Edited version of your private ruling

Authorisation Number: 1012502525666

Ruling

Subject: Foreign income exemption for temporary residents

Issue

Question 1

Was the taxpayer a temporary resident of Australia during the relevant period as defined under section 995 -1 of the Income Tax Assessment Act 1997 (ITAA1997)?

Answer

Yes. The taxpayer was a temporary resident during the relevant period as defined by section 995-1.

Question 2

During the relevant period, was the income that the taxpayer derived from overseas assets, i.e. dividends from non-employee shares, non-assessable non-exempt income under paragraph 768-910(1) (a) of the ITAA 1997?

Answer

Yes. The income that the taxpayer derived from overseas assets, i.e. dividends from non-employee shares, was non-assessable non-exempt income under paragraph 768-910(1) (a) of the ITAA 1997.

Relevant facts and circumstances

The taxpayer arrived in Australia under a temporary resident visa granted under the Migration Act 1958 in late 200X.

The taxpayer was granted a temporary visa with a certain subclass number in late 200X and permanent residency sometime in the relevant year.

The taxpayer did not marry or maintain any de facto relationship either in Australia or overseas from the time the taxpayer divorced some years ago.

The taxpayer accumulated assets while residing in an overseas country. The assets include the following:

(a) a residential apartment in an overseas country

(b) shares in an overseas private company

(c) a bond held in an overseas investment trust

(d) cash deposits with an overseas merchant bank

The shares were not issued under any employee share scheme.

There was no disposal of any of these assets during the relevant period.

During the relevant period, the only income the taxpayer derived in the overseas country was the dividends from the shares in the offshore company.

Reasons for decision

Subject: Foreign income exemption for temporary residents

Issue

Question 1

Summary

The taxpayer was a temporary resident of Australia for the relevant period as the taxpayer satisfied the criteria prescribed by section 995-1 of ITAA 1997.

Detailed reasoning

Temporary resident is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997), which prescribes three criteria:

(a) You hold a temporary visa granted under the Migration Act 1958

(b) You are not an Australian resident within the meaning of the Social Security Act 1991; and

(c) Your spouse is not an Australian resident within the meaning of the Social Security Act 1991

In the present case, the taxpayer held a temporary visa granted under the Migration Act 1958, thus satisfying criterion (a).

For criterion (b), under the Social Security Act 1991, an Australian resident is generally a person who resides in Australia and is either an Australian citizen or someone who holds a permanent resident visa, or is a special category visa holder who is a protected SCV holder.

In the present case, the taxpayer arrived in Australia on a temporary visa and obtained Australian permanent residency status in the relevant year. The taxpayer was not an Australian citizen nor held a permanent resident visa, nor a special category visa nor a protected SCV during the relevant period.

For criterion (c), the taxpayer stated that they had no spouse and did not maintain a de facto relationship during the relevant period.

Accordingly, the taxpayer was a temporary resident of Australia during the relevant period as he/she satisfied all the criteria prescribed by section 995-1.

Question 2

Summary

The dividends the taxpayer derived from the non-employee shares in the overseas country were non-assessable non-exempt income during the relevant period pursuant to paragraph 768-910(1)(a), as the taxpayer was a temporary resident when they derived the dividends.

Detailed reasoning

Section 6-5 of ITAA 1997 provides that where a taxpayer is a resident of Australia for taxation purposes, their assessable income includes income derived from all sources, whether in or out of Australia during the income year.

However, where a taxpayer is a foreign resident (non resident) for taxation purposes, their assessable income includes only income derived from an Australian source.

Subdivision 768-R of the ITAA 1997 provides that where a taxpayer meets the requirements to be a temporary resident of Australia they will be subject to the temporary resident rules prescribed by section 768-910 and section 768- 915 of the ITAA 1997.

Section 768-910 provides that any income that a taxpayer derives from an overseas source will be non-assessable non-exempt income, except income earned from employment undertaken or services provided overseas while a taxpayer is a temporary resident.

It was concluded in Question 1 of this report that the taxpayer was a temporary resident of Australia. In addition, the taxpayer received dividends from the shares held in an overseas private company within the relevant period of this ruling. These dividends were ordinary income that the taxpayer derived directly from a non-Australian source while they were a temporary resident of Australia. Pursuant to paragraph (a) of subsection 768-910(1), this is non-assessable non-exempt income. Therefore, these dividends were not assessable in Australia.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1997 section 768-910

Income Tax Assessment Act 1997 section 768-915

Income Tax Assessment Act 1997 section 768-960

Migration Act 1958 subsection 30(2)

Social Security Act 1991 subsection 7(2)