian resident for tax purposes if you: • have always lived in Australia or you have come to Australia and live here permanently; • have been in Australia continuously for six months or more, and for most of that time you worked in the one job and lived at the same place; • have been in Australia for more than six months during financial year, unless your usual home is overseas and you do not intend to live in Australia; • go overseas temporarily and you do not set up a permanent home in another country, or • are an overseas student who has come to Australia to study and are enrolled in a course that is more than six months long. There are four tests for residency, namely resides test, domicile test, 183 day test, and superannuation test. An individual only needs to satisfy one of these tests to be considered a resident of Australia for tax purposes. The resides test is the primary test. The other three tests are sometimes referred to as the statutory tests.
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If you sell a capital asset, such as real estate, you usually make a capital gain or a capital loss. This is the difference between what it cost you to acquire the asset and what you receive when you dispose of it. You need to report capital gains and losses in your income tax return and pay tax on your capital gains. All assets you’ve acquired since tax on capital gains started (on 20 September 1985) are subject to CGT unless specifically excluded. Foreign residents make a capital gain or loss if a CGT event happens to an asset that is 'taxable Australian property'. In fact, most personal assets are exempt from CGT, which includes the main residence exemption for CGT of selling property. Main residence exemption The main residence exemption means that there is no capital gain or capital loss made from a CGT event that relates to a dwelling that is the taxpayer’s main residence. The main residence exemption will not apply where: • the residence was only a main residence for part of the ownership period, or • the residence was used for the purpose of producing assessable income. More than One Residence If a taxpayer owns more than one residence that qualifies as a main residence, they must choose which one is the main residence for CGT purposes. This choice occurs in the income year where the CGT event occurs in relation to the dwelling. Where a taxpayer has a main residence and acquires another dwelling that is to become the new main residence, then both dwellings are treated as the taxpayer’s main residence for the shorter of: • six months ending when the ownership interest in the existing main residence ends, or • the period between the acquisition of the new ownership interest and end of the old ownership interest. This change of main residence exemption only applies where the existing main residence was used as a main residence for a continuous period of at least three months in the preceding 12 months, ending when the taxpayer’s ownership interest in it ends and it was not used for income-producing purposes during that 12-month period. Generally, a taxpayer can treat the dwelling as your main residence for: • up to six years if it is used to produce income • indefinitely if it is not used to produce incomeCapital Gain Tax Full Article Link
Client often ask whether they could reduce their income tax by diverting income received from personal services through companies, partnership, or trusts. Personal services income (PSI) is income produced mainly from your personal skills or efforts as an individual. Income is classified as PSI when more than 50% of the amount you received for a contract was for your labour, skills or expertise. Before deciding whether to set up a new business structure, the first thing we need to do is work out if any of your income is classified as PSI. The PSI rules (or alienation of PSI rules) were introduced to ensure that taxpayers cannot reduce or defer income tax by diverting income received from their personal services through companies, partnerships or trusts or by claiming inappropriate deductions against this income. The impact of the PSI rules, for those affected by them, is: • the PSI is included in the assessable income of the individual taxpayer whose personal efforts or skills generated the income and • there are restrictions on the deductions that may be claimed by the individual or the entity against the PSI so that they broadly correspond to the deductions available to employees. Personal services income is income that is mainly a reward for an individual's personal efforts or skills. It does not include income that is mainly: • for supplying or selling goods (for example, from retailing, wholesaling or manufacturing), • generated by an income-producing asset (such as a bulldozer), • for granting a right to use property (for example, the copyright to a computer program), or • generated by a business structure (for example, an accountant working for a large accounting firm).Personal Service Income Full Article Link