Edited version of your private ruling

Authorisation Number: 1012442903473

Ruling

Subject: Tax offset

Question

Are you entitled to claim a parent tax offset for your spouse's parent?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

Your spouse's parent lodged a PR visa application and moved to live with you.

Your spouse's parent stayed with you for more than six months.

The combined adjusted taxable income of you and your spouse was less than $150,000.

Your spouse's parent's only income is an amount you pay for helping to look after your child.

Only you and your spouse provide support to your spouse's parent.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 159J

Reasons for decision

Subsection 159J(1) of the Income tax Assessment Act 1936 (ITAA 1936) provides that a taxpayer is entitled to a tax offset where, during the income year, he or she contributes to the maintenance of a dependant who is a resident of Australia.

Subsection 159J(2) of the ITAA 1936 states that a parent of the taxpayer, or of the taxpayer's spouse, may be a dependant.

In order to determine your eligibility to claim a parent tax offset under subsection 159J(1) of the ITAA 1936, it is necessary to determine whether your mother-in-law was a resident of Australia during the period of their stay.

'Australian resident' is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a person who is a resident of Australia for the purposes of the ITAA 1936.

Subsection 6(1) of the ITAA 1936 defines a 'resident' or a 'resident of Australia'. The definition provides four tests to ascertain whether a person is a resident of Australia for income tax purposes. These tests are:

(1) Residence according to ordinary concepts (primary test)

(2) Domicile and permanent place of abode test (first statutory test)

(3) 183 day rule (second statutory test)

(4) Commonwealth superannuation test (third statutory test)

If a taxpayer is considered to reside in Australia under the first test, the other tests do not need to be considered.

The circumstances in which an individual entering Australia will be treated as 'residing' here are considered in Taxation Ruling TR 98/17. The ruling provides that individuals who enter Australia and extend their stay beyond six months are regarded as residents from the time of their arrival, as long as their intention and presence has a habitual and routine character during the entire period.

From the information provided, we accept that your spouse's parent is an Australian resident for tax purposes during their stay and that consequently you may be eligible for a tax offset.

However any tax offset is reduced if:

· the dependant's adjusted taxable income (ATI) is $286 or more

· you maintained the dependant for only part of the year

· another person helped you maintain the dependant, or

· the dependant lived in Australia for only part of the year.

In your situation your spouse's parent lived with you, was your dependant and is an Australian resident for tax purposes. Therefore you are entitled to a dependant tax offset for your spouse's parent. However, as the money you give your spouse's parent is ATI, you will need to reduce the tax offset amount to reflect this payment. Additionally, you will need to reduce the tax offset to reflect any time in the income year that your spouse's parent did not live with you.