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Ruling

Subject: residency and assessable income

Question 1

Are you an Australian resident for taxation purposes after you departed Australia?

Answer

No.

Question 2

Is your pension assessable in Australia?

Answer

No.

This ruling applies for the following periods

Year ending 30 June 2011

Year ending 30 June 2012

The scheme commenced on

1 July 2010

Relevant facts

In early 2011 you resigned from your Australian employment.

Shortly after that you left Australia to live overseas.

Your ties are now overseas.

After you moved overseas you started to receive a Commonwealth Public Sector Superannuation Scheme (PSS) Pension.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 6(1)

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

Income Tax Assessment Act 1997 Subsection 6-10(5)

International Tax Agreements Act 1953.

Reasons for decision

Residency

Residency status is a question of fact. Your residency status is relevant in determining your liability to Australian income tax.

The term Australian resident is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to mean a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

Subsection 6(1) of the ITAA 1936 provides four tests to determine whether a person is a resident of Australia for income tax purposes. These tests are:

· the resides test,

· the domicile and permanent place of abode test,

· the 183 day test, and

· the Commonwealth superannuation fund test.

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 an individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for tax purposes if they satisfy the conditions of one of the other three tests.

The resides test

The Macquarie Dictionary defines reside as to dwell permanently or for a considerable time, have ones abode for a time.

The Shorter Oxford English Dictionary defines reside as to dwell permanently, or for a considerable time, to have ones settled or usual abode, to live in or at a particular place.

In your case, you have moved overseas to live. We consider that you no longer reside in Australia. Consequently you do not satisfy the 'resides test' and therefore it is necessary to consider the other three tests.

The domicile test and permanent place of abode

If a person is considered to have their domicile in Australia they will be considered an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country, for example, through having obtained a migration visa.

A permanent place of abode does not have the meaning of everlasting or forever. It does not mean an abode in which a person intends to live for the rest of his or her life. Rather, it is used in the sense of being contrasted with a temporary or transitory place of abode outside Australia. The nature and quality of use which a taxpayer makes of a particular place of abode overseas is important (F.C. of T. v. Applegate 79 ATC 4307; (1979) 9 ATR 899).

The expression 'place of abode' refers to a person's residence, where one lives with one's family and sleeps at night. In essence, a person's place of abode is that person's dwelling place or the physical surroundings in which a person lives.

Taxation Ruling IT 2650 examines the factors to be taken into account in determining whether a person who leaves Australia temporarily to live overseas ceases to be an Australian resident during the absence.

IT 2650 provides that the following factors are considered in determining a taxpayer's permanent place of abode:

· the intended and actual length of stay in the overseas country

· any intention to stay in the overseas country only temporarily and then either to return to Australia at some definite point in time or to travel to another country

· the establishment of a home outside Australia

· the abandonment of any residence or place of abode in Australia

· the duration and continuity of presence in the overseas country, and

· the durability of association with a particular place in Australia.

It is considered that your permanent place of abode is now overseas. This is because you resigned from your Australian employment and intend to live overseas indefinitely.

As a result, you would not be considered a resident of Australia for income tax purposes under the domicile test. 

The 183-day test

You are a resident under this test if you have been in Australia for more than half of the year, unless the Commissioner is satisfied that you usual place of abode is outside Australia and that you do not intend to take up residence in Australia.

Although you were in Australia for 183 days in the 2010-11 financial year, after you departed Australia your usual place of abode is outside Australia and you no longer intend to reside in Australia. Therefore you are not considered to be a resident of Australia under this test from when you departed Australia.

The superannuation test

This test covers Commonwealth government employees - members of the Commonwealth superannuation funds (as well as their spouses and children under 16 years of age).

A person is a resident under this test if they are:

o a member of the superannuation scheme established by deed under the Superannuation Act 1990 (SA 1990); or

o an eligible employee for the purposes of the Superannuation Act 1976; or

o the spouse, or a child under 16, of a person covered by either of the above.

The SA 1990 established a scheme called the Public Sector Superannuation Scheme (PSS). To determine whether you are a resident under the Commonwealth superannuation fund test, it is necessary to determine whether you are a 'member' of the PSS for the purposes of the SA 1990.

A 'member' of the superannuation scheme is defined in subsection 6(1) of the SA 1990 to include a person who is a 'permanent employee'. A 'permanent employee' is defined by section 3 of that Act to mean:

(a) a person who is an officer for the purposes of the Public Service Act 1922 (PSA 1922); and

(b) any other person employed in a permanent capacity by the Commonwealth or by an approved authority.

An 'officer' is defined in subsection 7(1) of the PSA 1922 to mean:

'a person appointed or transferred to the Service, whether before or after the Commencement of this Act, but does not include an employee.'

You do not meet any of the requirements of the definition of 'member' in paragraphs 6(1)(b) to 6(1)(j) or subsections 6(2) to 6(8) of the SA 1990.

You resigned from your Australian Public Service employment and were not employed by the Commonwealth. You are not regarded as an eligible employee or member. Consequently, you are not a resident under the superannuation test.

Summary

You do not satisfy any of the tests for Australian residency from when you departed Australia. Therefore you are not considered a resident of Australia for taxation purposes from this date. A person who is not a resident of Australia is a foreign resident.

Australian tax liability

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a foreign resident includes all the ordinary income derived directly or indirectly from all Australian sources during the income year.

The assessable income of a foreign resident also includes your statutory income from all Australian sources (subsection 6-10(5) of the ITAA 1997).

Pensions are generally included as assessable income.

However, in determining liability to tax on Australian sourced income received by a foreign resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreements contained in the International Tax Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one. Subsection 4(2) of the Agreements Act provides that the Agreements Act overrides the ITAA 1997 where there are inconsistent provisions (apart from Australia's general anti-avoidance rules and certain provisions dealing with limitations of tax credits).

The Agreements Act operates to avoid the double taxation of income received by Australian and overseas residents.

The relevant article of the relevant Agreement provides that pensions (including government pensions) and annuities paid to a resident of country B shall be taxable only in that country.

Therefore your PSS pension is not taxable in Australia. That is, you are not liable to Australian income tax on your pension and it is not included as assessable income on your Australian tax return.

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