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Ruling

Subject: Residency

Question

Are you a resident of Australia for tax purposes in the 2010-11 financial year?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You are a serving member of country X's armed service.

You arrived in Australia in 200X on posting that was expected to conclude in 200X.

In late 200X whilst in Australia you resigned from the armed service of country X, took up residence, commenced work, and paid tax in Australia.

You submitted your 2008-09 income tax return as a partial resident and submitted your 2009-10 income tax return as a full resident.

In October 20XX you returned to country X to accept a position based in Australia serving for country X. You re-enlisted in the armed service of country X and returned to Australia.

In March 20XX you will be required to relocate to country X.

In the 2010-11 financial year you had had the following sources of income:

· salary from an Australian source

· salary and allowances from country X's defence force

· interest in savings in a bank in country X

· interest in savings in an Australian bank account

You do not own a home in Australia.

Country X provides the house that you currently occupy in Australia.

You have a sporting club membership in Australia and none in country X however your close friends and family all live in country X.

Relevant legislative provisions

International Tax Agreements Act 1953

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 6-5

Reasons for decision

Summary

You are a resident of Australia for tax purposes in the 2010-11 financial year and the double tax agreement with country X states the government payments made to you by country X are taxable only in Australia.

Detailed reasoning

The terms resident and resident of Australia, in regards 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 a resident of Australia for income tax purposes. These tests are:

· the ordinary meaning test

· the domicile test

· the 183 day test

· 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. If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established.

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3^rd 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 individual's behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here.

Based on the information you have provided, it is considered that you are an Australian resident for tax purposes as your behaviour in Australia reflects a degree of continuity, routine or habit that is consistent with residing here. 

Further issues for you to consider

You are an Australian resident for tax purposes receiving income from the government of country X therefore consideration of your tax liability in Australia needs to be considered. In determining liability to Australian tax on foreign sourced income, 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).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one.

A Schedule to the Agreements Act contains the Convention between Australia and country X. The Convention operates to avoid the double taxation of income received by Australian and country X residents.

You advised you were a resident of country X, however as your permanent home is in Australia you are a resident of Australia under the Agreements Act.

An Article (government service) of the Convention provides that salaries, wages paid by a Contracting State for to an individual in respect of services rendered to that State shall be taxable only in that State. However the Article also states that such salaries shall be taxable in the other state when the individual did not become a resident of that State solely for the purpose of rendering the service.

In your case you are considered to be a resident of Australia for tax purposes receiving salary from country X for services rendered to country X. When you were first posted to Australia in 200X you were considered to be resident of Australia with your salary being taxed by country X under an Article of the Convention. You resigned in 200X and continued work in Australia and remained a resident of Australia. When you re-enlisted in the armed service of country X and recommenced work for country X you remained a resident of Australia. As you were already a resident of Australia when you re-enlisted you did not become a resident of Australia solely to render service to country X.

Accordingly, the salary received by you from country X while residing in Australia is assessable income under subsection 6-5(2) of the ITAA 1997.