Edited version of your private ruling

Authorisation Number: 1012446514563

Ruling

Subject: Residency and departing Australia superannuation payment

Questions and answers:

1. Are you a resident of Australia for income tax purposes?

No.

2. Will your superannuation scheme lump sum payment be subject to Australian withholding tax?

Yes.

This ruling applies for the following period:

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commenced on

1 July 2011

Relevant facts

You were born in the country B and migrated to country S when you were a minor.

Shortly after, you became a citizen of country S.

You have an ex-spouse and a number of children.

You and your family immigrated to Australia.

The purpose of your migration to Australia was to allow you to for-fill a fixed term contract with an Australian employer.

After a period, you and your family became citizens of Australia.

After a short period on the completion of your contract, you and your family returned to country S permanently.

During the period that you lived in Australia you remained a citizen of country S.

You have not returned to Australia since your departure.

On return to country S you gained fulltime employment.

The only asset that you hold in Australia is your superannuation account.

All of your assets including your home are located in country S.

You do not have sporting or social ties in Australia.

Your social, work, family and financial interests are all based in country S.

Since leaving Australia you have resided permanently in country S.

You were a member of an Australian superannuation Scheme, while employed in Australia. However, when your employment concluded you ceased to be a contributing member.

Once you reach the age of 60 you wish to cash out your Australian superannuation account.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(3).

Income Tax Assessment Act 1997 Section 6-5.

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

Income Tax Assessment Act 1936, Subsection 6(1).

Income Tax Assessment Act 1997 Section 301-170

Income Tax Assessment Act 1997 Section 301-175

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 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. 3^rd 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.

You left Australia to return to country S permanently and have not returned to Australia since your departure. Accordingly, you have not resided in Australia since your departure and so are not a resident for taxation purposes under the 'resides test'.

The domicile test

If a person is has their domicile in Australia they will be 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.

You were born in country B and migrated to country S and gained country S citizenship, therefore electing country S as your domicile of choice. After a period you moved to Australia and became an Australian citizen, therefore adopting Australia as your domicile of choice. When you left Australia and returned to country S permanently, you re-elected country S as your domicile of choice. Therefore your domicile of choice since your departure from Australia is country S.

As your domicile is not Australia you are not a resident of Australia for taxation purposes under 'the domicile test' from the date that you departed Australia.

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.

You have not returned to Australia since departing Australia, therefore you are not a resident of Australia for income tax purposes under this test from the date of your departure.

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.

When you were employed with an Australian employer you became a member of an Australian superannuation fund. However when you completed your employment your Australian employer you ceased to be a contributing member.

Therefore as you ceased to be a contributing member, you are not 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 from the date that you departed Australia.

Assessability of lump sum payment

Subsection 6-5(3) of the ITAA 1997 provides that ordinary income derived by a foreign resident directly or indirectly from Australian sources is assessable in Australia.

Departing Australia Superannuation Payment (DASP)

Under section 301-170 of the ITAA 1997, a superannuation lump sum is a departing Australia superannuation payment (DASP) if it;

1. is paid to a person who has departed Australia; and

2. is paid:

a. in accordance with regulations under the Superannuation Industry (Supervision) Act 1993 or the Retirement Savings Accounts Act 1997 that are specified in regulations made for the purposes of this definition; or

b. in accordance with section 67A of the Small Superannuation Accounts Act 1995; or

c. by an exempt public sector superannuation scheme (within the meaning of section 10 of the Superannuation Industry (Supervision) Act 1993) and is made in accordance with rules of the fund that are substantially similar to the regulations specified as mentioned in subparagraph (i).

Under subsection 301-175(1) of the ITAA 1997, if you receive a superannuation benefit that is a DASP, the benefit is not assessable income and is not exempt income. Although DASP's are not subject to Australian income tax, they are subject to a final withholding tax under subsection 301-175(2) of the ITAA 1997 and by the Superannuation (Departing Australia Superannuation Payments Tax) Act 2007.

From the information that you have supplied when you receive your Australian sourced superannuation payout you will be in receipt of a DASP. As the payment is a DASP it is not subject to Australian income tax under subsection 301-175(1) of the ITAA 1997, however the payment is subject to a final withholding tax under subsection 301-175(2) of the ITAA 1997 and under Superannuation (Departing Australia Superannuation Payments Tax) Act 2007.

The withholding tax rates that are applicable on DASP's from the 1 April 2009 are as follows;

· On tax free component - Nil

· On the element taxed in the fund - 35%

· On the element untaxed in the fund - 45%

Double tax agreement

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 S Agreement is listed in section 5 of the Agreements Act.

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

There are no specific articles in the country S convention that deal with a DASP.

Article Z of the country S convention provides that items of income not specifically mentioned in the Convention that are derived from Australian sources maybe taxed in Australia and country S.

As a DASP is not specifically mentioned in the country S convention, it is subject to Australian taxation under article Z of the country S convention, and subsequently subsection 301-175(2) of the ITAA 1997 and under Superannuation (Departing Australia Superannuation Payments Tax) Act 2007.

Relief from double taxation

Subparagraph (2)(a) of Article Y of the country S convention deals with the relief of double taxation and provides that, subject to the provisions of the law of country, a credit for any tax paid in Australia will be allowed against country S tax payable on income from Australian sources.

Therefore, you may be entitled to a credit from the country S Authorities for any tax withheld in Australia with regards to your DASP.