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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of private ruling

Authorisation Number: 1011588260363

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

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Ruling

Subject: Residency

1. Is your employment income from sources in Australia for income year 2008-09 assessable in Australia? Am I required to lodge a tax return in Australia?

Yes.

2. Is your interest income from an Australian bank account is subject to withholding tax in Australia?

Yes.

3. Are you entitled to a refund of withholding tax you paid on your interest income from your investments in Australian bank accounts?

No.

4. Are you required to lodge a tax return for the period you were deemed to be a non-resident of Australia and your only income in Australia is interest from bank accounts on which withholding tax has been paid?

No.

This ruling applies for the following period

Year ended 2009

Year ended 2010

The scheme commenced on

1 July 2008

Relevant facts

Your country of origin is Country X.

You are a citizen of Country X.

You travelled to Country A on residence visa to work.

Your contract was for a period of one year. Your contract can be extended for an indefinite period for one year at a time and has been already extended several times.

Your whole family moved to Country A with you, including your spouse and children.

You intend to reside in Country A permanently, unless your situation changes drastically.

You did not come back to Australia since you first left for Country A.

Your accommodation in Country A is provided by your spouse's employer.

You have many social connections with Country A.

You own a house in Country X.

You do not have any other asset except bank accounts in Australia that earn interest income.

You were renting in Australia during your stay in Australia.

You do not have any social or sporting connections with Australia.

Before departing Australia to Country A, you were intermittently working for a short period.

You or your spouse does not hold any position with the commonwealth Government of Australia or a member of Commonwealth Superannuation Scheme (CSS) or Public Service Superannuation Schemes (PSS).

Australia does not have a tax treaty with Country A.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1936 Section 128B

Income Tax Assessment Act 1936 Subsection 128B(2)

Income Tax Assessment Act 1936 Subsection 129D

Income Tax Assessment Act 1997 Subsection 6-5(3)

Income Tax Assessment Act 1997 Subsection 6-15(3)

Income Tax Assessment Act 1997 Section 11-55

Income Tax Assessment Act 1997 Subsection 995-1(1)

Income Tax (Dividends, Interest and Royalties Withholding Tax) Act 1974 Section 7

Reasons for decision

To answer your questions we need to determine your residency status.

Residency

The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are:

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides.

However, where you do not reside in Australia according to ordinary concepts, you may still be considered to be a resident of Australia for tax purposes if you meet the conditions of one of the other three tests.

1. The resides test

The ordinary meaning of the word reside, according to the dictionary definition, is to dwell permanently, or for a considerable time, to have ones settled or usual abode, to live in or at a particular place.

For the period you were in Country A, you are not considered to be residing in Australia under this test.

2. The domicile test

In order to show that a new domicile of choice in a country outside Australia has been adopted, you must be able to prove an intention to make your home indefinitely in that country.

A permanent place of abode does not have to be 'everlasting' or 'forever'. It does not mean an abode in which you intend to live for the rest of your life. An intention to return to Australia in the foreseeable future to live does not prevent you in the meantime setting up a permanent place of abode elsewhere.

Although you have investments in Australia but your association with Country A is considered to be more significant for the following reasons:

Based on these facts, it is considered that your permanent place of abode is outside Australia.

3. The 183-day test

You did not return to Australia since leaving for Country A and you stated that you have an intension to live permanently in Country A. Your stay in Australia was less than 183 day each financial year for the years you have requested this ruling. Therefore, you are not considered a resident of Australia under this test until your facts change.

4. The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the CSS or PSS, or that person is the spouse or child under 16 of such a person.

In your case, you are not a member of the CSS or the PSS or a spouse of such a person, or a child under 16 of such a person. Therefore, you will not be treated as a resident under this test.

Your residency status

As you are not deemed to be a resident of Australia under any tests of residency outlined in subsection 6(1) of the ITAA 1936, you are not considered to be a resident of Australia for income tax purposes.

Note

Residency status may change if any of the stated facts differ or change.

Assessability of Australian source employment income

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Ordinary income has the characteristic of being periodic, recurring and regular.

Generally, Australian courts have held that the source of employment income is where the employee performs their duties. Thus, employment income earned while carrying out duties in Australia is considered to be sourced in Australia.

In your case, you intermittently worked for an employer in Australia prior to departing to Country A.

Accordingly your income from the employer in Australia is assessable in Australia under subsection 6-5(2) of the ITAA 1997.

You would need to lodge a tax return for the income year 2008-09 (as part year resident) declaring the income if you satisfy certain conditions. Please refer to explanation below.

Interest income

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a foreign resident taxpayer includes ordinary income derived directly or indirectly from all Australian sources during the income year and other ordinary income that a provision includes as assessable income on some basis other than having an Australian source.

Interest income is ordinary income for the purpose subsection 6-5(3) of the ITAA 1997.

Subsection 6-15(3) of the ITAA 1997 provides that if an amount is non-assessable non-exempt income, then it is not assessable income.

Section 11-55 of the ITAA 1997 provides a list of non-assessable non-exempt income provisions. Included in this list is section 128D of the ITAA 1936 which deals with income subject to withholding tax.

Section 128D of the ITAA 1936 provides that interest upon which withholding tax is payable is not assessable income and is not exempt income.

Interest withholding tax is payable on interest derived by non-residents under subsection 128B(2) of the ITAA 1936.

Section 7 of the Income Tax (Dividends, Interest and Royalties Withholding Tax) Act 1974 sets the rates of withholding tax on payments to which subsection 128B(2) of the ITAA 1936 applies. The rate of withholding tax on interest paid to non-residents is 10%. However, this liability to Australian withholding tax is subject to any applicable tax treaty provisions contained in the Agreements Act.

As Australia does not have any tax treaty with Country A the general non-resident withholding tax of 10% is applicable in your situation.

Refund of Withholding tax

Withholding tax is the final tax on interest income of a foreign resident taxpayer.

In your case, you are not a resident of Australia for income tax purposes. Your financial institution deducted 10% tax from your interest income from the bank accounts you held in Australia. Accordingly, as a final tax and correct amount of tax you are not entitled to any refund of this tax (subsection 128B(2) of the ITAA 1936).

Lodgement of tax return and Pro-rata of tax free threshold for employment in Australia

Near the end of each financial year, the Commissioner issues a Legislative Instrument calling for the lodging of annual income tax returns. For example individuals require to lodge returns include resident whose taxable income is more than $6,000; residents and non-residents who have amounts withheld from their pay or other income, individuals who were Australian residents for only part of the year and whose taxable income exceeds $500 multiplied by the number of months the individual was a resident of Australia (including the month they become or ceased to be resident) and so on.

The final date for lodging income tax returns is generally 31 October.

You are required to lodge a tax return to disclose that income from your employment in Australia.

Lodgement of tax return for the period you were a non-resident

From the date you left Australia for Country A, your only income from sources in Australia is interest income from bank accounts in Australia on which correct amount of withholding tax has been deducted by your financial institution. Since the amount withheld from interest by an Australian entity represents a final tax liability for the non-resident, there is no obligation on your part as a non-resident to lodge or include this income in your Australian income tax return.

Note

Please note the Tax Office can only provide advice on issues related to their clients' tax affairs. For issues other than tax affairs the clients need to contact the relevant departments, for example issues in relation to Centrelink they need to contact them for further advise.

Please also note that the advice given here will not apply to any liability you may have to tax in Country A and you should check with the relevant tax authorities for any further inquiries.

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