Edited version of private ruling

Authorisation Number: 1011676502578

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Ruling

Subject : Resident for taxation purposes - foreign sourced income

Question and Answer

Are you a resident of Australia for tax purposes?

Yes.

Are you entitled to an exemption from Australian income tax on income sourced In B

Yes.

This ruling applies for the following period

1 July 2005 to 30 June 2010

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 reside in B and have for a number of years.

You have derived income from Australia, B and outside of Australia.

You have interest and dividend income, trust distributions and capital gains on investments.

You prepare your Australian income tax returns as a resident of B and as a resident of Australia for tax purposes.

You believe you are subject to tax on the same basis as other Australian residents but receive an exemption from Australian tax on income derived from sources outside of Australia including income derived from B.

You receive written annual request from the Australian Taxation Office requesting confirmation certain interest income (interest income sourced in B) is correctly excluded from your Australian income tax return.

You require clarification that provisions contained within the Income Tax Act, pertaining to the exemptions do apply to you.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 7A

Income Tax Assessment Act 1936 Section 24C

Income Tax Assessment Act 1936 Section 24F

Income Tax Assessment Act 1936 Section 25G

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-15

Income Tax Assessment Act 1997 Section 6-20

Reasons for decision

Under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), your assessable income includes all ordinary income derived both in and outside Australia.

Section 7A of the Income Tax Assessment Act 1936 (ITAA 1936) provides that B resident individuals are residents of Australia for tax purposes and therefore, are liable to Australian tax. However, sections 6-15 and 6-20 of the ITAA 1997 operate to exclude exempt income from assessable income.

For 'genuine' residents of B, sections 24F and 25G of the ITAA 1936 operate to classify income derived from B or overseas sources as exempt income. A 'genuine' B resident is defined in Section 24C of the ITAA 1936 as a person whose ordinary place of residence is B, and who would not, but for the operation of section 7A of the ITAA 1936, be treated as a resident of Australia.

The persons eligible for exemption in B are:

· an individual who resides, and has their ordinary place of residence in B and is not otherwise resident in Australia.

· a company incorporated in B and wholly owned by B residents; and

· a trustee of a B trust, that is, the estate of a deceased B resident during the period of administration, and a deceased estate or a trust created by instrument in which the accumulating income of the estate or trust will pass only to B residents.

There are also a number of rules prescribing the source of particular items of income as follows:

· dividends have a B source only when paid out of exempted B income

· income from an office or employment has a B source only when the duties concerned are mainly performed in B;

· interest and royalties that are paid as an expense of an Australian business are not treated as having a B source; and

· income that technically has a B or foreign source but arises out of a tax avoidance arrangement designed to conceal its real source in Australia is not treated as having a technical source.