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Authorisation Number: 1011981123829

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Ruling

Subject: Residency

Question 1

Are you a resident of Australia?

Answer

No.

Question 2

Is your Defence Force Retirement & Death Benefits Scheme (DFRDB) pension assessable in Australia?

Answer

No.

Question 3

Is your fixed term bank deposit interest assessable in Australia?

Answer

No.

Question 4

Is your fixed term bank deposit interest subject to withholding tax in Australia?

Answer

Yes.

This ruling applies for the following periods

Year ended 30 June 2009
Year ended 30 June 2010
Year ended 30 June 2011

The scheme commenced on

1 July 2008

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You departed Australia in 2008 for country A on a tourist visa. You are in the process of obtaining a retired visa and you intend to reside in country A permanently as you like the lifestyle and have made many friends. You have been in a permanent apartment in country A for approximately three years.

You have no great connection with Australia apart from your family and property that you own.

Since 2008 you have visited Australia for personal reasons five times for approximately one month each time.

You do not have any assets in country A.

You jointly own a house in Australia which is not rented out however you reside there when you visit.

In Australia you also have jointly held rental properties where income is paid monthly. You have a fixed term investment account and several bank accounts

You do not have an employment contract in country A.

Presently you do not pay tax in any country other than Australia but you will be making back payments to the taxation authorities in country A.

You have no sporting connections in Australia. All sporting connections are in country A where you play lawn bowls and golf.

You served in the Australian Defence Force and receive a service pension

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 27H
Income Tax Assessment Act 1936 Section 128D
Income Tax Assessment Act 1936 Subsection 128B(2)
Income Tax Assessment Act 1997 Subsection 6-5(3)
Income Tax Assessment Act 1997 Subsection 6-10(5)
Income Tax Assessment Act 1997 Section 10-5
Income Tax Assessment Act 1997 Section 6-15
Income Tax Assessment Act 1997 Section 6-20
Income Tax Assessment Act 1997 Section 11-10
International Tax Agreements Act 1953 Section 4

Reasons for decision

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 a resident of Australia for income tax purposes. These tests are:

· the resides test.

· the domicile test.

· the 183 day test.

· 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 a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.

The 'resides' test

The ordinary meaning of the word resides, according to the Shorter Oxford English Dictionary, 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 been residing in an apartment in country A for several years. You are in the process of obtaining a retired visa and you've stated it is your intention to stay there indefinitely.

Therefore, you are not considered to be residing in Australia.

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.

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

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.

In your case,

· you have advised that it is your intention to make your home indefinitely in country A;

· you only maintained an association with Australia through property, bank accounts and family; and

· you have been residing in country A for several years and plan to retire there.

Based on these facts, the Commissioner is satisfied that you have established a permanent place of abode in country A.

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.

You do not satisfy this test as you were not present in Australia for 183 days or more in the relevant years.

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. 

You are not a resident under this test as you are not a member of the PSS or the CSS, a spouse of such a person, or a child under 16 of such a person.

Your residency status

As you are not considered to be a resident of Australia under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936, you are not considered to be an Australian resident under subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) from the date of your departure from Australia.

Interest income and pension

Subsection 6-5(3) of the ITAA 1997 provides that a non-resident's assessable income includes ordinary income directly or indirectly from Australian sources, during the income year.

Statutory income from all Australian sources, or included by a provision on a basis other than having an Australian source, is also included in a non-resident's assessable income under subsection 6-10(5) of the ITAA 1997.

Interest income

Interest income is ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

Section 6-15 of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income. An amount is exempt if it is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law (subsection 6-20(1) of the ITAA 1997).

Section 11-10 of the ITAA 1997 lists provisions about exempt income. Included in this list is section 128D of the ITAA 1936.

Section 128D of the ITAA 1936 provides that the interest upon which withholding tax is payable shall not be included in assessable income.

A non-resident is liable for withholding tax on interest under subsection 128B(2) of the ITAA 1936.

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 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the ITAA 1997 so that those Acts are read as one.

The Agreements Act for country A contains the double tax agreement with Australia. This Act operates to avoid double taxation of income received by Australian and country A residents.

An article in the Agreement provides that interest income arising in Australia to which a resident of country A is beneficially entitled, may be taxed in country A.

An article of the Agreement provides that such interest income may be taxed in Australia, but the tax so charged shall not exceed 15 per cent of the gross amount of the interest.

The interest income you received will be subject to withholding tax at the rate of 15% on the gross amount of interest derived in Australia.

Therefore, the interest income you received in Australia is not assessable under subsection 6-5(3) of the ITAA 1997 as section 128D of the ITAA 1936 applies.

Where a non-resident taxpayer holds Australian investments they are required to advise the financial institution of their non-resident status and provide an overseas address. This notification allows the financial institution to follow the correct withholding tax procedures.

Pension Income

Subsection 6-5(3) of the ITAA 1997 provides that a non-residents assessable income includes ordinary income directly or indirectly from Australian sources, during the income year.

Statutory income from all Australian sources, or included by a provision on a basis other than having an Australian source, is also included in a non-resident's assessable income under subsection 6-10(5) of the ITAA 1997.

Section 10-5 of the ITAA 1997 lists those provisions about assessable income. Included in this list is section 27H of the ITAA 1936 which provides that annuities and superannuation pensions are included in assessable income.

The Agreements Act must be referred to when considering liability to Australian tax. An article of the Agreement provides that an Australian sourced pension paid to an individual who is a resident of country A shall be exempt from tax in Australia.

In your case, as you are a resident of country A, the pension that you receive from Australia is not assessable under section 6-5 of the ITAA 1997.