Edited version of your private ruling

Authorisation Number: 1011980965050

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Ruling

Subject: Income - non resident

Questions and answers

1. Are your Australian pensions assessable in Australia?

No

2. Is your rental income from Australian rental properties assessable in Australia?

Yes

3. Is your bank interest and dividend income assessable in Australia?

No

4. Is the income you receive when working in Australian waters and paid by an Australian company assessable in Australia?

Yes

5. Is the income you receive when working outside of Australian waters and paid by a non-Australian company assessable in Australia?

No

This ruling applies for the following period

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commenced on

1 July 2011

Relevant facts

You are a foreign resident of Australia for income tax purposes.

You left Australia to move permanently overseas.

You receive the following income:

· Australian pensions

· Australian rental income

· Bank interest from Australian bank accounts

· Dividend income from Australian shares

· Wages from your employment on board a vessel of an Australian company. You are employed on short term contracts for various oil and gas companies throughout Australasia.

You have provided two employment contracts one for when you are working in Australian waters and one for when you are working outside of Australian waters.

When you are working on the vessel in Australian waters you are paid by an Australian owned company and they withhold tax and superannuation.

When you are working on the vessel in international waters you are paid in US dollars by an overseas based company. They do not deduct tax and do not pay superannuation on your behalf.

Assumptions

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

International Tax Agreement Act 1953

Reasons for decision

Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a foreign resident taxpayer or a non resident taxpayer includes the ordinary income derived directly or indirectly from all Australian sources during the income year. This includes Australian pensions.

A non resident is a person who is not a resident of Australia for the purposes of the Income Tax assessment Act 1936.

You are a non resident of Australia for tax purposes from the date you left Australia permanently to live overseas.

International Tax Agreements

In determining liability to tax on Australian sourced income received by a non resident, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreement Act 1953 (the Agreements Act).

Australia and Country X have an International Agreement in place for the avoidance of double taxation.

Australian pension payments

Article Y of Country X Agreement provides that any pension derived in Australia by a resident of Country X is exempt from tax in Australia. This means that your Australian pensions are exempt from tax in Australia from the time of residency in Country X.

Rental income

Rental income from real property is ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997 and is assessable in Australia.  

This is consistent with Australia's Double Tax Agreements with other countries under which income from real property may be taxed in the country in which the property is situated.

The income needs to be declared on an Australian tax return and will be taxed at non-resident rates of tax.  A foreign tax credit may be claimed in the country in which the taxpayer is a resident.

Non-residents must also lodge an income tax return for income years where a net loss is made from the rental property. The rental loss incurred in one income year may be carried forward and can be applied against Australian taxable income derived in future income years.

Bank interest and dividends

From the date you become a foreign resident any interest and dividend income will be subject to foreign resident withholding tax. Your Australian financial institution will withhold 10% of any interest you earn in the accounts you hold with them. You do not need to include your Australian interest in your assessable income. However, if you receive any dividend income and maintain any bank accounts in Australia you need to advise your Australian financial institution of your overseas address so they can withhold the appropriate rate of tax.

Franked dividends you receive are exempt from Australian income and withholding taxes. Therefore, you do not include the amount of any franked dividends or any franking credits you receive in your Australian income tax return.

Unfranked dividends are subject to non resident withholding tax. You do not need to include this income in your Australian income tax return if tax has been correctly withheld.

An investment body must withhold an amount from an interest or unfranked dividend payment it makes to a non-resident who:

· according to the investment body's records, has an address outside Australia

· has authorised the payment to be made to an address outside Australia

· is a non-resident and the investment body received the payment on behalf the investor.

As you are subject to non-resident withholding you should advise your investment body of your non-resident status and your overseas address.

Working on board a vessel in Australian waters

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a foreign resident for the income year includes ordinary income derived directly or indirectly from all Australian sources. Salary and wages are ordinary income under subsection 6-5(3) of the ITAA 1997.

The source of remuneration for services rendered will depend on the facts of each case. However, the source is generally the place where those services are performed.

As you perform employment duties in Australia and receive ordinary income as remuneration for these, that remuneration would be assessable under subsection 6-5(3) of the ITAA 1997.

However, in determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law.

The Country X agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The Country X agreement operates to avoid the double taxation of income received by residents of Australia and Country X.

Article Y(1) of the Country X Agreement provides that employment income derived by a resident of Country X shall be taxable only in Country X unless the employment is exercised in Australia. If the employment is exercised in Australia it may be taxed in Australia.

However, Article Y(2) of Country X Agreement provides that such income will be taxable only in Country X if:

(a) the recipient is present in Australia for a period or periods not exceeding in the aggregate 183 days in any 12 month period commencing or ending in the year of income or year of assessment of Australia, and

(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of Australia, and

(c) the remuneration is not deductible in determining taxable profits of a permanent establishment or fixed base which the employer has in Australia.

Furthermore, Article Y(3) of Country X Agreement provides that notwithstanding the provisions of this article, remuneration derived in respect of employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of Australia may be taxed in Australia.

As the employer is an Australian resident the conditions in Article Y(2) do not apply. Since you are working on board an Australian entity vessel, Article Y(3) of Country X Agreement would apply.

Accordingly, your remuneration derived from employment exercised aboard a ship operated by an Australian entity is assessable in Australia under subsection 6-5(3) of the ITAA 1997. As you are a non resident of Australia you will be taxed on this income at non resident rates.

Working on board a vessel in international waters

Your income derived from working on a vessel in international waters is not assessable in Australia.

You will need to seek advice from Country X tax authorities regarding the assessability of your income derived while working in international waters on an internationally owned vessel.