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Ruling

Subject: Residency for tax purposes

Questions and answers

Are you a resident of Australia for tax purposes from the time you left Australia to move to Country X?

Yes.

Are you a resident of Australia for tax purposes from the time you left Australia to move to Country X under the double tax agreement between Australia and Country X?

No.

Is the salary you earn in Country X assessable in Australia?

No.

Does non-resident withholding tax apply to any interest and dividend income you derive from Australia?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

The scheme commenced on:

1 July 2011

Relevant facts and circumstances

You are a citizen of Australia and the Country Y.

Prior to departing Australia you were a resident of Australia for tax purposes.

You departed Australia in the year ended 30 June 2012.

You intend to live in Country X for at least three years.

You live in a leased property in Country X.

You are working in Country X.

Your spouse accompanied you to Country X. You have no dependants.

You previously lived in the house owned by your spouse in Australia. This house is being rented out while you are in Country X.

You have returned to Australia once since your departure for two weeks for a holiday.

You have bank accounts, superannuation and shares in Australia.

Your spouse is an employee of the Commonwealth Government of Australia and is a member of the Public Sector Superannuation Scheme.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

Residency for tax purposes

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia.  However, where you are a foreign resident, your assessable income includes only income derived from an Australian source. 

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 resides test,

· the domicile test,

· the 183 day test, and

· the superannuation test.

The superannuation test

A person will be considered a resident under the Commonwealth superannuation fund test if they are:

· a member of the superannuation scheme established by deed under the Superannuation Act 1990; or

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

· the spouse, or a child under 16, of a person covered by sub-subparagraph (a) or (b).

In your case, your spouse is a member of the Public Sector Superannuation Scheme, which was established by deed under the Superannuation Act 1990, therefore, both you and your spouse are residents of Australia under the superannuation test.

As you are a resident under this test, it is not necessary to consider any other tests of residency.

As you are a resident of both Australia and Country X for income tax purposes, the double tax agreement between Australia and Country X must be considered.

Double tax agreement between Australia and Country X

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

The Country X double tax agreement (DTA) is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The Country X DTA operates to avoid the double taxation of income received by residents of Australia and Country X.

As you are a resident of both Australia and Country X, the meaning of 'resident' according to the Agreement between the two countries must be considered.

In relation to residency, of the Agreement states:

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then the individual's status shall be determined as follows:

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

· if the Contracting State in which the individual's centre of vital interests is situated cannot be determined, the individual shall be deemed to be a resident only of the Contracting State of which that individual is a national;

· if the individual is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall endeavour to resolve the question by mutual agreement.

In your case, you have a home available to you in Country X that you are currently living in. Your spouse owns a home in Australia, however, it is not available to you as it is being rented out.

Therefore, you will not be a resident of Australia under the DTA as you only have a permanent home available to you in Country X, and not in Australia.

As explained above, the DTA will override the domestic law where there are inconsistencies. As you are not a resident of Australia under the DTA, this overrides the domestic law that would otherwise deem you to be a resident.

Assessability of salary

According to the DTA, 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.

In your case, you are a resident of Country X and you are deriving salary from working in Country X.

Therefore, according to the DTA, your salary is only assessable in Country X.

You are not required to include this salary in your Australian income tax return.

Assessability of dividend and interest income

Where interest and dividend income is derived in Australia and paid to a resident of Country X, according to the DTA, that income may be taxed in Country X and in Australia, however, in Australia the tax so charged shall not exceed 10% of the gross amount of the interest or dividend income.

If you have not already done so, you should inform the payer's of any Australian interest and/or dividend income that you are a non-resident of Australia for tax purposes, and provide them with your overseas address.

Once you have informed the payers of this, they are legally obliged to withhold 10% of the gross income as "non-resident withholding tax". Non-resident withholding tax is a final tax. This means that any income subject to it is not included in your Australian income tax return.

If you have earned Australian interest and/or dividend income that has not been subject to non-resident withholding tax, you will need to include this income in your Australian income tax return.

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