Analysis of Case Law: Clemens and Commisioner of Taxation [2015] AATA 124

PART A

1. What issues are being considered in your chosen case, and what decision (conclusion) is reached?

The chosen case is Clemens and Commissioner of Taxation [2015] AATA 124 (6 March 2015) which is one of the three cases that were heard together by the Tribunal but judgments in each of the three cases were reserved and announced separately. The main issue in the instant case was to determine the residential status for tax purpose of a German individual who was present in Australia for more than 183 days (i.e. half of the year) during the tax year ended 30 June 2013. The person entered Australia on October 3, 2012 under “working holiday visa” (subclass 417) and stayed in Australia for various intermittent periods as follows:

Being present in Australia for more than 183 days, the Maximillian Clemens (hereinafter “the Applicant”) apparently fulfilled the residency test based on no. of days of presence in Australia whereunder a continuous or intermittent presence of 183 days or more causes an individual to qualify as an Australian resident for tax purposes. This rule emanates from the definition of “resident” under section 6(1) of the Income Tax Assessment Act 1936 which provides as follows:

“A person, other than a company, who resides in Australia and includes a person:

…..

(ii) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and that the person does not intend to take up residence in Australia; ….”

(emphasis added)

The Applicant lodged his income tax return through Backpackers Buddy Pty Ltd as a resident of Australia. On review of the assessment the Commissioner advised that the Applicant was not an Australian resident under the ITAA36, to which the attorneys of the Applicant objected and later the objection was rejected by the Commissioner and the matter resulted in an appeal before the Tribunal.

The above dispute resulted in a rather unusual situation whereunder the taxpayer intends to be resident of Australia and the Commissioner is insisting otherwise. Commonly a reverse situation is observed because a resident in Australia would otherwise also be liable to offer for tax income earned outside Australia, thereby enhancing his income tax liability to pay tax on income earned all over the world. However, the unusual positions adopted in this case are a result of the basic exemption or the substantial tax-free threshold whereunder an Australian resident is not required to pay income tax on the first bracket of income up to $18,200 of assessable income, whilst a non-resident would be paying 32.5% tax on the same income resulting in tax savings of $5,915 for the applicant. Moreover, the applicant did not have any foreign source income during the assessment year in question.