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Edited version of your private ruling
Authorisation Number: 1012108818580
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Ruling
Subject: Residency and double tax agreements
Questions and answers:
Will you be a resident of Australia for income tax purposes once you leave Australia permanently?
No.
Will the pension that you receive from an Australian superannuation fund assessable in Australia once you leave Australia permanently?
No.
Are you required to lodge an income tax return annually once you leave Australia permanently?
Not applicable.
How do you ensure that you are taxed correctly?
Not applicable.
Will the rate of tax change once you reach 60 years of age?
Not applicable.
What would be the impact if you were to surrender your Australian citizenship?
Not applicable.
This ruling applies for the following periods:
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
The scheme commenced on:
1 July 2012
Relevant facts
You were born in country Z and are a citizen of both Australia and country Z.
You intend to leave Australia to live in country Z.
You plan to return to Australia for a short holiday sometime in the future.
You are in the process of disposing of your family home.
The only other asset that you have in Australia is a bank account.
You do not own any assets overseas.
You were employed by the Australian Public Service for a number of years.
You are in receipt of a government superannuation pension.
Your pension is being paid into you Australian bank account.
When you arrive in country Z you plan to live with a sibling for a short time while you search for a home to purchase.
You intend to seek part time employment in country Z.
You have an independent child who will remain in Australia.
You have no sporting or social ties in Australia or overseas.
You intend to live in country Z permanently.
Relevant legislative provisions
Income Tax Assessment Act 1997, Subsection 995-1(1).
Income Tax Assessment Act 1936, Subsection 6(1).
Income Tax Assessment Act 1936, Subsection 6-5(3).
Reasons for decision
An Australian resident for tax purposes is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to be a person who is a resident of Australia for the purposes 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 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 satisfy 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 it 2650: Residency - permanent place of abode outside Australia, provide guidelines for determining whether individuals who leave Australia temporarily to live overseas, for example, on temporary overseas work assignments or on overseas study leave, cease to be Australian residents for income tax purposes during their overseas stay.
The principles and guidelines adopted in IT 2650 can also be used for individuals who intend to reside overseas indefinitely. Paragraph 19 of IT 2650 states:
The first question to be asked in considering the residency status of a person temporarily leaving Australia is whether he or she can be considered to reside in Australia. If the test of residence according to ordinary concepts is satisfied, there is no need to go any further. The person is a resident of Australia for income tax purposes.
In your case, you in intend to depart Australia and move to country Z permanently. As you will be moving to country Z permanently, you will not be considered to be residing in Australia. Accordingly, you will not be residing in Australia and so are not a resident for taxation purposes under the 'resides test'.
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.
A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. In order to show that an individual's domicile of choice has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country. From the information that you have provided, when you arrived in Australia your domicile of choice became Australia as you were a citizen of Australia. However when you return to country Z to live permanently your domicile of choice will revert back to country Z as you are also a citizen of the country Z.
Therefore, when you move to country Z permanently you will not be a resident for taxation purposes under the 'domicile test'.
The 183-day test
Where a person is present in Australia for more than183 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.
Once you depart Australia you will not be Australia for a period greater than 183 days, therefore you will not be considered to be a resident of Australia for income tax purposes under this test.
Accordingly, you will not be a resident of Australia for income tax purposes under 'the 183-day test'.
The Superannuation test
An individual is considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Service Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person. Generally Commonwealth Government employees are eligible to contribute to the PSS or CSS.
As you are over the age of 16 years and are no longer a contributing member a government superannuation scheme you will not be a resident of Australia under this test.
Accordingly, you will not be a resident of Australia under 'The Superannuation Test'.
Your residency status
As you are not a resident of Australia under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, you are not an Australian resident for income tax purposes.
Australian sourced income
Subsection 6-5(3) of the ITAA 1997, operates to include in the assessable income of a non-resident, all income derived from an Australian source. This includes Australian sourced superannuation pensions.
You are in receipt of an Australian sourced superannuation pension. As the pension is Australian sourced it will be assessable in Australia 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.
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 Z Agreement is listed in section 5 of the Agreements Act.
The country Z agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The country Z agreement operates to avoid the double taxation of income received by residents of Australia and country.
Article 17 of the country Z advises that pensions and annuities paid to a resident of country Z shall only be taxable in country Z.
Accordingly, the pension that you receive from the CSS is exempt from taxation in Australia and will only be subject to taxation laws in country Z.