Edited version of private ruling

Authorisation Number: 1011481572584

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Ruling

Subject: Residency and Assessability of pension

Question 1

Are you a resident of Australia for taxation purposes?

Answer

No.

Question 2

Is the bereavement pension you receive assessable in Australia?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You are a citizen of Australia and country A.

You were born in the country A.

Your partners died in 200X.

You went to country A because your partner went there to work.

You have school aged children living with you in country A.

Due to their education you cannot leave the country A and return to Australia for at least another few years.

You are currently unemployed.

You rely solely on your partner's pension which is paid to you.

This pension payer is currently withholding tax in Australia.

You are currently considered a country A resident for taxation purposes by the country A tax authority.

You leave country A annually for holidays.

You do not have a permanent place to live in Australia.

Assets in Australia include: shareholdings, investments, bank accounts, a term deposit, and pension.

Assets in country A include: Your house, bank accounts and term deposits.

You have family and social connections in Australia.

You do not have any family or social connections in country A.

You were employed by the Australian Government between the relevant dates.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1).

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

International Tax Agreements Act 1953.

Reasons for decision

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

The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the ITAA 1936. The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for taxation purposes. These tests are:

1. The resides test

2. The domicile test

3. The 183 day test

4. The superannuation 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 a resident of Australia for taxation purposes if they meet the conditions of one of the other three tests.

The resides test

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'.

The expression 'place of abode' refers to a person's residence, where they live with their family and sleep at night. In essence, a person's place of abode is that person's dwelling place or the physical surroundings in which a person lives.

A permanent place of abode does not have to be 'everlasting' or 'forever'. It does not mean an abode in which a person intends to live for the rest of his or her life. An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a permanent place of abode elsewhere.

Some of the factors which have been considered relevant by the Courts and Boards of Review/Administrative Appeals Tribunal and which are used by this Office in reaching a state of satisfaction as to a taxpayer's permanent place of abode include:

- 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; and

- the durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts 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.

On balance as:

- you have a property a property in the country A

- you have assets in the country A

- your immediate family lives in the country A, and

- your ties to country A are stronger and your permanent abode is in country A.

Therefore you are a non resident of Australia under this test.

The domicile test

If a person is considered to have their domicile in Australia they will be considered an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

"Domicile" is a legal concept to be determined according to the Domicile Act 1982 and to the common law rules which the courts have developed in the field of private international law. The primary common law rule is that a person acquires at birth a domicile of origin, being the country of his or her father's permanent home. This rule is subject to some exceptions. For example, a child takes the domicile of his or her mother if the father is deceased or his identity is unknown. A person retains the domicile of origin unless and until he or she acquires a domicile of choice in another country, or until he or she acquires another domicile by operation of law (Henderson v. Henderson [1965] 1 All E.R.179; Udny v. Udny [1869] L.R.1 Sc. & Div. 441; Bell v. Kennedy [1868] L.R.1 Sc. & Div. 307 (H.L.)).

In determining a person's domicile for the purposes of the definition of "resident" in subsection 6(1), it is necessary to consider the person's intention as to the country in which he or she is to make his or her home indefinitely. Thus, a person with an Australian domicile but living outside Australia will retain that domicile if he or she intends to return to Australia on a clearly foreseen and reasonably anticipated contingency.

Generally speaking, persons leaving Australia temporarily would be considered to have maintained their Australian domicile unless it is established that they have acquired a different domicile of choice or by operation of law. In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country e.g., through having obtained a migration visa. A working visa, even for a substantial period of time such as 2 years, would not be sufficient evidence of an intention to acquire a new domicile of choice.

You intend to stay in country A for at least another 3 and a half years due to your children's education, you have established a home in the UK and only leave for annual holidays.

While you have retained your Australian domicile the Commissioner is satisfied that you have a permanent place of abode outside of Australia.

Therefore you are a non resident under the domicile test.

As you will not be in Australia for 183 days or more during the period you are living in Country A and you are not an eligible employee you are not a resident of Australia under either of the those tests.

For the period you are living in Country A you are not a resident of Australia for taxation purposes.

Assess ability of pension in Australia

Double Tax Agreements

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 contained in the International Tax Agreements Act 1953 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that both Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

The agreement with Country A ensures that pensions paid to a resident of Country A are only assessable in Country A.

The pension you receive is therefore not assessable in Australia.