Edited version of private ruling

Authorisation Number: 1011692082404

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Ruling

Subject: Residency and assessability of worldwide income

Question 1

Are you a resident of Australia for tax purposes?

Answer

Yes.

Question 2

Is your worldwide income taxable in Australia under the Double Taxation Agreement with country X?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

Country x has deemed you to be a resident of that country for tax purposes.

Your job requires you to travel between Australia and country x. You have spent considerable time there establishing a branch office of your business.

You are an Australia citizen.

Your mother, father and siblings live in Australia.

You maintain a rented house in Australia where most of your personal belongings are kept.

Your husband travels to the other country with you and you maintain a rented home there also.

You are pregnant and intend to reside in Australia when you give birth and for the immediate future.

You are listed on the Australian electoral role and hold an Australian drivers licence.

You work for your own company. The shares you hold in this company are your largest asset, these are Australian assets.

You were in the other country for more than 183 days.

Relevant legislative provisions

Subsection 6(1) of the Income Tax Assessment Act 1936

Section 6-5 of the Income Tax Assessment Act 1997

Schedule 4 of the International Tax Agreement's Act 1953

Division 770 of the Income Tax Assessment Act 1997

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are an Australian resident for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a non resident of Australia for taxation purposes, your assessable income includes only income from an Australian source.
Are you an Australian resident for tax purposes?

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 (ITAA 1936). The definition provides four tests to ascertain whether a taxpayer is an Australian resident for income tax purposes. These tests are:

1. The resides test

2. The domicile test

3. The 183 day test

4. The superannuation test

The first two tests are examined in detail in Taxation Ruling IT 2650.

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 an Australian resident for tax purposes if they satisfy the conditions of one of the three other tests.

1. The resides test

The ordinary meaning of the word reside, according to the dictionary definition, 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.

You have set plans to return to Australia upon the birth of your child however you currently maintaining a rental property in both Australia and country x. As you have been residing in both Australia and country x it is not possible to determine your residency based on this test.

2. 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

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 by operation of law.

In order to show that a new domicile of choice in a country outside of Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country.

You have been residing in both Australia and country x. It is not your intention to make country x your home indefinitely, you intend to come back to Australia to reside when you give birth to your child and remain here for the immediate future. Therefore, you are considered to have maintained your Australian domicile.

Permanent place of abode

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.

Taxation Ruling IT 2650 outlines the elements to be considered when determining whether a person has established a permanent place of abode outside of Australia. The ruling states that all of the circumstances of each case need to be considered and not one factor is determinative.

Factors to be considered include:

a) Intended and actual stay overseas

b) Intention to stay in one country or move between countries

c) Whether a home has been established outside of Australia

d) The duration and continuity of presence overseas

e) The durability of association with Australia

You maintain a rental home in Australia where you intend to reside permanently. You also maintain a rental home in country x as you are required to spend a substantial part of your time working over there.

Your parents and siblings live in Australia and you intent to return to Australia to live for the immediate future when your child is born.

You are an Australian citizen and hold your bank accounts in Australia

Although you maintain a rental property in country x it is considered that you have not established a permanent place of abode there and as such you are a resident of Australia under the domicile test.

The 183 day test

When 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.

It is not necessary to consider this test as you are a resident under the domicile test.

The Superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person.

It is not necessary to consider this test as you are a resident under the domicile test.

Your residency status

The Commissioner is satisfied that you have not established a permanent place of abode outside of Australia. Therefore you are a resident of Australia for tax purposes.

Tie Breaker test

The taxation authorities in country x has deemed you a resident of country x for taxation purposes. Therefore it is necessary to look at the tie breaker test. Under this test you are a resident of Australia.

Your worldwide income is therefore taxable in Australia. Any income which is earned whilst working in country x may be liable to taxation in that country and you will be eligible for a foreign tax offset in accordance with Division 770 of the ITAA 1997.

Australian competent authority

Where a person considers that the actions of Australia or a treaty partner result or may result in taxation not in accordance with a particular tax treaty, the person may request competent authority assistance.

The competent authority will seek to resolve cases of taxation contrary to the provisions of a tax treaty, such as, the resolution of juridical and economic double taxation or, where a particular class of income is taxed in contravention of a rule in the tax treaty.

You are a resident of Australia under the DTA. Country x has found you to be a resident of country x also. As you have conflicting results from the application of the DTA from Australia and country x you may need to get in touch with the Australian competent authority to resolve this issue.