A Worldwide System of Taxation in Australia - Math Problem Example

These two concepts come from the provisions of the domestic tax law which classify taxpayers as residents and non-residents. In Ken and Mary’s case, they want to become non-Australian taxpayers for three years. During this time, Ken will be working as an independent contractor in the oil sector in Nigeria. Ken wants to avoid paying taxes in Australia on his salary. His salary will be AUD 500,000 per year plus AUD 100,000 living away from home allowance. His major concern is what he will do so that he does not pay taxes while he is staying in Nigeria.

He has a family home, three motor cars he intends to keep, a self-managed superannuation fund and a bank account he intends to keep in Australia. While living in Nigeria, he will be living in a furnished accommodation. According to the Committee of Experts on International Cooperation in Tax Matters, non-resident taxpayers will have some connection with the country in question but the income received by the taxpayer will have an economic link to the country. Resident taxpayers usually have a personal and economic connection with the country in question and thus the country taxes this taxpayer on his worldwide income.

A country, in this case, Australia, has the jurisdiction to impose tax based on its relationship to income. This applies to the concept of source where the state has the jurisdiction to impose tax justified on the fact that the state has contributed to the generation of the opportunities that enable the taxpayer to generate income within the borders of the state. The fact that Ken will not be working within the territorial borders of Australia means that he is supposed to be treated as a non-Australian taxpayer.

In Australia, if a person leaves the country for more than two years and establishes a home in another county he/she is considered a non-resident for tax purposes. When the person becomes a non-resident sub-section 104-160 of ITAA96 considers that a capital gains tax event has taken place. This means that a person is considered to have disposed of all his assets at their market value. However, an increase in the value of the items is subject to capital gains tax. Some of these things as far as Ken and Mary are concerned include his family house in Melbourne where his daughter will be staying while he is away.

He will also be keeping his three cars in Australia while he will be away. All countries impose tax on the income that is generated within their territory and the income derived by non-residents within the foreign country is supposed to be taxed at the source. Australians leaving the country for more than two years are likely to be treated as non-residents from the date they are leaving the country.