Edited version of private ruling

Authorisation Number: 1011664688194

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.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Residency - dual resident

Questions

1. Are the salary and wages received by you, as a dual resident of Australia and Country X, from an Australian employer for work solely performed in Country X assessable income in Australia?

Answer: No.

2. Are the distributions received by you from an Australian resident trust, assessable income in Australia?

Answer: Yes.

3. Is your share of rental income received by you from a rental property located in Australia, assessable income in Australia?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commenced on

1 July 2010

Relevant facts

You are going to depart Australia for Country X in the 2010-11 year of income.

You will be employed in Country X by your Australian company.

You and your spouse are not members of a Commonwealth Government Superannuation Fund.

You will return to Australia few times a year for work purposes.

You are going to be in Country X for up to two years.

You will be residing in rental accommodation when in Country X.

You will be renting your house in Australia.

You will open a bank account in Country X.

The disposition of all your other assets will not change.

Your intention is to return to Australia on completion of your term of employment.

You are an Australian resident for income tax purposes.

You are also a resident of Country X for their tax purposes.

You exercise the duties of your employment predominately in Country X.

Relevant legislative provisions

Subsection 6(1) of the Income Tax Assessment Act 1936

Section 12-35 of Schedule 1 to the Taxation Administration Act 1953

Section 6-5 of the Income Tax Assessment Act 1997

Subsection 6-5(2) of the Income Tax Assessment Act 1997

Reasons for decision

Subsection 6-5(2) of the 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.

Salary and Wages are ordinary income for the purpose of subsection 6-5(2) of the ITAA 1997.

In determining liability to Australian tax on Australian sourced income, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act).

Schedule A to the Agreements Act contains the tax treaty between Australia and Country X (the Country X treaty). This treaty operates to avoid the double taxation of income received by Australian and Country X residents.

Article Y of the Country X treaty provides tests of residency which are used where the individual is a resident of two countries (tie breaker tests). The tiebreaker tests ensure that the individual is only treated as a resident of one country for the purposes of working out liability to tax on their income. The tiebreaker rules do not change a taxpayer's residency status for domestic law purposes.

(a) the individual shall be deemed to be a resident only of the State in which a permanent home is available to that individual; but if a permanent home is available in both States, or in neither of them, that individual shall be deemed to be a resident only of the State with which the individual's personal and economic relations are closer (centre of vital interests);

(b) if the State in which the centre of vital interests is situated cannot be determined, the individual shall be deemed to be a resident only of the State in which that individual has an habitual abode;

(c) if the individual has an habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which that individual is a national.

Taxation Ruling TR 2001/13 discusses the Commissioner's views about interpreting tax treaties.

Paragraph 104 of TR 2001/13 states that the OECD Model Tax Convention and Commentary (OECD Commentary) will often need to be considered.

The OECD Commentary provides that in relation to a permanent home:

(a) for a home to be permanent, an individual must have arranged and retained it for his or her permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be of short duration. The dwelling has to be available at all times continuously and not occasionally for the purposes of a stay, which owing to the reasons for it is necessarily of short duration (eg travel for pleasure, business travel, attending a course etc).

(b) any form of home may be taken into account, including a house or apartment belonging to or rented by the individual and a rented furnished room.

As your residence in Australia will be rented it's not available constantly so it isn't a permanent home. You will have a dwelling available continually in Country X which will be a permanent home.

Consequently, you will be treated as a resident of Country X for the purposes of applying the provisions of the Country X treaty to income earned by you during the period of dual residency.

Article Y the Country X treaty refers to income from employment.

Salaries, wages and other similar remuneration derived by a resident of Country X in respect of an employment shall be taxable only in Country X unless the employment is exercised in Australia. If the employment is so exercised, such remuneration may be taxed in Australia. As your employment is exercised in Country X and you are a resident of Country X your earnings will be taxed in Country X.

These earnings are accordingly exempt income in Australia in accordance with the Country X treaty.

Assessability of Trust income

A beneficiary who Is a non resident of Australia at the end of the income year, and who is presently entitled to a share of the income of a trust estate and is not under a legal disability, is assessed under subsection 98(3) of the ITAA 1936 on a corresponding share of the net income of a trust estate.

Rental income and expenses

Article Y of the Country X treaty states that Income derived by a resident of NZ from a rental property located in Australia may be taxed in Australia.

Allowable rental expenses will be deductible.

Note

PAYG

Section 12-35 of the Taxation Administration Act 1953 (TAA 1953) states that an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

However sub section 12-1(1)  of the TAA 1953 states that an entity need not withhold an amount under section 12-35 of the TAA 1953 from a payment if the whole of the payment is exempt income of the entity receiving the payment.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).