Edited version of your private ruling

Authorisation Number: 1012222427198

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Ruling

Subject: Residency and assessability of income

Question 1:

Are you a foreign resident of Australia for taxation purposes?

Answer:

Yes.

Question 2:

Is your Australian sourced income assessable in Australia?

Answer:

Yes.

Question 3:

Is your foreign sourced income assessable in Australia?

Answer:

No.

This ruling applies for the following periods:

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commences on:

1 July 2011

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 are an Australian citizen.

You went to xx on a working holiday visa in a previous financial year to be with your partner.

You were granted an extension to your visa.

You are unsure of where you would like to settle. It all depends on whether or not your partner can get an Australian visa.

You were living in xx at the end of the financial year.

You have just moved into a rental property with your partner, your lease is for a year and you may be able to extend this for a further year if you are happy there and decide to stay.

Prior to your current rental you lived in another rental property (and briefly lived with your partner's parents).

You and your partner intend on moving back to Australia however you are unable to say with any certainty when this will be.

You have not returned to Australia since you left for xx, this is mainly due to the difficulty in getting time off from your freelance work.

You work full time for an Australian company. However you have spoken to them and they have agreed to change your working relationship to one that is either part time or on a freelance basis, this change in relationship is in the process of occurring. You are also considering resigning from this position.

You do freelance work for a number of Australian companies. You are considering looking for full time work in xx if freelancing does not work out for you.

All of your bank accounts are in Australia

You hold a number of shares in Australia.

Your parents and family live in Australia.

Before you left Australia you were renting an apartment in Australia for a period.

You are a member of a number of Australian online groups based on your creative background and are an avid AFL supporter; you pay a subscription to watch games live on the internet from xx.

You have signed up to an online forum in xx where ex-pats meet and organise social gatherings, you have attended a number of organised gatherings.

You have worked for a State Government but have not ever been a Federal government employee.

Your partner is not an Australian citizen and does not hold permanent residency in Australia.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 995-1(1).

Income Tax Assessment Act 1936 Subsection 6(1).

International Tax Agreements Act 1953 section 4

International Tax Agreements Act 1953 section 11G

Income Tax Assessment Act 1997 Subsection 6-5(2)

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Residency

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.

The definition offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the:

· resides test;

· domicile and permanent place of abode test;

· 183 day test; and

· Commonwealth superannuation fund test.

The primary test for deciding the residency status of each individual is whether they reside 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 resides test

The resides test considers whether an individual is residing in Australia according the ordinary meaning of the word. According to the Macquarie Dictionary to reside is 'to dwell permanently or for a considerable time; having one's abode for a time'.

You left Australia in a previous financial year to live in xx and do not know when you will return to Australia. As you are living and working in xx, you are not considered to be residing in Australia so are a foreign resident for taxation purposes under this test.

The domicile/permanent place of abode 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 your case although you are currently living outside Australia you intend to return at some point and you are an Australian citizen. Therefore you retain your Australian domicile.

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. 

The following factors are used to determine if a person has established a permanent place of abode:

(a)  the intended and actual length of the taxpayer's stay in the overseas country;

(b)  whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time;

(c)  whether the taxpayer has established a home outside Australia;

(d) whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;

(e) the duration and continuity of the taxpayer's presence in the overseas country; and

(f)  the durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

In applying the factors to your circumstances:

· You and your partner have been in x since a previous financial year and intend to stay until you both agree it is the right time to return to Australia to live.

· When you left Australia it was with the intention to live in xx with your partner until you either had to leave as your visa expired or you decided to return to Australia. You have applied for and were granted an extension on your original visa.

· You have established a home in xx. Your current rental lease is for about 12 months and you may be able to extend this.

· You do not own any property in Australia that you intend to return to when you decide to return to Australia. You were living in a rental apartment in Australia prior to moving to xx.

· You have been in xx for over 12 months and have not left since you arrived.

· You have bank accounts in Australia, hold Australian shares and your parents and family live in Australia.

Applying the factors to your circumstances, the Commissioner is satisfied that you have established a permanent place of abode outside of Australia and therefore you are a foreign resident of Australia for taxation purposes under this test.

The 183-day test  

Where a person is present in Australia for 183 days or more 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 have not been or do not expect to be in Australia for 183 days or more during an income year covered by this ruling. Therefore you are not an Australian resident under the 183- day test. 

The superannuation test 

An individual is still considered to be a resident if that person is eligible to contribute to the PSS or the CSS, or that person is the partner or child under 16 of such a person.  To be eligible to contribute to those schemes, you must be or have been a Commonwealth Government employee.

This test does not apply to you as you are over 16 years of age and at no stage were you a Commonwealth (Australian) government employee and therefore eligible to contribute to these superannuation funds. Your partner is not an Australian citizen and does not have Australian permanent residency. Accordingly, they are ineligible to work for the Commonwealth (Australian) Government and could not contribute to these superannuation funds.

Your residency status

You are a foreign resident of Australia as you have not passed any of the tests for residency as outlined in section 6-1 of the ITAA 1936 and section 995-1(1) of the ITAA 1997.

Taxation liability in Australia

Section 6-5(2) of the ITAA 1997 states that if you are a foreign resident, your assessable income includes income you derive from Australian sources during the income year. This also means that income from foreign sources earned by foreign residents is not assessable in Australia.

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 (DTAs).

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).

The xx Agreement (the Agreement) has the force of the law under section xx of the Agreements Act. The Agreement operates to avoid the double taxation of income received by residents of Australia and xx.

Article xx of the Agreement deals with the receipt of Australian source dividend income by a person living in xx. The article states that Australia may tax the dividend at a rate not exceeding x of the gross amount of the dividends.

Article xx of the Agreement deals with interest income in the same way as article xx deals with dividend income, however the rate for interest income is xx of gross amount of the interest.

What this means for you

The Agreement means that your dividend and interest income are assessed at foreign resident withholding tax rates. As this should have already occurred at the source (provided you have given an overseas address to the relevant companies and financial institutions), you are not required to lodge an income tax return unless you have earned other Australian sourced income during the income year.

The income that you have earned from work undertaken in XX would not be Australian sourced income even if you are paid by an Australian company. The source of income is taken from where the work is undertaken rather than from where the payment is made.