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Is the taxpayer, a resident of Norfolk Island, entitled to the tax-free threshold in Schedule 7 to the Income Tax Rates Act 1986 (the Rates Act)?

Yes. A Norfolk Island resident taxpayer is entitled to the tax-free threshold in Schedule 7 to the Rates Act as they are a resident of Australia for tax purposes.

The taxpayer is a Norfolk Island resident who receives Australian sourced income.

The rates of tax on taxable income for resident taxpayers are contained in Part 1 of Schedule 7 to the Rates Act. The tax-free threshold applicable to resident taxpayers is defined in section 3 of the Rates Act.

The term 'resident taxpayer' is defined in section 3 of the Rates Act to be a taxpayer who is not a 'prescribed non-resident'. Section 3 of the Rates Act defines 'prescribed non-resident' as a person who, at all times during the year of income, is a non-resident, not being a person whom certain pensions, allowances or benefits are payable to and subject to tax in Australia.

Section 4 of the Rates Act provides that the Income Tax Assessment Act 1936 (ITAA 1936) is incorporated and shall be read as one with the Rates Act. As the term 'resident' is not further defined in the Rates Act it is necessary to look to the general definition of the term in section 6 of the ITAA 1936, which defines 'resident' or 'resident of Australia' as a person who resides in Australia.

Subsection 7A(2) of the ITAA 1936 provides that the ITAA 1936 has effect as if Norfolk Island were part of Australia.

As Norfolk Island is deemed to be part of Australia, a person who resides in Norfolk Island is deemed to reside in Australia and is therefore a resident of Australia for tax purposes.

Furthermore, as the taxpayer is not considered to be a non-resident, the definition of a prescribed non-resident under section 3 of the Rates Act is not satisfied and instead the definition of resident taxpayer is met. As a deemed resident taxpayer, the Norfolk Island resident is therefore entitled to apply the tax rates in Part I of Schedule 7 to the Rates Act, including the entitlement to the tax-free threshold.

Date of amendment Part Comment 10 June 2016 Reasons for decision Correction of typo, Note: this ATO ID is not affected by changes to the law with effect from 1 July 2016 under Tax and Superannuation Laws Amendment (Norfolk Island Reforms) Act 2015. 13 June 2014 Reasons for decision Updated legislative references and adjusted wording to better reflect the legislation and improve clarity.

Date of amendment | Part | Comment

10 June 2016 | Reasons for decision | Correction of typo, Note: this ATO ID is not affected by changes to the law with effect from 1 July 2016 under Tax and Superannuation Laws Amendment (Norfolk Island Reforms) Act 2015.

13 June 2014 | Reasons for decision | Updated legislative references and adjusted wording to better reflect the legislation and improve clarity.