Edited version of your private ruling

Authorisation Number: 1012563891854

Ruling

Subject: Residency

Question 1

As the spouse of a member of the Public Sector Superannuation Scheme do you remain a resident of Australia for income tax purposes as defined in section 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

Question 2

Are you a resident of country X under the tie-breaker rules of the Double Tax Agreement between Australia and Country X?

Answer

No.

Question 3

Will your income be assessable in Australia while you are living and working in Country X?

Answer
Yes.

Question 4
Will you be entitled to a foreign income tax offset in relation to any tax you pay on your income in Country X?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2014

The scheme commenced on:

1 July 2013

Relevant facts and circumstances

Your spouse's relative is a Country X citizen residing in Country X. They developed a serious illness; living alone without any family support.

You have returned as a family unit (together with your spouse and two children under 16) to assist with transitioning your spouse's relative to a sustainable living environment.

You own a home in Australia. You have friends living in it and paying utilities and a contribution to the mortgage for some of the time. After that a family member will live there rent free so that it is not vacant for security reasons. You have left all your personal effects and furniture there.

You don't own a home in Country X. You are currently renting furnished accommodation near your spouse's relative.

According to the Country X tax website you will be a resident of Country X for tax purposes.

You are working remotely for your Australian-based company while living in Country X (non-Commonwealth). The company does not have a permanent establishment in Country X from which they run a business.

Your employer will only support your remote work as long as you remain a resident of Australia for taxation purposes.

You plan to return to Australia at the start the certain month in the recent year. However, you have recently learned that your parent in Australia has been diagnosed with a serious illness so it is possible that you will have to travel back to Australia before the certain month in the recent year. It is difficult to say when or for how long.

Your spouse is not on an official posting but has been an active contributing member of the PSS for over ten years and did not change over to the PSSap.

Your spouse holds dual citizenship of Country X and Australia.

You are an Australian citizen only.

You are seeking to determine which country has taxing rights over your income.

You are currently paying tax in Australia.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 6(1)
Income Tax Assessment Act 1997 Section 6-5
International Tax Agreements Act 1953 Sch20 Art4
International Tax Agreements Act 1953 Sch20 Art16
International Tax Agreements Act 1953 Sch20 Art25

Reasons for decision

Summary

You remain a resident of Australia for taxation purposes.

Your income is taxable in Australia. However, Country X may also tax your income. Should the Country X authorities require you to pay tax in Country X you will be entitled to a foreign income tax offset when you lodge your tax return in Australia.

Residency

The existing definition of 'resident' or 'resident of Australia' contained in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936), so far as it applies to individuals, provides four tests of residency:

(i)   residence according to ordinary concepts;

(ii)  the domicile test;

(iii)   the 183 days test; and

(iv)   the Commonwealth superannuation test.

In determining whether or not a natural person is a resident of Australia, the starting point is always whether the individual in question resides in Australia within the ordinary meaning of that expression. However, the satisfaction of any one test is sufficient to render an individual a resident of Australia for Australian income tax purposes.

The Commonwealth superannuation test (subparagraph 6(1)(a)(iii) of the ITAA 1936) was inserted into the Act in 1939 to include all Commonwealth public servants as residents. This was done by treating as a resident a person who contributes to the Commonwealth Superannuation Scheme (CSS). The spouse or child under 16 of a person who contributes to the CSS is also treated as a resident.

The PSS was introduced on 1 July 1990 as a consequence of the passage of the Superannuation Act 1990 (SA 1990). The amendment treats Commonwealth public servants who are members of the PSS in the same way as they would have been treated had they been members of the CSS. A spouse or a child under 16 years of age of a member of the PSS scheme will also be treated as a resident.

To determine whether you are a resident under the Commonwealth superannuation test, for the period you are residing in Country X, it is necessary to determine whether your spouse is a member of the PSS for the purposes of the SA 1990 for that period.

Rule 1.1.1 of The Schedule to the SA 1990 defines a 'member' to mean a person who is a member of the PSS. Generally this would include a permanent or temporary employee of the Australian Public Service (APS). Active members of these Commonwealth government superannuation funds and their spouses are always residents of Australia for tax purposes.  

Your spouse is a permanent Commonwealth government employee and an active contributing member of the PSS. Hence you will remain a resident of Australia for taxation purposes under the Superannuation test.

Assessability of income

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) advises that where you are a resident of Australia for taxation purposes, your assessable income will include ordinary income derived from all sources, whether inside or outside of Australia.

Salary and wages are ordinary income for the purpose of subsection 6-5(2) of the ITAA 1997. Subsections 6-20(1) and (2) explain that such income will not be taxable in Australia if another provision of the ITAA 1997 or the Income Tax Assessment Act 1936 (ITAA 1936) makes it exempt from tax.

The double taxation agreement between Country X and Australia

In determining the assessability of your income it is necessary to consider not only the Australian income tax laws, but also any applicable double tax agreement (DTA) that exists between Australia and Country X.

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

The areas of the Agreement are broken down into separate Articles covering different types of income

Article xx of the Agreement explains that salaries, wages and other similar remuneration derived by an individual who is a resident of Australia in respect of an employment shall be taxable only in Australia unless the employment is exercised in Country X. If the employment is exercised in Country X, such remuneration as is derived from that employment may be taxed in Country X.

Nevertheless, remuneration derived by an individual who is a resident of Australia in respect of employment exercised in Country X shall be taxable only in Australia if:

a) you are present in Country X for a period or periods not exceeding 183 days in the year of income of year of assessment, as the case may be, of Country X; and

b) the remuneration is paid by, or on behalf of, an employer who is not a resident of Country X; and

c) the remuneration is not deductible in determining taxable profits of a permanent establishment or a fixed base which the employer has in Country X.

You will be in Country X for a period in excess of 183 days.

You are paid by an Australian-based company, who is not a resident of Country X.

As an Australian-based company with no permanent establishment or fixed base in Country X, the remuneration is not deductible in determining its taxable profits.

Therefore, your income may be assessed in both Country X and Australia.

As an Australian resident for tax purposes, your salary is taxable in Australia. In accordance with the Agreement, your salary may also be taxable in Country X. The Agreement comes into force to avoid these instances of possible double taxation.

We refer back to Article 4 which talks about residence. Article 4(2) explains that where, under the provisions of the Agreement, an individual is found to be a resident of both Australia and Country X, the following rules will determine which country has final taxing rights:

· You will be a resident solely of the country in which you have a permanent home available to you.

· If you have a permanent home available to you in both Australia and Country X, you will be a resident solely of the country in which you have an habitual abode.

· If you have an habitual abode in both countries you will be a resident solely of the country with which your personal and economic relations are the closer.

You have a permanent abode in Australia and you are currently renting a home in Country X. However, your home in Country X is temporary and your home in Australia is your habitual abode. In addition, your personal and economic relations are closest in Australia as your employment is based in Australia and your personal effects remain there.

Accordingly, you are a resident of Australia for the purposes of the Agreement and your income is assessable in Australia.

However, under the Agreement, Country X may also tax your income. Article yy addresses those instances of possible double taxation. The Article allows you to claim a foreign income tax offset for the amount of tax you paid in Country X to offset against the tax you pay when you lodge your 2013-14 tax return in Australia.

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