Edited version of your private ruling

Authorisation Number: 1012457513301

Subject : Foreign Income Tax

Ruling

Questions and answers:

Will you be a resident of Australia for tax purposes as defined by section 6(1) of the Income Tax Assessment Act 1936 for the period of this ruling?

Yes

Will you be a resident of Australia for the purposes of the Country A Double tax agreement?

No

Will you be assessable on income derived from all sources in Australia and any other income that is included by a specific provision?

Yes

Will you be assessable on income derived from sources outside Australia?

No

Will you be assessable on non-Australian rental income?

No

Will you be assessable on Australian rental income?

Yes

Will you be assessable on non-Australian dividend income?

No

Will you be assessable on Australian dividend income?

Yes

Will you be assessable on non-Australian interest income?

No

Will you be assessable on Australian interest income?

Yes

Will you be liable for withholding tax on your Australian dividends, royalties and interest?

No

12. Will your Australian dividends, royalties and interest be taxed at rates limited under the Double tax agreement between Australia and elsewhere?

Yes

As a resident will you be liable for tax at resident rates and be eligible for tax offsets?

Yes

As a resident will you be able to disregard any capital gains or losses made on the disposal of assets that are not Australian taxable property?

Not applicable as no assets were advised as being disposed of in the ruling period.

This ruling applies for the following periods:

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commenced on:

1 June 2012

Relevant facts and circumstances

You spend over half the year in Australia. You are contemplating coming to Australia to live permanently in a later year but have made no decision to do so.

Your adult children currently live elsewhere (except one). You have a home elsewhere which you expect your adult children to reside in while you are in Australia.

You have a small business elsewhere. It is expected that when in Australia the current day to day running of this business can be done by remote in Australia via the net. You will not be employed in Australia.

You have a life interest in an elsewhere family trust and are a beneficiary of elsewhere discretionary family trusts. These trusts have no taxable Australian property. You will spend time with the trustee, other beneficiaries and management and staff of the investments associated with the trust based elsewhere as your entitlements from this trust provide your main source of income for living expenses. You will continue to pay tax elsewhere.

You jointly own two flats and a rural property in Australia but do not derive income from these. You have an Australian joint bank account. You will obtain personal and other assets, and will derive income from Australian sourced interest, dividends and royalties after you arrive in Australia.

You will maintain your elsewhere drivers licence, insurances, credit cards, bank accounts, health insurance, mobile phones, and internet service provider while in Australia. All your household effects and motor vehicles will remain at your home in Country A. Your Country A home will continue to be your postal address for service of bills and for the purposes of Insurance.

You were born elsewhere but also have Australian citizenship.

You have purchased a home to live in while you are in Australia.

You have no sporting or social connections in Australia. You will continue all social connections elsewhere including the membership of your club as your extended family primarily resides there.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1).

Income tax Assessment Act 1997 Section 6-5

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

Reasons for decision

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 (or conversely, a foreign resident) for income tax purposes. These tests are the:

  (1)   residence according to ordinary concepts test

(2)   domicile and permanent place of abode test

(3)   183 day test, and

(4)   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.

Residence according to ordinary concepts

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, is 'to dwell permanently or for a considerable time; having one's abode for a time'.

Taxation Ruling TR 98/17 considers the residency status of individuals entering Australia and states that the period of physical presence or length of time in Australia is not, by itself, decisive when determining whether an individual resides here. However, an individual's behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here.

In your case, you will reside in Australia as your behaviour reflects the required degree of continuity, routine or habit that is consistent with residing here.

This is because:

· You will come to Australia for a majority year and will be accompanied by your spouse for most of that time.

· While you will not seek employment in Australia you are doing charity work which is not usual for someone on holiday.

· While your family (except for your spouse and one child already living independently in Australia) will remain overseas they are mature children capable of living independently.

· You will maintain your overseas licenses, credit cards, bank accounts, insurance and postal addresses, and

· While you have personal assets elsewhere you will have similar assets in Australia to allow you live in the home in Australia for the majority of each years.

Domicile and permanent place of abode

Under this test, a person whose domicile is in Australia is deemed to be a resident of Australia for tax purposes, unless the Commissioner is satisfied that their permanent place of abode is outside Australia.

Domicile is a legal concept to be determined according to the Domicile Act 1982 and to the common law rules which the courts have developed in the field of private international law. The primary common law rule is that a person acquires at birth a domicile of origin.

A person retains their domicile of origin unless and until he or she acquires a domicile of choice in another country, or until he or she acquires another domicile by operation of law. The intention that a person must have in order to acquire a domicile of choice in a country is the intention to make his or her home indefinitely in that country.

In your case, you will maintain your home elsewhere while you are in Australia during the income years in question and do not intend to make your home indefinitely in Australia in these income years.  Consequently, the Commissioner is satisfied that you have a permanent place of abode outside Australia. Therefore, you do qualify as an Australian resident under the domicile and permanent place of abode test.

The 183 day test

You will be present in Australia for more than 183 days in the income years in question. As you Commissioner is not satisfied that your usual place of abode is outside Australia you will be a resident for tax purposes under this test.

The Commonwealth superannuation fund test

This test is not relevant in your situation as it only applies to persons eligible to contribute to the superannuation funds for Commonwealth (Australian) government officers or their spouses or their children under the age of 16 years.

As you will meet two of the tests of residency, you will be a resident of Australia for tax purposes for the income years in question.

There are some questions at issue which are dependant on a determination that you will not be a foreign resident for tax purposes. As it has been determined that you will be a foreign resident for tax purposes it is considered that these questions are not applicable to your facts.

Double tax agreement

The relevant Agreement states:

The (residency) status of an individual who, by reason of the preceding provisions of this Article is a resident of both Contracting States, shall be determined as follows:

that individual shall be deemed to be a resident only of the Contracting 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);

if the Contracting 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 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 permanent home in both Australia and elsewhere. Iif you have a permanent home in both Australia and elsewhere, you would still be considered to be a resident of elsewhere under the Agreement because your personal and economic relations are closer to elsewhere than Australia (you have family and social connections elsewhere, and have income from a trust based elsewhere).

As it has been determined that you are an elsewhere resident under f the Agreement, you will not be a resident of both Australia and elsewhere for the purposes of the Double Tax agreement but will be for domestic income tax law.

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

If you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia during the income year

However, the normal operation of Australian tax law is altered by the operation of a Double tax agreement as you are non-resident of Australia under the agreement this will limit your assessability in Australia on income from overseas and some Australian sources income.

Your income from your business in the Country A will only be assessable in the Country A by the operation of Article 7 of the Country A Agreement.

Any rental income from property in the Country A will only be assessable in the Country A by the operation of Article 8 of the Country A Agreement

The income from your Country A and Country A trusts will only be assessable in the Country A by operation of Article 20 of the Country A Agreement.

Income tax returns

The Commissioner may require certain persons to lodge an annual income tax return. Included are those foreign residents who derive income from Australian sources. However, as the DTA provides taxing rights to the Country A on items of income attributable to that state such amounts are not required to include (nor the details of the source of this income) in your income tax return.

In your case, based on the facts that you have supplied, you will be required to lodge an income tax return where you derive income from Australian sources (other than dividend, interest and royalty income subject to rates limited by the Double tax agreement between Australia and the Country A).

Tax rates

Residents are subject to resident tax rates on their Australian sourced income. Residents are also generally eligible to claim personal tax offsets in their income tax return where the conditions of each tax offset is satisfied.

As you are a resident for tax purposes you will be subject to tax at resident tax rates on income assessable in Australia other than interest, dividends and royalties as discussed below.. These tax rates include the tax free threshold for the whole year.

Under Article 10 of the Double tax agreement between Australia and the Country A your Australian sourced dividends whilst being assessable to you, can only be taxed in Australia at a rate no more than 15 per cent of the gross amount of the dividends.

Under Article 11 of the Double tax agreement between Australia and the Country A your Australian sourced interest whilst being assessable to you, can only be taxed in Australia at a rate no more than 10 per cent of the gross amount of the interest.

Under Article 12 of the Double tax agreement between Australia and the United Kingdom any Australian source royalties whilst being assessable to you, can only be taxed in Australia at a rate no more than 5 per cent of the gross amount of royalties.

General Advice

The following advice is written guidance and does not form part of your ruling. Written guidance is usually provided if the taxpayer has enquired about the broad operation of the law and has not provided details of their specific circumstances. A taxpayer who receives written guidance must decide how the guidance applies to their circumstances.

A taxpayer who relies on written guidance, including a statement in an approved publication, will remain liable for the tax that would otherwise be payable under the law where the guidance is incorrect, or misleading and the taxpayer makes a mistake as a result (unless prevented by a relevant time limit in the law). However, they will be protected against the shortfall penalty that might otherwise arise

Capital Gains Tax

As a general rule, you acquire a CGT asset when you become its owner (subsection 109-5(1) of the ITAA 1997). More specific rules are set out in subsection 109-5(2) of the ITAA 1997 for CGT assets acquired as a result of a CGT event happening or in section 109-10 of the ITAA 1997 when assets are acquired without a CGT event happening.

If a non-resident individual becomes an Australian resident, a special acquisition rule applies in respect of certain CGT assets owned by the individual just before becoming a resident (section 855-45 of the ITAA 1997). The special acquisition rule is that the taxpayer is treated as having acquired the asset at the time of becoming a resident (subsection 855-45(3) of the ITAA 1997).

However, the rule in section 855-45 of the ITAA 1997 does not apply to assets that are taxable Australian property or assets that were acquired before 20 September 1985 (subsection 855-40(1) of the ITAA 1997). Section 104-165 of the Income Tax (Transitional Provisions) Act 1997 has the effect that an asset in respect of which a choice was made under subsection 104-165(2) of the ITAA 1997 to treat it as having the necessary connection with Australia is taken to be taxable Australian property for the purposes of section 855-45 of the ITAA 1997.

A disposal by an Australian resident of an Australian or foreign asset can result in a Capital Gain or Loss which is taken into account when determining their assessable income. The operation of a Double Tax agreement can mean that some gains or losses can be disregarded.

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