Foundations of Taxation Law

This chapter focuses on the concepts of ‘residence’ and ‘source’. These concepts are important because they underpin Australia’s ‘general jurisdictional rules’, which apply to a taxpayer’s ordinary and statutory income. The general jurisdictional rules recognise that there must be some territorial link between Australia and either the taxpayer or the source of the income in order for Australia to exercise its taxing rights. Foreign residents are therefore generally not taxed on their foreign income as there is a complete lack of connection with Australia. It is important to be aware that the general jurisdictional rules operate subject to numerous exceptions. For instance, in special cases, foreign residents may be assessed on ordinary and statutory income on some basis other than the income having an Australian source (ss 6-5(3)(b), 6-10(5)(b)). The general jurisdictional rules also operate subject to a range of exemptions as well as special rules contained in Australia’s DTAs. Special rules also apply to ‘temporary residents’ and taxpayers that carry on business through permanent establishments (‘PEs’).