Edited version of private advice

Authorisation Number: 1052317853491

Date of advice: 21 October 2024

Ruling

Subject:Australian resident for tax purposes

Question 1:

Are you a resident of Australia for taxation purposes on and from the date you departed Australia (Date 3) up to and including the date prior to the day you moved into the property located in Country Y (Date 4)?

Answer:

Yes.

Question 2:

Are you a resident of Australia for taxation purposes on and from the date you moved into the property located in Country Y (Date 5) up to and including the end date of the ruling period (Date 6)?

Answer:

No.

Question 3:

Is your Public Sector Superannuation scheme (PSS) pension taxable in Australia?

Answer:

Yes.

Question 4:

Are you entitled to a foreign income tax offset in Australia for tax paid in Country Y in relation to the PSS pension?

Answer:

No.

This ruling applies for the following periods

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ending 30 June 20YY

The scheme commences on

1 July 20YY

Relevant facts and circumstances

You were born in Country X and immigrated to Australia with your family a significant period ago.

After some years in Australia you became a citizen of Australia.

Several years later you were employed as an employee in the Australian Public Sector with Organisation A and were a member of the Public Sector Superannuation scheme (PSS).

After working with Organisation A for a significant period of time you ceased your employment and commenced receiving a PSS pension (the Pension).

Your spouse, Person A, had also been an Australian Public Sector employee who retired from their employment and commenced receiving a PSS Pension.

You and Person A wanted to travel overseas, but found the travel involved to be tiring and expensive. You both decided to move to Country Y with the intention to move back to Australia eventually.

On Date 3 you and Person A departed Australia to travel to Country Y with the intention of staying overseas indefinitely, arriving there on the same date.

Period overseas

After departing Australia and arriving in Country Y on Date 3 you and Person A stayed with friends, various hotels and other accommodation for some months from Date 3 up to an including the day prior to you and Person A moving into a property located in Country Y on Date 4 (as outlined below). You spent this period as follows:

•                     Several periods in Country Y. During those periods you and Person A had stayed with friends or in various hotels; and

•                     Short stays in several other countries during which you holidayed by yourselves or with friends. During those periods you stayed in various hotels and holidayed on a water vehicle.

You and Person A jointly purchased a house located Country Y (the Overseas Property).

On Date 5 you and Person A moved into the Overseas Property.

After some months your personal and household effects were shipped from Australia to Country Y.

You and Person A each obtained a year-by-year resident visa to travel to Country Y, being a temporary visa. Under the visa it is a requirement that you are in Country Y for a specified number of days during a specified period You and Person A will continue to obtain visas each year to enable you to stay in Country Y during the ruling period.

You and Person A been in Country Y for at least 185 days in each of the Country Y financial years since your departure from Australia.

You and Person A have undertaken trips to various countries after moving into the Overseas Property on Date 5 until the present time for various periods of time, with each period being less than 20 days.

You have not returned to Australia since your departure on Date 3.

You and Person A plan to undertake several trips from now until the end of the ruling period on Date 6 for periods of less than 20 days each trip.

You and Person A will continue to stay at the Overseas Property when you are in Country Y until the end of the ruling period.

Both you and Person A have provided statutory declarations to the Government in Country Y that neither of you will engage in any employment while you are in Country Y.

Neither you nor Person A hold citizenship in Country Y, and neither of you intend applying for citizenship or permanent residency in Country Y.

You and Person A jointly own and hold the following in Country Y:

•                     A car

•                     A joint bank account; and

•                     Private health insurance in Country Y which is a condition of your visa.

You and Person A have a friends located in Country Y.

You have received the Pension during the period you have been in Country Y up to this point and will continue to receive the Pension until the end of the ruling period on Date 6.

Person A has also received their PSS pension during their period in Country Y and will continue to receive related payments until the end of the ruling period.

Australian connections

You and Person A jointly owned a property in Australia that was your main residence (the Australian Property).

The Australian Property was sold with you and Person A moving out of the Property just prior to your departure on Date 3.

Your personal and household effects were kept in storage after you moved out of the Australian Property until they were sent to Country Y (as outlined above).

You and Person A each have Australian private health insurance with XXXX with hospital cover. Your memberships were suspended for the maximum period of time allowable until you decide on any return to Australia.

You and Person A each held shares solely in your respective names prior to your departure from Australia. You and/or Person A each or jointly hold shares for shares for long periods with others being held for short periods before being resold at a profit.

You have immediate family and friends in Australia with whom you have regular contact.

You received the following income:

•                     Interest from your jointly held bank account, and from your trading account

•                     Dividends from Australian shares; and

•                     Capital gain made on the sale of your Australian shares.

You did not advise any of the following that you were leaving Australia:

•                     Australian financial institutions with whom you have investments

•                     Medicare; or

•                     Australian companies with whom you have investments.

You advised the Australian Electoral Office that you had moved to Country Y for an unspecified time and had requested to be exempted from the requirement to vote at the upcoming Federal election.

Taxation of the Pension

You reported Pension amounts in income tax returns lodged in Australia prior to your departure from Australia, and for the income year in which you had departed Australia, on which you were taxed.

You and Person A lodged tax returns in Country Y for the relevant tax years in which you were living in Country Y in relation to your combined household income with the Pension and Person A's PSS pension amounts being reported on which tax was paid.

Your tax agent in Country Y had notified you and Person A that they had finalised your Country Y tax return, and:

•                     As your primary residence is in Country Y, you are considered to be a Country Y resident.

•                     As tax residents you need to declare your worldwide income; and

•                     Based on the Australian-Country Y double taxation agreement, as a Country Y tax resident the pension income received from Australia is taxable in Country Y.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 6(1)

Income Tax Assessment Act 1997 subsection 6-5(2)

Income Tax Assessment Act 1997 subsection 6-5(3)

Income Tax Assessment Act 1997 Division 770

Income Tax Assessment Act 1997 subsection 770-10(1)

Income Tax Assessment Act 1997 section 770-15

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

International Tax Agreements Act 1953

Reasons for decision

Question 1: Are you a resident of Australia for taxation purposes on and from the date you departed Australia (Date 3) up to and including the date prior to the day you moved into the property located in Country Y (Date 4)?

Question 2: Are you a resident of Australia for taxation purposes on and from the date you moved into the property located in Country Y (Date 5) up to and including the end date of the ruling period (Date 6)?

Summary

You are a resident of Australia for taxation purposes for the following periods as you have met at least one of the residency tests in each period:

•                     On and from Date 1, being the first date of the ruing period, up to and including Date 2 being the date of the day prior to your departure from Australia; and

•                     On and from Date 3, being the date you departed Australia, up to and including Date 4, being the date of the day prior to when you moved into the property located in Country Y (the Overseas Property).

You are not a resident of Australia for taxation purposes as you did not meet any of the residency tests from Date 5, being the date you moved into the Overseas Property until Date 6, being the end of the ruling period.

Detailed reasoning

Overview of the law

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

The terms 'resident' and 'resident of Australia', as applied to an individual, are defined in subsection 6(1) of the ITAA 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 (also referred to as the ordinary concepts test)

•                     the domicile test

•                     the 183-day test, and

•                     the Commonwealth superannuation fund test.

The resides test is the primary test for deciding the residency status of an individual. This test considers whether an individual resides in Australia according to the ordinary meaning of the word 'resides'.

Where an individual does not reside in Australia according to ordinary concepts, they will still be an Australian resident if they meet the conditions of one of the other tests (the domicile test, 183-day test and Commonwealth superannuation fund test).

Our interpretation of the law in respect of residency is set out in Taxation Ruling TR 2023/1 Income tax: residency tests for individuals.

We have considered the statutory tests listed above in relation to your situation as follows:

The resides test

The ordinary meaning of the word 'reside' has been expressed as 'to dwell permanently or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place': See Commissioner of Taxation v Miller (1946) 73 CLR 93 at 99 per Latham CJ, citing Viscount Cave LC in Levene v Inland Revenue Commissioners [1928] AC 217 at 222, citing the Oxford English Dictionary. Likewise, the Macquarie Dictionary defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

The observations contained in the case of Hafza v Director-General of Social Security (1985) 6 FCR 444 are also important:

Physical presence and intention will coincide for most of the time. But few people are always at home. Once a person has established a home in a particular place - even involuntarily: see Commissioners of Inland Revenue v Lysaght [1928] AC 234 at 248; and Keil v Keil [1947] VLR 383 - a person does not necessarily cease to be resident there because he or she is physically absent. The test is whether the person has retained a continuity of association with the place - Levene v Inland Revenue Commissioners [1928] AC 217 at 225 and Judd v Judd (1957) 75 WN (NSW) 147 at 149 - together with an intention to return to that place and an attitude that that place remains "home": see Norman v Norman (No 3) (1969) 16 FLR 231 at 235... Where the general concept is applicable, it is obvious that, as residence of a place in which a person is not physically present depends upon an intention to return and to continue to treat that place as "home", a change of intention may be decisive of the question whether residence in a particular place has been maintained.

The Commissioner considers the following factors in relation to whether a taxpayer is a resident under the 'resides' test:

•                     period of physical presence in Australia

•                     intention or purpose of presence

•                     behaviour while in Australia

•                     family and business/employment ties

•                     maintenance and location of assets

•                     social and living arrangements.

It is important to note that no one single factor is decisive, and the weight given to each factor depends on each individual's circumstances.

Because the resides test is about whether an individual resides in Australia, the factors focus on the individual's connection to Australia. Having a connection with another country, or being a resident of another country, does not diminish any connection to Australia. The ordinary meaning of reside does not require an individual to have a principle or usual place of residence in Australia.

Application to your situation

We have considered this test in relation to your situation as follows:

•                     Period on and from Date 1 up to and including Date 2

You were physically in Australia from Date 1 up to and including Date 2 prior to your departure from Australia on Date 3.

Your life and assets were in Australia during this period with your Australian property being your home until it was sold. You exhibited characteristics of a person residing in Australia.

Therefore, you meet the resides test for the period on and from Date 1 up to and including Date 2 and are a resident of Australia for taxation purposes during that period.

•                     Period on and from Date 3 up to and including Date 4

You departed Australia indefinitely on Date 3 and you have not physically been in Australia since your departure. Your behaviour is consistent with you wishing to reside overseas.

The main purpose of you leaving Australia was to travel overseas and there was a change in the way you had lived your life in Australia. You had not maintained a significant connection with Australia, such as in the form of a home to come back to, cars, or assets but were in a state of transition during this period.

However, you had not acquired a property overseas or established permanent living arrangements in any particular location and/or country during this period up to and including Date 4. While you had not done enough to constitute that you had taken up residence in any location outside of Australia, you had done enough to break your residence ties with Australia during this period.

Therefore, you do not meet the resides test in relation to this period.

•                     Period on and from Date 5 up to and including Date 6

You and Person A purchased the Overseas Property that you moved into on Date 5, which has been your home since you moved into it.

During this period, you and Person A had relocated your lives to Country Y. You will live at the Overseas Property, being physically in Country Y with the exception of some short periods during which you and Person A will undertake some travel/trips in other countries, returning to the Country Y Property after your travels.

Your remaining connection with Australia, being the Pension and some other assets are not consistent with you residing in Australia. You had limited connection with Australia and have displayed behaviour consistent with someone residing in Country Y during this period.

It is viewed that you had abandoned your residency in Australia and commenced living permanently in Country Y during this period.

Therefore, you do not meet the resides test during this period.

You may still be an Australian resident if you meet the conditions of one of the other tests (the domicile test, 183-day test and Commonwealth superannuation fund test).

Domicile test

Under the domicile test, you are a resident of Australia if your domicile is in Australia unless the Commissioner is satisfied that your permanent place of abode is outside Australia.

Domicile

Whether your domicile is in Australia is determined by the Domicile Act 1982 and the common law rules on domicile.

Your domicile is your domicile of origin (usually the domicile of your father at the time of your birth) unless you have a domicile of dependence or have acquired a domicile of choice elsewhere. To acquire a domicile of choice of a particular country you must be lawfully present there and hold the positive intention to make that country your home indefinitely. Your domicile continues until you acquire a different domicile. Whether your domicile has changed depends on an objective consideration of all relevant facts.

Permanent place of abode

If you have an Australian domicile, you are an Australian resident unless the Commissioner is satisfied that your permanent place of abode is outside Australia. This is a question of fact to be determined in light of all the facts and circumstances of each case.

'Permanent' does not mean everlasting or forever, but it is to be distinguished from temporary or transitory.

The phrase 'permanent place of abode' calls for a consideration of the physical surroundings in which you live, extending to a town or country. It does not extend to more than one country, or a region of the world.

TR 2023/1 includes the following paragraphs:

61. It is not sufficient to have a place of abode outside of Australia; the relevant test is whether your permanent place of abode is outside Australia.

67. The structure of the domicile test means you cannot have your permanent place of abode both in Australia and overseas. If you are living in both Australia and overseas, it is unlikely that it could be said that your permanent place of abode is overseas.

68. However, if you move from country to country such that it cannot be said that you are living in a particular country in a permanent way, your permanent place of abode will not be overseas and you will remain a resident of Australia. This is regardless of whether or not you have any dwellings in Australia, or whether Australia more generally can be described as your place of abode.

69. While the expression 'place of abode' may extend to a country, a pattern of frequently moving around within a country can indicate that you are travelling or have otherwise not commenced living permanently in that country.

73. The longer you stay in any one particular place, the more permanent it is likely to be. This is because of the practical reality that extended periods will usually and naturally lead to the formation of durable connections overseas and loosening of connections with Australia.

The Full Federal Court in Harding v Commissioner of Taxation [2019] FCA 29 held at paragraphs 36 and 40 that key considerations in determining whether a taxpayer has their permanent place of abode outside Australia are:

•                     whether the taxpayer has definitely abandoned, in a permanent way, living in Australia

•                     whether the taxpayer is living in a town, city, region or country in a permanent way.

When deciding whether a person's permanent place of abode is outside of Australia, the Commissioner will consider the facts and circumstance surrounding the person's departure from Australia, their arrangements in relation to overseas countries and the nature of their presence there.

The Commissioner considers the following factors relevant to whether a taxpayer's permanent place of abode is outside Australia:

•                     the intended and actual length of the taxpayer's stay in the overseas country

•                     whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time

•                     whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia

•                     whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence

•                     the duration and continuity of the taxpayer's presence in the overseas country

•                     the durability of association that the person has with a particular place in Australia, i.e. maintaining assets in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

As with the factors under the resides test, no one single factor is decisive, and the weight given to each factor depends on the individual circumstances.

Application to your situation

We have considered this test in relation to your situation as follows:

•                     Period on and from Date 1 up to and including Date 2

You were born in Country X and your domicile of origin is Country X.

You migrated to Australia and became a citizen of Australia. It is viewed that you abandoned your domicile of origin and acquired a domicile of choice, being Australia.

You continued to live in Australia for a significant period of time until you departed Australia on Date 1.

The Commissioner is not satisfied that your permanent place of abode was outside Australia during this period because your domicile of choice was Australia. Your intention had been to live in Australian during this period, which you had done.

Therefore, you are a resident of Australia under the domicile test for this period.

•                     Period on and from Date 3 up to and including Date 4

You departed Australia on Date 3, arriving in Country Y on the same date. Your visa allows you to stay in Country Y on a temporary basis and need to be renewed on a yearly basis. You will not apply for permanent residency or to become a citizen of Country Y. Your intention is to live outside of Australia indefinitely.

After your arrival in Country Y, you and Person A travelled as follow during this period:

o        Several periods in Country Y for various periods of time when you stayed with friends or in various hotels; and

o        Short periods in several other countries while you and Person A either holidayed by yourselves or with friends, staying in various hotels and a yacht.

As outlined above, domicile is not lost by abandonment without replacement. Your activities during this period do not support that you had a changed your domicile from being Australia as you had only had intermittent stays in several countries and had not done enough to support that you had changed your domicile.

The type of accommodation and the length of your stay in any country during this period does not support that you had a permanent place of abode outside of Australia given the temporary and transitory nature of your stay in any of those countries. It cannot be viewed that you had a fixed and habitual place in any country in a permanent way that would identify that you were living permanently in any single country, or that you had the intention when you were staying at any of the accommodation used that it would become a permanent place where you would live.

While you had eventually settled in Country Y, during this period you had stayed in Country Y with friends and in various hotels for relatively short periods. Your movements within Country Y and other countries suggests that you were travelling, such as a tourist may do. You had not settled in Country Y or truly set up a new home in Country Y to support that you had commenced living permanently there or in any other country.

After considering your activities during this period the Commissioner is not satisfied that you had established a permanent place of abode outside of Australia.

Therefore, you are a resident of Australia under the domicile test for this period.

•                     Period on and from Date 5 up to and including Date 6

You and Person A have resided at the Overseas Property since Date 5, establishing an abode there and relocating your lives to Country Y.

You did not have an abode available to you in Australia during this period as the Property had been sold. The Overseas Property is the place where you will stay when you are not travelling in other countries, with several short trips anticipated to occur in the future.

The duration and continuity of your presence in Country Y supports that your permanent place of abode had changed and has been and will be overseas in Country Y during this period.

After considering your activities during this period the Commissioner is satisfied that your permanent place of abode is in Country Y during this period.

183-day test

Where a person is present in Australia for 183 days or more during the year of income the person will be a resident, unless the Commissioner is satisfied that both:

•                     the person's usual place of abode is outside Australia, and

•                     the person does not intend to take up residence in Australia.

The 183 day test is looked at as at 30 June in the relevant income year, with the usual place of abode and intention of the person being considered at that time.

You will be a resident under this test unless the Commissioner is satisfied that your usual place of abode was outside Australia and you did not have an intention to take up residence in Australia during the income year.

Usual place of abode

In the context of the 183-day test, a person's usual place of abode is the place they usually live, and can include a dwelling or a country. A person can have only one usual place of abode under the 183-day test. However, it is also possible that a person does not have a usual place of abode. This is the case for a person who merely travels through various countries without developing any strong connections.

If a person has places of abode both inside and outside Australia, then a comparison may need to be made to determine which is their usual place of abode. When comparing two places of abode of a particular person, we will examine the nature and quality of the use which the person makes of each particular place of abode. It may then be possible to determine which is the usual one, as distinct from the other or others which, while they may be places of abode, are not properly characterised as the person's usual place of abode: Emmett J at [78] in Federal Commissioner of Taxation v Executors of the Estate of Subrahmanyam [2001] FCA 1836.

Intention to take up residency

To determine whether you intend to take up residence in Australia, we look at evidence of relevant objective facts. 'Intend to take up residency' does not merely mean intend to stay for a long time. It means intending to live here in such a manner that you would reside here.

Application to your situation

We have considered this test in relation to the following income years:

•                     First income year in the ruling period

You were in Australia on and from Date 1 up to and including Date 2, being the date prior to your departure from Australia. Therefore, you were in Australia for more than 183 days during the 20YY-YY income year.

However, on 30 June of YYYY income year you were overseas after having departed Australia on Date 3 to live overseas indefinitely. Your house in Australia had been sold prior to your departure and you did not have a usual place of abode in Australia.

The Commissioner is satisfied that your usual place of abode was outside Australia during this income year.

Therefore, you are not a resident under this test during that income year.

•                     Second, third and fourth income year in the ruling period

You have been outside of Australia since Date 3 and were not in Australia for 183 days in any of these income years.

The Commissioner is satisfied that your usual place of abode was overseas and you did not have any intention to reside in Australia during any of these income years.

Therefore, you are not a resident under this test in either of these income years.

Superannuation test

An individual is a resident of Australia if they are either a member of the superannuation scheme established by deed under the Superannuation Act 1990 or an eligible employee for the purposes of the Superannuation Act 1976, or they are the spouse, or the child under 16, of such a person.

Paragraph 97 of TR 2023/1 states:

97. The PSS and CSS schemes are now closed to new members. If you are no longer employed by the Australian Public Service, or you are engaged or appointed under an employment arrangement where superannuation contributions are made to a fund other than the PSS and CSS, then this test will not apply to make you a resident.

Application to your situation

You retired from your employment with Organisation A after which you took your PSS pension and commenced receiving payments, being the Pension.

Person A had also retired from their Government employment was receiving a PSS pension.

Based on the information provided, as you are no longer employed by Organisation A you are not a member on behalf of whom contributions are being made to the PSS or Commonwealth Superannuation Scheme (CSS). Nor are you a spouse of such a person given that Person A had also retired from their government employment, or a child under 16 of such a person.

Therefore, you are not a resident under this test.

Conclusion

As outlined above, you only need to meet one of the residency tests to be considered a resident of Australia for taxation purposes.

We have considered your residency status for taxation purposes in Australia during the period covered by the ruling period is as follows:

•                     First income year - A resident for the whole income year as you had met the domicile test for the whole income year.

•                     Second income year - A resident for part of the income year, being from the first date of that income year up to and including Date 4, the date of the day prior to when you moved into the Overseas Property.

From Date 5, being the date you moved into the Overseas Property until the end of the income year you are not a resident of Australia for taxation purposes.

•                     Third income year - Not a resident of Australia for taxation purposes as you did not meet any of the residency tests; and

•                     Fourth income year - Not a resident of Australia for taxation purposes as you did not meet any of the residency tests.

Question 3: Is your Public Sector Superannuation scheme (PSS) pension taxable in Australia?

Summary

In accordance with double taxation agreement between Australia and Country Y, Australia has sole taxing rights for amounts paid in relation to Australian government services pensions regardless of whether they are paid to residents or non-residents of Australia for taxation purposes.

Detailed reasoning

Assessable income

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Pension payments are considered to be ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident taxpayer includes ordinary income derived directly or indirectly from all Australian sources during the income year.

Pensions are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

Double Taxation Agreement

In determining liability to Australian tax on Australian sourced income received by a non-resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (Agreements Act).

Sections 4 and 5 of the Agreements Act incorporate that Act with the ITAA 1936 and the ITAA 1997 and provide that the provisions of a double tax agreement have the force of law.

The double taxation agreement between Australia and Country Y (the DTA) operates to avoid the double taxation of income received by residents of one or both of the countries.

Article X of the DTA is in relation to pensions and annuities. It outlines that subject to paragraph A in Article Y, pensions and annuities paid to a resident of a Contracting State shall be taxable only in that State.

Article Y of the DTA deals with the taxation of amounts received in relation to government service. Paragraph A of the DTA states the following:

a)            Any pension paid by, or out of funds created by, a Contracting State or a political subdivision or statutory body or local authority thereof to an individual in respect of services rendered to that State, subdivision, body or authority shall be taxable only in that State.

b)            However, such pension shall be taxable only in the other Contracting State if the individual is a resident of, and a national or citizen of, that State and is not also a national or citizen of the first-mentioned State.

Application to your situation

In your case, you are an Australian citizen who is resident of Australia for taxation purposes during part of the ruling period, and a non-resident of Australia for taxation purposes during the remaining part of the ruling period.

You commenced receiving the Pension prior to you departing Australia which is offered by the Australian Government's superannuation and pension provider, being ComSuper.

You continued to receive amounts in relation to the Pension after you departed Australia and will continue to receive them during the ruling period.

You have reported the Pension amounts in your assessments in Australia for several income years after you departed Australia and have paid tax in relation to those amounts in Australia.

Country Y has treated you and Person A as tax residents and your combined household income has been assessed in Country Y for the years you have been there, which includes amounts you received in relation to the Pension and amounts Person A received in relation to their PSS pension while you have both been in Country Y.

When considering which country has a right to tax you in relation to the Pension the first thing that must be determined is the nature of the Pension and the relevant Article in the DTA that applies to it.

As outlined above, Article Y of the DTA provides that remuneration, including a pension, paid to an individual in respect of services rendered in the discharge of governmental functions to Australia or to a political sub-division of Australia or to a local authority of Australia, may be taxed in Australia.

The Pension amounts you receive from ComSuper are as a result of the government services you provided during your employment with Organisation A in Australia. Therefore, subparagraph (A)(a) of Article Y of the DTA for government services will apply in relation to the Pension amounts.

Article X of the DTA will not apply in your situation as it applies to other types of pensions, such as non-ComSuper pension amounts.

In accordance with the DTA, Country Y and Australia agreed that Government Super Pensions to former government workers, being Australian Public Service pensions for Australia, can only be taxed in the country they are paid, which is the country where the person had worked.

Applying subparagraph (A)(a) of Article Y of the DTA to your situation, any government pension amounts you receive from the Commonwealth Government of Australia for services you performed as an employee of Organisation A in Australia shall be taxable in Australia.

Subparagraph (A)(b) of Article Y of the DTA will not apply in your situation so that Country Y has the taxing right in relation to the Pension amounts as while you maybe a resident of Country Y, you are neither a national nor a citizen of Country Y but are a citizen of Australia. Accordingly, you do not meet the conditions for amounts you receive in relation to the Pension to be taxed in Country Y, Therefore, under Article Y of the DTA the Pension amounts you receive are solely taxable in Australia.

Regardless of your residency status for taxation purposes, Australia retains the sole taxing rights to any ComSuper pension amounts paid to you in relation to the Pension.

Therefore, any amounts you receive in relation to the Pension are assessable in Australia under either:

•                     subsection 6-5(2) of the ITAA 1997 for any period you are a resident of Australia for taxation purposes; or

•                     subsection 6-5(3) of the ITAA 1997 for any period you are a non-resident of Australia for taxation purposes.

Question 4: Are you entitled to a foreign income tax offset in Australia for tax paid in Country Y in relation to the PSS pension?

Summary

Australia will only allow a foreign income tax offset in relation to correctly imposed tax under the DTA. As Country Y does not have the right to tax your Pension amounts under the DTA you are not entitled to any foreign income tax offset in Australia for any tax imposed by Country Y in relation to the Pension.

Detailed reasoning

Foreign income tax offset

The purpose of the foreign income tax offset rules in Division 770 of the ITAA 1997 is to protect a taxpayer from the double taxation that may arise where the taxpayer pays foreign tax on income that is also taxable in Australia.

Subsection 770-10(1) of the ITAA 1997 provides that a person is entitled to a foreign income tax offset (FITO) for foreign tax paid in respect of an amount that is included in the person's assessable income in a year of income.

The tax offset has the effect of reducing the Australian tax that would otherwise be payable on the double-taxed amount. A FITO is a non-refundable tax offset.

Section 770-15 of the ITAA 1997 defines foreign income tax to include a tax on income that is imposed by a law other than an Australian law.

A note to section 770-15 of the ITAA 1997 states that foreign income tax includes only that which has been correctly imposed under the relevant foreign law, or where the foreign jurisdiction has a tax treaty with Australia (having the force of law under the International Tax Agreements Act 1953), has been correctly imposed in accordance with that tax treaty.

Article Z of the DTA considers the source of income and includes the following paragraphs:

A.            Income, profits or gains derived by a resident of a Contracting State which, under Article Y be taxed in the other Contracting State, shall be deemed to be income from sources in that other State.

           ...

C.            Income, profits or gains derived by a resident of a Contracting State which, under Article Y, may be taxed in the other Contracting State shall for the purposes of Article 23 and of the law of the first-mentioned Contracting State relating to its tax be deemed to arise from sources in the other Contracting State.

Application to your situation

In this case, Country Y has taxed you in relation to amounts you received in relation to the Pension, and you have also been taxed on the same amounts in Australia.

In your situation the following paragraphs in Article Z as outlined above will apply:

•                     Paragraph A - While you are a resident of Country Y amounts received in relation to the Pension may be taxed in Australia under Article Y of the DTA, and those amounts shall be deemed to be income sourced from Australia; and

•                     Paragraph C - Income derived by a resident of Country Y which under Article Y of the DTA may be taxed in Australia shall for the purposes of Article W of the DTA (elimination of double taxation), and of the law of Country Y relating to its tax, be deemed to arise from sources in Australia.

In accordance with Article Z of the DTA Australia is the country from which the Pension is sourced and effectively never does a country of source provide a FITO for tax paid in another country.

The tax you paid in Country Y in relation to the Pension is not viewed as being correctly imposed tax as Country Y did not have the right to tax your Pension in accordance with the DTA.

Therefore, you are not entitled to claim a FITO in Australia for any tax that you have paid in Country Y in relation to any Pension amounts you received while you were a resident of Country Y for their taxation purposes.

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