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Edited version of your private ruling
Authorisation Number: 1012490561036
Ruling
Subject: Income tax: residency status of individuals entering Australia
Question 1
Is the client an Australian resident as defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Answer
No
Question 2
Is the client's income derived in Australia assessable income as provided by subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
January 2013
Relevant facts and circumstances
The client is a citizen of another country other than Australia. They work and live with their spouse and child in their house for a number of years in that country.
The client's spouse was granted a skilled sponsored visa to work in Australia.
Early in 20XX, the client and their spouse came to Australia with their child.
In the same month that they arrived in Australia, the client returned to their home and to their work in their country of origin.
The client holds an Australian joint bank account with their spouse.
Sometime in 20XX, the tax agent on behalf of the client utilised the Tax Office online residency tool. The client's responses to the questions are as follows:
· the client is not migrating and settling in Australia;
· the client is not an Australian returning to live in Australia;
· the client has no intention of staying in Australia for more than six months;
· the client has social or economic ties in the other country.
The client advised the Tax Office that based on the client's responses above, the result indicated that the client is a foreign resident of Australia for taxation purposes as their behaviour during the time spent in Australia does not reflect a degree of continuity, routine or habit that is consistent with residing in Australia.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 995-1
Income Tax Assessment Act 1936 section 6
Income Tax Assessment Act 1997 section 6-5
Reasons for decision
Meaning of the word resides
Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia considers the residency status of individuals entering Australia. TR 98/17 states there is no definition of the word reside in our income tax legislation, the ordinary meaning needs to be ascertained from a dictionary.
The ordinary meaning of the word reside, according to the Macquarie Dictionary, 2001, rev. 3rd edition, The Macquarie Library Pty Ltd, NSW, is to dwell permanently or for a considerable time; having one's abode for a time, and according to the Compact Edition of the Oxford English Dictionary (1987), is to dwell permanently, or for a considerable time, to have one's settled or usual abode, to live in or at a particular place.
Australian resident is defined in section 995-1 of the ITAA 1997 to mean a person who is a resident of Australia for the purposes of the ITAA 1936.
Subsection 6(1) of the ITAA 1936 states that a resident or resident of Australia is defined as a person, other than a company, who resides in Australia and includes a person:
(a) whose domicile is in Australia, unless the Commissioner is satisfied that his permanent place of abode is outside Australia;
(b) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that his usual place of abode is outside Australia and that he does not intend to take up residence in Australia; or
(c) who is:
(i) a member of the superannuation scheme established by the deed under the Superannuation Act 1990; or
(ii) an eligible employee for the purposes of the Superannuation Act 1976; or
(iii) the spouse, or a child under 16, of a person covered by sub-paragraph (i) or (ii).
TR 98/17 discusses the four residency tests.
The four tests to determine whether a person is a resident of Australia for income tax purposes are:
(a) the resides test;
(b) the domicile and permanent place of abode test;
(c) the 183 day test; and
(d) 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 an Australian resident for tax purposes if they satisfy the conditions of one of the three other tests.
The resides 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.
The client intends to live in the other country for most of the time and occasionally come to Australia to visit their spouse and child. The client has no intention to dwell in Australia on a permanent basis, or for a considerable time. Therefore, client does not reside in Australia according to the ordinary meaning of the word.
The 183 day test
The third test to be applied is, subject to certain conditions, actual presence in Australia for more than half the financial year in which the income the subject of assessment is derived.
In the year ended 30 June 20XX, the client stayed for less than 183 days in Australia to be with their spouse and child in 20XX. The client returned to the other country to live in their home and to their work. Therefore, the client does not reside in Australia according to the ordinary meaning of the word.
The domicile and superannuation fund tests
The domicile and superannuation fund tests apply mainly to individuals who are usually residents of Australia but during the income year are not living in Australia.
These two tests do not apply to the client as they are not a resident of Australia.
Your residency status
The client is not an Australian resident in the year ended 30 June 20XX because the client's behaviour over the time spent in Australia does not reflect a degree of continuity, routine or habit that is consistent with residing in Australia.
Australian Income derived whilst being a foreign resident
Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a foreign resident includes all ordinary income derived directly or indirectly from all Australian sources, and other ordinary income that a provision includes on some basis other than having an Australian source.
Section 995-1 of the ITAA 1997 defines Australian source income as ordinary income or statutory income derived from a source in Australia. As such the source of the income is where the services are performed. In other words, the income has an Australian source if the employment is carried out in Australia.
Therefore, income the client derives in Australia as a foreign resident is assessable income in Australia under subsection 6-5(3) of the ITAA 1997.
On the facts it is considered you are not an Australian resident for income tax purposes and accordingly, you are not required to apply for a Tax File Number.
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