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Ruling

Subject: Assessability of income

Questions and answers:

1. Is your Australian rental income assessable in Australia?

Yes.

2. Is your Australian employment income assessable in Australia?

Yes.

3. Is your foreign rental income assessable in Australia?

No.

4. Is your foreign pension assessable in Australia?

No.

This ruling applies for the following period:

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commenced on:

22 November 2011

Relevant facts and circumstances

You are an Australian citizen and an Australian resident for tax purposes.

You are a citizen of foreign country A and you are a resident of the foreign country A for tax purposes.

Your country of origin is foreign country B.

You are a recipient of a government pension from foreign country A. To be a recipient of this pension you have to be living in foreign country A for a minimum of six months.

You have a part time job in Australia that allows you to travel to foreign country A on almost a weekly basis to satisfy that requirement. This also allows you to manage your investment properties in Australia and foreign country A.

Your employer is an Australian resident company with a permanent establishment in Australia.

For this financial year you will derive income from investment properties in foreign country A.

You have established two residential addresses:

· in Australia, and

· in foreign country A.

You intend to convert some of your investment properties in Australia to foreign country A.

The investment properties in Australia are negatively geared.

The only reliable income is your pension from foreign country A.

Your centre of vital interests is in foreign country A.

You will be in Australia for less than 183 days in any year of income.

You are separated from your spouse and live alone.

Relevant legislation provisions:

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

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1936 Subsection 6-5(3)

International Tax Agreements Act 1953

Reasons for decision

The foreign country A-Australian double tax agreement

You have stated you are a resident of Australia and also of foreign country A for tax purposes.

To determine your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Tax Assessment Act 1936 (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).

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Agreement is listed in section 5 of the Agreements Act. The Agreement operates to avoid the double taxation of income received by residents of Australia and foreign country A.

Article a of the Agreement deals with residency for taxation purposes and contains 'tiebreaker' clauses which can be used to determine where an individual is resident for the purposes of the Agreement. The relevant tiebreaker in your case is contained in a paragraph of Article a of the agreement which states that:

… 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)

In your situation, you have stated that you are a resident of both Australia and foreign country A for tax purposes and have a permanent home in both countries. However, you have also stated that your centre of vital interests is in foreign country A. Therefore you are considered to be a resident of foreign country A for the purposes of the Agreement.

Assessable income of a foreign resident

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a foreign resident of Australia includes only income derived in Australia during the income year. This means that your income from foreign sources is not assessable in Australia as you are a foreign resident for the purposes of the agreement.

Income from rental properties

Article x of the Agreement advises that income derived from real property, such as real estate, will be taxed in the country in which the property is situated.

In your case, you have rental properties in both Australia and foreign country A. As you are considered a foreign resident under the provisions of the Agreement only income derived from your Australian rental properties will be taxed in Australia. It needs to be included in any Australian tax return.

Employment income

Article y of the Agreement, states that salaries, wages and other similar remuneration derived by a resident of foreign country A in respect of employment shall be taxable only in foreign country A unless the employment is exercised in Australia. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in Australia.

Notwithstanding the above, remuneration derived by a resident of foreign country A in respect of an employment exercised in Australia shall be taxable only in foreign country A if:

a) the recipient is present in Australia for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the year of income of foreign country A;

b) the remuneration is paid by, or on behalf of, an employer who is not a resident of Australia, or is borne by or deductible in determining the profits attributable to a permanent establishment which the employer has in foreign country A; and

c) the remuneration is neither borne by nor deductible in determining the profits attributable to a permanent establishment which the employer has in Australia

In your case, you are a resident of foreign country A for the purposes of the Agreement. You derive income from employment in Australia. You are present in Australia for less than 183 days in a year of income but your employer is an Australian resident company with a permanent establishment in Australia. Therefore, the income you derive from employment in Australia may be taxed in Australia.

Accordingly, your Australian income received by you from your employment in Australia is assessable under subsection 6-5(3) of the ITAA 1997. It needs to be included in any Australian tax return.

Pensions

Article z of the Agreement advises pensions (including government pensions) paid to a resident of foreign country A shall be taxable only in foreign country A.

In your case, you receive a pension to which Article z of the Agreement applies. Therefore, your pension is taxable only in foreign country A. It does not need to be included in any Australian tax return.

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