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Ruling

Subject: Tax Offsets

Question 1:

Are you entitled to claim a Dependent Spouse Tax Offset for the 2010-11 income year?

Answer 1:

Yes.

Question 2:

Are you entitled to a claim a Zone Tax Offset for the 2010-11 income year?

Answer 2:

Yes.

Question 3:

Are you entitled to claim a Medical Expenses Offset for expenses you incurred for a child in Country A in the 2010-11 income year?

Answer 3:

No.

This ruling applies for the following period:

Year ended 30 June 2011.

The scheme commenced on:

1 July 2008.

Relevant facts

You are an Australian resident for income tax purposes.

From some time late in the 2008-09 income year to some time early in the 2009-10 income year you travelled to Country A.

From some time in the middle of the 200X-XX income year to some time later in the 200X-XX income year you travelled to Country A. During this period you also got engaged and started supporting your spouse.

From some time in the middle of the 20XX-XX income year to the 20XX-XX income year you travelled to Country A. On a particular day during that period you got married and applied for a Visa for your spouse.

From some time late in the 20XX-XX income year to the 20XX-XX income year you travelled again to Country A.

On a particular day in the 20XX-XX income year, a specific visa was granted to your spouse.

From some time in the 20XX-XX income year to few days later in the 20XX-XX income year you travelled once again to Country A.

On a particular day late in the 20XX-XX income year, you arrived in Australia with your spouse and her dependent child. This is when you began living together on a genuine domestic basis in a relationship as a couple.

Your Adjustable Taxable Income (ATI) was not over $150,000 for the 2010-11 income year.

Your spouse's ATI for the 20XX-XX year was not more than $9,000.

For the 20XX-XX income year, neither you nor your spouse (during any period they were your spouse) were eligible for Family Tax Benefit Part B (FTB Part B).

For the 20XX-XX income year, neither you nor your spouse (during any period they were your spouse) received parental leave pay.

For the 20XX-XX income year, you lived for more than 183 days in a suburb which is classified as a 'Zone B' in Australia for the purposes of the Zone Tax Offset.

You incurred dental expenses for a child in Country A.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 159J

Income Tax Assessment Act 1936 Subsection 159J(3A)

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1936 Subsection 79(A)

Income Tax Assessment Act 1936 Paragraph 79A (3B)(a)

Income Tax Assessment Act 1936 Section 159P

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Dependent Spouse Offset

Section 159J of the Income Tax Assessment Act 1936 (ITAA 1936) allows a resident taxpayer who contributes to the maintenance of a dependent to claim a tax offset if certain conditions are met.

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines spouse as a person who, although not legally married to the person, lives with the person on a genuine domestic basis as the person's husband or wife.

A 'resident of Australia' is defined in subsection 6(1) of the ITAA 1936. However, in applying the definition of resident in subsection 6(1) and for the purposes of section 159J of the ITAA 1936; subsection 159J(3A) of the ITAA 1936 states that the dependent spouse of a taxpayer will be taken to have the same domicile as the taxpayer whose domicile is in Australia. 

Under the domicile test, a person will be a resident of Australia for tax purposes if he or she has an Australian domicile, unless the Commissioner is satisfied that their permanent place of abode is outside Australia. 

A person's domicile is in their country of origin unless they acquire a different domicile of choice or by operation of law. To obtain a different domicile of choice, a person must intend to make their home indefinitely in another country and also be able to prove this.  

The leading case on 'permanent place of abode outside of Australia' is Federal Commissioner of Taxation v. Applegate 79 ATC 4307; (1979) 9 ATR 899. The Federal Court stated that in the context of the 'resident' definition, a permanent place of abode does not have to be everlasting or forever but it is rather used in contrast with a temporary or transitory place of abode outside Australia. Income Tax Ruling IT 2650 also considers residency and permanent place of abode outside Australia. IT 2650 states that 'place of abode' refers to a person's residence, where one lives with one's family and sleeps 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.  

In your case, from some time in the 20XX-XX income year for a few weeks later in the 20XX-XX income year you travelled to Country A. On a particular day during that period you got married and applied for a Visa for your spouse.

Your spouse who you married some time in the 20XX-XX income year was living overseas in Country A, therefore her 'place of abode' was overseas. During that period, you also applied for a Visa for your spouse to migrate to Australia. Therefore, it is accepted that your spouse did not have a permanent place of abode outside Australia and is deemed to be a resident in Australia from the date of your marriage in the 20XX-XX income year. As such, from that date you are considered to have a resident dependent for the purposes of the dependent spouse tax offset under section 159J of the ITAA 1936.

However, you cannot claim this offset if:

· your ATI for the 2010-11 income year was more than $150,000, or

· your spouse's ATI for 2010-11 was more than $9,426.

In your case, your ATI was not more than $150,000 and your spouse's ATI was not more than $9,426 for the 2010-11 income year.

You are eligible to claim a Dependent Spouse Tax Offset for any period during the income year that you had a spouse and you met all of the following criteria:

· you contributed to the maintenance of your spouse.

· your spouse was an Australian resident for tax purposes.

· you were an Australian resident for tax purposes any time during the 2010-11 income year.

· neither you nor your spouse (during any period they were your spouse) was eligible for Family Tax Benefit (FTB) Part B or if one of you was eligible for it, you were eligible at the shared-care rate only.

· neither you nor your spouse (during any period they were your spouse) received parental leave pay.

In your case, you were able to satisfy all the above criteria. Therefore, you are entitled to claim a dependent tax offset for the 2010-11 income year.

Note: For a calculation of how much Dependent Spouse Offset you are entitled to, please refer to the Taxpack 2010-11 or visit the Australian Tax Office's website at www.ato.gov.au.

Zone Tax Offset

A Zone Tax Offset is provided for under subsection 79A (1) of the ITAA 1936 for individuals who are residents of remote areas which are subject to uncongenial climatic conditions, are isolated, or where the cost of living is high. Remote areas are classified as either zone A or zone B. There are also special areas within these zones. 

Paragraph 79A (3B) (a) of ITAA 1936 states that a taxpayer is entitled to a Zone Offset if they have resided in that zone for more than half of an income year.

In your case, you have resided in Suburb A, which is a locality classified under Zone B for more than 183 days in the 2010-11 income year. Therefore, you are entitled to claim a Zone Tax Offset in the 2010-11 income year.

Note: For a calculation of how much Zone Tax Offset you are entitled to, please refer to the Taxpack 2010-11 or visit the Australian Tax Office's website at www.ato.gov.au.

Medical Expenses Tax Offset

Under section 159P of the ITAA 1936 a tax offset is available to a resident taxpayer or a dependent who is an Australian resident and whose net medical expenses paid in the year of income exceed 2,000 in the 2010-11. The amount of the offset is 20% of the excess over $2,000.

To qualify for the offset, the medical expenses must be paid by a resident taxpayer in respect of themselves or a resident dependent. 'Dependent' is defined to mean:

(a) the spouse of the taxpayer;

(b) a child of the taxpayer who is under 21; or

(c) a person for whom the taxpayer is entitled to a dependent offset or a child or student in respect of whom the taxpayer qualifies for a notional dependents offset.

In your case, you do not satisfy any of the conditions above. As for the purposes of section 159P of the ITAA 1936, your spouse became a resident dependent from some time in the 20XX-XX income year when she arrived in Australia and started living with you on a genuine domestic basis in a relationship as a couple. Accordingly, her child only became a resident dependent of yours after that date.

Therefore, you are not entitled to claim a Medical Expenses Offset on the dental expenses you incurred for the child in Country A as the child was not deemed to be a resident dependent of yours at the time you incurred the expenses.