Edited version of your written advice

Authorisation Number: 1051272860413

Date of advice: 28 August 2017

Ruling

Subject: Residents of Australia for taxation purposes

Question

Are you a resident of Australia for taxation purposes?

Answer

Yes.

Question

Are you a resident of Australia for taxation purposes under the Country Y Double tax Agreement (DTA) tie break test?

Answer

No.

Question

Are you required to pay tax on your income in Australia?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 2018

Year ending 30 June 2019

Year ending 30 June 2020

Year ending 30 June 2021

The scheme commenced on:

1 July 2017

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You were born in Country Y.

You are a citizen of Country Y.

You arrived in Australia in the 201X income year.

You were married to an Australian in the 201X income year.

You live with your spouse in Australia.

You have applied for a spouse’s visa for Australia.

Your intentions are to live in Australia for approximately 6 months a year and in Country Y for approximately 6 months of the year.

You have a permanent home in Country Y which remains vacant when you are in Australia.

You live in your home in Country Y when you return there for part of the year.

Your spouse will join you in Country Y once their caring responsibilities cease.

You do not own any assets in Australia.

You have bank accounts in Australia.

You have a house in Country Y along with three motor vehicles and bank accounts.

You have Country Y sourced income which is taxed in Country Y and consists of:

● Country Y state pension

● consultant pension

● Widowers pension

● Pension from a private pension scheme

You have national saving certificates which are not included in your Country Y tax return and are not taxable in Country Y.

Your investment income is not withdrawn and is reinvested in Country Y.

You are not currently employed in Country Y or Australia and you have no intention on seeking employment in either country.

You have friends and relatives you keep in contact with in Country Y.

You are a resident of Country Y for taxation purposes.

You and your spouse are not eligible to contribute to the PSS or the CSS Commonwealth superannuation funds.

Relevant legislative provisions:

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

Income Tax Assessment Act 1936 Subsection 6(1).

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.

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.

The definition offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the:

● resides test

● domicile and permanent place of abode test

● 183 day test and

● Commonwealth superannuation fund test.

The primary test for deciding the residency status of each individual is whether they reside in Australia according to the ordinary meaning of the word resides. If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established.

The resides (ordinary concepts) test

The outcomes of several Administrative Appeals Tribunal (AAT) cases have determined that the word 'resides' should be given the widest meaning and there have been a number of factors identified which can assist in determining if a particular taxpayer is a resident of Australia under this test.

Recent case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the ‘resides’ test:

(i) Physical presence in Australia

(ii) Nationality

(iii) History of residence and movements

(iv) Habits and "mode of life"

(v) Frequency, regularity and duration of visits to Australia

(vi) Purpose of visits to or absences from Australia

(vii) Family and business ties to different countries

(viii) Maintenance of place of abode.

These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in IT 2650 and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.

It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances.

You came to Australia in the 201X income year.

You were married in Australia in the 201X income year.

You intend on being in Australia for approximately 6 months in each income year.

You live with your spouse in Australia.

You consider the house you live in with your spouse as your home in Australia.

You intend on returning to Country Y for visits each income year.

You will return to your house in Country Y on these visits.

You receive income from Country Y sources which are taxed in Country Y.

Based on the facts above you are residing in Australia according to ordinary concepts.

You are a resident under this test.

The domicile test

If a person’s domicile is Australia they will be an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. In order to show that an individual's domicile of choice has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country.

Your domicile of origin is Country Y.

You are not a resident under this test.

The 183-day test

Where a person is present in Australia for 183 days during the year of income the person will be a resident, unless the Commissioner is satisfied that the person’s usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

You intend on being in Australia for approximately 6 months of each income year. You also intend on being a permanent resident of Australia and you are applying for a spouse’s visa for Australia.

You are a resident under this test.

The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the PSS or the CSS, or that person is the spouse or child under 16 of such a person. To be eligible to contribute to those schemes, you must be or have been a Commonwealth Government employee.

You and your spouse are not eligible to contribute to the relevant Commonwealth super fund.

You are not a resident under this test.

Your residency status

You are a resident of Australia for taxation purposes.

In determining 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 Country Y 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 Country Y.

In your case, you are a resident of both Australia and Country Y for tax purposes, according to each country’s domestic law.

Paragraph 3 of Article 4 of the double tax agreement sets out the factors to be considered when determining a person’s residence for the purpose of the agreement, where the person is a resident of both Australia and Country Y under domestic law.

The 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:

(a) 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);

(b) 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;

(c) 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.

You have a permanent home available to you in both Australia and Country Y. Therefore, we need to consider which country your personal and economic relations are closer.

You have the following personal and economic relations in Australia:

● you will be physically present in Australia for approximately 6 months a year

● your spouse will live with you in Australia

● Bank accounts

You have the following personal and economic relations in Country Y:

● you are physically present in Country Y for approximately 6 months a year

● Your spouse intends on joining you in Country Y once their caring responsibilities cease

● you have a house in Country Y

● you have three motor vehicles in Country Y

● you receive income from X pension funds, bank accounts and you have national saving certificates

In considering your personal and economic relations to both Australia and Country Y as listed above, the facts of your situation show that you have stronger ties to Country Y because you live in Country Y for half of each year, you have family in Country Y and you have significant assets in Country Y.

As your personal and economic relations are stronger in Country Y than in Australia, therefore for the purposes of the double tax agreement you are a resident of Country Y.

Article 17 of the DTA between Australia and Country Y considers the assessability of pension income.

Article 17 of the agreement provides that pensions paid to a resident of Country Y shall be taxable only in Country Y.

Therefore your pension income is not assessable in Australia.

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