Question

Melchor is a senior executive of an Australian brewing company. The company decides to expand into the European market, and Melchor is expected to be posted to Germany to take responsibility. Melchor is expected to live in Germany for at least the next 3 years, and therefore decides to lease a few apartments in different cities of Germany. Melchor has a family in Sydney, but they do not accompany him as his children are in their senior years of secondary school. Melchor travels back to Sydney to see his family as often as possible, with some years for only 30 days and other years, for 150 days. Melchor also continues to maintain his joint bank account in Australia with his spouse.

Required: Consider whether Melchor is an Australian tax resident in these facts and the source of interest income from his bank account in Australia.

Answer 1

Melchor is not an Australian tax resident based on the residency test. The interest income from his bank account in Australia is considered Australian-sourced income and is subject to non-resident tax rates.

Step-by-step explanation:

Melchor's tax residency status is determined by the Australian tax law. According to the tax law, an individual is considered a tax resident if they meet the residency test. This test looks at various factors such as the individual's physical presence in Australia, their domicile, and their usual place of abode. Since Melchor is living in Germany for at least 3 years and his family is not accompanying him, it can be assumed that Germany is his usual place of abode, making him a non-resident for tax purposes.

The source of interest income from Melchor's bank account in Australia is considered to be Australian-sourced income. Although he is physically present in Germany, the interest income is generated from an Australian bank account and is therefore sourced in Australia. As a non-resident, Melchor is subject to non-resident tax rates on this income.

To summarize, Melchor is not an Australian tax resident based on the residency test. The interest income from his bank account in Australia is considered Australian-sourced income and is subject to non-resident tax rates.