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Edited version of your written advice
Authorisation Number: 1012975733276
Date of advice: 24 February 2016
Ruling
Subject: Temporary residency and income
Questions and answers
1. Is your income from interest and dividends assessable in Australia?
Yes.
2. Is any capital gain on Australian shares assessable in Australia?
No.
3. Are you assessable on any income from overseas?
No.
4. Are you entitled to a Foreign Income Tax Offset for tax paid in overseas?
No.
This ruling applies for the following period:
Year ending 30 June 2016
The scheme commenced on:
1 July 2015
Relevant facts and circumstances
You are a resident of Australia for taxation purposes.
You are a temporary resident of Australia.
You own your own home in Australia.
You have the following income in Australia:
• Interest on bank accounts
• Dividends from stocks and shares in listed companies in Australia (you and your associates own less than 10% of the shares in the companies)
You have the following income from overseas:
• Interest from bank accounts
• Dividends from stocks and shares
• pension
• Private pension
Relevant legislative provisions
Income Tax Assessment Act 1997 section 768-910
Income Tax Assessment Act 1997 section 768-915
Income Tax Assessment Act 1997 section 768-915
Income Tax Assessment Act 1997 section 855-15
Income Tax Assessment Act 1997 section 855-20
Reasons for decision
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.
As you are a resident of Australia for taxation purposes you are assessable on all of your income both in and outside Australia.
However, from 1 July 2006, temporary residents will not have to pay tax in Australia on most of their foreign income if they:
• are an individual who is a resident of Australia for tax purposes, and
• satisfy the requirements of being a temporary resident.
You are a resident of Australia for taxation purposes and you are a temporary resident of Australia as you satisfy all the requirements.
Your income from Australia which includes interest and dividends is assessable under section 6-5 of the ITAA 1997.
Section 768-915 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss you make from a CGT event is disregarded if:
a. you are a temporary resident when the CGT event happens and
b. you would not make a capital gain or loss from the CGT event, or the capital gain or loss from the CGT event would have been disregarded under Division 855, if you were a foreign resident when the CGT event happens.
Section 855-10 of the ITAA 1997 states that you disregard a capital gain or capital loss from a CGT event if:
a. you are a foreign resident and
b. the CGT event happens in relation to a CGT asset that is not a taxable Australian property.
Five categories of CGT assets that are taxable Australian property are set out in the table in section 855-15 of the ITAA 1997:
1. Taxable Australian real property;
2. A CGT asset that:
a. Is an indirect Australian real property interest; and
b. Is not covered by item 5;
3. A CGT asset that:
a. You have used at any time in carrying on a business through a permanent establishment in Australia; and
b. Is not covered by item 1, 2 or 5;
4. An option or right to acquire a CGT asset covered by item 1, 2 or 3; and
5. A CGT asset that is covered by subsection 104-65(3) of the ITAA 1997(choosing to disregard a gain or loss on ceasing to be an Australian resident).
Section 855-20 of the ITAA 1997 states that a CGT asset is taxable Australian real property if it is:
a. real property situated in Australia; or
b. a mining, quarrying or prospecting right (to the extent that the right is not real property), if the minerals, petroleum or quarry materials are situated in Australia.
shares in a resident company do not satisfy the definition of taxable Australian real property as they are neither real property (within the ordinary meaning of that term) nor a mining, quarrying or prospecting right.
Indirect Australian property interest
An indirect Australian property interest (section 855-25 of the ITAA 1997) will only exist where a foreign resident has membership interest in an entity and that entity passes two tests:
• the non-portfolio interest test; and
• the principal asset test.
As set out in section 960-195 of the ITAA 1997, a membership interest held by an entity (the holding entity) in another entity (the test entity) passes the non-portfolio test if the sum of the direct participation interests held by the holding entity and its associates in the test entity is 10 per cent or more.
You and your associates do not own more than 10% of the shares in the public companies.
Therefore there is no CGT payable on the shares when they are disposed of.
As set out in section 960-195 of the ITAA 1997, a membership interest held by an entity (the holding entity) in another entity (the test entity) passes the non-portfolio test if the sum of the direct participation interests held by the holding entity and its associates in the test entity is 10 per cent or more.
You and your associates do not own more than 10% of the shares in the public companies.
Therefore there is no CGT payable on the shares when they are disposed of.
Section 768-910 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that ordinary income derived from a foreign source (excluding employment related income and capital gains on shares and rights acquired under employee share schemes) and is exempt from income tax in Australia when derived by a temporary resident in Australia.
You are not taxed on your foreign income which includes, dividends, interest on bank accounts, pension and a private pension in overseas country.
As your foreign income is not taxed in Australia, you are not eligible to claim a Foreign Income Tax Offset (FITO) for the tax you pay on your overseas income in the overseas country.
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