The two key aspects that determine the liability to Australian tax are residence and source of income. Any taxpayer, whether is an individual or a company residing in Australia, is liable to pay taxes on any income that is earned from sources which are either in or out of Australia. If a person is not a resident of Australia, then he/she is only liable to pay taxes on income earned from Australian sources (McBurney, n.d.). The criterion that determines whether a person is a resident for tax purposes is different from the criteria used by the Department of Immigration and Multicultural Affairs. Resident Australian citizens are eligible tax-free threshold of up to $18,200. The non-residents of Australia do not have the eligibility of tax-free threshold (Taxpayer.com, 2013).
The criteria that are considered for tax purposes are:
The person has come to Australia with the intention of living there or the person has been in living in Australia for more than half of the year. This does not apply if the person has a house overseas and if the person has no intention to live in Australia (McBurney, n.d.).
Tax accounting is based on the financial year that is from 1 July to 30 June of the next year. Income received from business is generally characterized as income from business in a two-step process; if the taxpayer states that he/she is carrying a business and the income is earned from that and they are not earned from other activities. The income earned on a business is taxable under s 6-5 of ITAA 1997. Under this section, the income earned from non-business activities is not taxable.