Edited version of private ruling

Authorisation Number: 1011743580673

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Residency

Question 1

Are you an Australian resident for income tax purposes?

Answer

Yes.

Question 2

Are you a temporary resident of Australia for income tax purposes?

Answer

Yes.

This ruling applies for the following period

Income year ending 30 June 2011

Relevant facts

You and your spouse are foreign residents for income tax purposes.

In the past income years you have visited your child and relatives living in Australia for a couple of months a year.

During your last visit to Australia, you purchased a plot of land as foreign investors and you had your house built on the land which you intend to use as your home for your future visit to Australia for six month periods each year.

You intend to keep the house for the sole purpose of your use and your family only. You do not have the intention to sub-let the property.

The other six months in the year you will live in the foreign country X where you also maintain a home for your use.

You will be in Australia for approximately nine months during the relevant income year. The reason for this present visit apart from seeing your family is to oversee the completion of your house and to make it a home.

You and your spouse receive pensions from foreign country X.

You provided the following additional information on the phone:

§ you and your spouse came to Australia on a tourist visa for 12 months.

§ you and your spouse are not Australian residents under the Australian Social Security Act , that is, you and your spouse are not Australian citizens and you do not hold permanent resident visas in Australia.

§ you and your spouse have one bank account and one home in Australia,

§ you and your spouse have your other saving in foreign country X, investment in shares and foreign country X government national savings, and

§ you and your spouse are foreign country X citizens.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

Question 1

Residency

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'.

Taxation Ruling TR 98/17 considers the residency status of individuals entering Australia and states that the period of physical presence or length of time in Australia is not, by itself, decisive when determining whether an individual resides here. However, an individuals behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here.

Paragraphs 19 to 21 of TR 98/17 provide that the quality and character of an individual's behaviour (for example: the way individual arrange his or her domestic and economic affairs as part of the regular order of his or her lives) while in Australia assist in determining whether the individual resides in Australia.

In your case you are in Australia for approximately nine months. The purpose of your visit is to oversee the completion of the house you are having built and to make it a home for you and your spouse for future visits. You will maintain a home in Australia and a home in foreign country X. You intend to live in Australia for six months and in foreign country X for the rest of the six months. Your only child and family reside in Australia.

Since you were having a house built in Australia and will maintain the house as your home in Australia that will be kept for your use and you intend to spend at least half a year in Australia in future, your behaviour and your regular visits have the required continuity, routine or habit that is consistent with a person residing in Australia.

Therefore, you and your spouse are considered to be Australian residents under the residing test for the 20010-11 income year. Since you are considered to be a resident under this test, it is not necessary to consider your residency status under the other remaining tests.

Temporary residency

Although you are residing in Australia according to the ordinary meaning of the word, you may also be considered to be a temporary resident.

If you are a resident of Australia for tax purposes and meet the requirements to be a temporary resident as defined in subsection 995-1(1) of the ITAA 1997, the temporary resident rules apply.

You are a temporary resident if:

§ you hold a temporary visa granted under the Migration Act 1958

§ you are not an Australian resident within the meaning of the Social Security Act 1991, and

§ your spouse (if applicable) is not an Australian resident within the meaning of the Social Security Act 1991.

The Migration Act provides that a temporary visa is a visa to travel to and remain in Australia:

§ during a specified period

§ until a specified event happens, or

§ while the holder has a specified status.

Temporary visas are distinguished from permanent visas which allow a person to remain in Australia indefinitely.

Under the Social Security Act 1991, an Australian resident is generally a person who resides in Australia and is either an Australian citizen or holds a permanent resident visa.

You and your spouse were in Australia on tourist visas for 12 months and you are not Australian residents within the Australian Social Security Act. You are both foreign nationals and not Australian citizens and you do not hold Australian permanent residency visas.

Accordingly, you are temporary resident of Australia for income tax purposes for the 2010-11 income year.

Note

In general, foreign source income derived by temporary residents will be exempt from tax in Australia under section 768-910 of the ITAA 1997.

Temporary residents are: 

§ not taxed in Australia on most of your foreign income, except income earned from employment performed overseas for short periods while they are temporary residents.

§ taxed on employment income from work performed in Australia as they are deemed to have an Australian source

§ taxed in Australia on Australian source income such as interest derived from Australian bank accounts.

However, pension income that is sourced outside of Australia is not taxed in Australia to temporary residents.

Schedule X to the International Tax Agreements Act 1953 contains foreign country X Agreement. Article 4(1) of foreign country X Agreement provides that a person is a resident of Australia, for the purposes of this Agreement, if the person is a resident of Australia for the purposes of Australian tax. However, Article 4(2) states that a person is not a resident of Australia, for the purposes of foreign country X Agreement, where that person is liable to tax in Australia in respect of income or gains from sources in Australia only.

As temporary residents are liable to tax in Australia on certain income and gains from sources outside Australia, Article 4(2) of foreign country X Agreement will not exclude them from being a resident for the purposes of the Agreement. As a result, a taxpayer who is a temporary resident is a resident of Australia for the purposes of foreign country X Agreement.

Article 17(1) of foreign country X Agreement provides that pensions (including government pensions) paid to a resident of foreign country X are taxable only in foreign country X.