Edited version of your written advice

Authorisation Number: 1012708098357

Ruling

Subject: Residency and assessability of salary continuance payments

Questions and answers:

1. Are you a resident of Australia for taxation purposes?

No.

2. Are your salary continuance payments assessable in Australia?

No.

This ruling applies for the following period:

1 July 2013 to 30 June 2015.

The scheme commenced on:

1 July 2013.

Relevant facts and circumstances:

You were born in Country A.

You have dual citizenship with Country A and another country.

You came to Australia several years ago on a temporary visa.

You left Australia and returned to Country A.

You are receiving salary continuance payments from an Australian source.

You have family in Australia and in Country A.

Since you left Australia you have had several trips back to Australia to visit your family.

You have stayed with friends or in holiday type accommodation during your return visits to Australia.

You sold all your possessions before you left Australia and you have no significant assets in Australia or in Country A.

You have never been employed by the Commonwealth of Australia.

You were not in Australia for more that 183 days in the financial year ending 30 June 2014.

You don't think you will be in Australia for more than 183 days in the financial year ending 30 June 2015.

Since returning to Country A you have been a resident of that country for taxation purposes.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5.

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

Income Tax Assessment Act 1936 Section 6(1).

Reasons for decision

Assessable income - general

Under the provisions of section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) the assessable income of an individual who is a resident of Australia for taxation purposes includes the ordinary income they earn from all sources, in or out of Australia. Conversely, only ordinary income from an Australian source is included in the assessable income of an individual who is a non-resident of Australia for taxation purposes.

Although a payment may be considered ordinary income and will generally be assessable in Australia under the provisions of section 6-5 of the ITAA 1997, there are some instances where this may not be the case. For example, when an individual receives income from an Australian source but is living in an other country, the provisions of any double tax agreement (DTA) between Australia and the country the person is living in need to be considered. In such cases, the DTAs usually specify which country has taxing rights over the income.

Therefore, there are several issues to be determined when considering whether or not payments from an Australian source to an individual residing in another country are assessable in Australia. These are:

• whether or not the income is ordinary income and assessable under the provisions of section 6-5 of the ITAA 1997,

• the residency status of the individual for taxation purposes, and

• the impact of any applicable double tax agreement on the assessability of the income.

Income status of salary continuance payments

Income received in the form of salary continuance payments is ordinary income and generally assessable under the provisions of section 6-5 of the ITAA 1997.

Residency for taxation purposes

Section 995-1 of the ITAA 1997 defines an Australian resident for tax purposes as 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. The tests are:

• the resides test,

• the domicile test,

• the 183 day test, and

• the superannuation test.

If any one of these tests is met, an individual will be a resident of Australia for taxation purposes.

The resides test is the primary test for determining the residency status of an individual for taxation purposes. If residency is established under the resides test, the remaining three tests do not need to be considered. However, if residency is not established under the resides test, an individual will still be a resident of Australia for taxation purposes if they meet the conditions of one of the other three tests.

The resides test

The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'. As the word 'reside' is not defined in Australian taxation law, it takes it's ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936.

In Dempsey and Commissioner of Taxation [2014] AATA 335 (29 May 2014) the Administrative Appeals Tribunal noted that the settled position of the courts (at ultimate appellant level) as to the meaning of the word 'reside' in the ITAA 1936 is that the word:

bears its ordinary English meaning, which 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".

Based on the facts of your case, you cannot be said to have been residing in Australia according to the ordinary meaning of the word since you left Australia.

The domicile test

Under this test, a person whose domicile is in Australia will be considered a resident of Australia for taxation purposes, unless the Commissioner is satisfied the person's permanent place of abode is outside Australia.

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. A person's domicile of origin will not usually change, but can in some circumstances. For example, a person can acquire a domicile in another country by choice.

In order to acquire a new domicile by choice, a person must have an intention to make their home indefinitely in a country outside their domicile of origin. Sufficient proof of such an intention is considered to exist in cases where a person is granted permanent residency, or becomes a citizen of a country outside of their domicile of origin.

Your domicile of origin is Country A and although you resided in Australia for several years, it cannot be said that you ever obtained a new domicile of choice in Australia. Notably, you have given no indication that you sought to become a citizen of Australia during the time you were here and you were only in Australia under a temporary resident visa.

As you do not have an Australian domicile you are not a resident of Australia under this test and there is no need to consider whether or not you have a permanent place of abode outside Australia.

The 183-day test

Under this test, a person who is in Australia for 183 days (not necessarily consecutively) during an income year may be considered a resident of Australia for taxation purposes, unless the Commissioner is satisfied the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

You were not in Australia for more than 183 days in the financial year ended 30 June 2014 and you do not anticipate being in Australia for more than 183 days in the financial year ending 30 June 2015. As a result, and based on the facts you have provided, you were not a resident of Australia for taxation purposes under this test in the year ended 30 June 2014 and will not be a resident of Australia for taxation purposes under this test in the year ending 30 June 2015.

The superannuation test

Based on the facts you have provided, the Commonwealth superannuation test does not apply to you and you are not a resident of Australia for taxation purposes under this test.

The impact of the double tax agreement between Australia and New Zealand on the assessability of salary continuance payments made by an Australian superannuation fund to an individual living in New Zealand

As indicated above, salary continuance payments are ordinary income and will generally be assessable in Australia under the provisions of section 6-5 of the ITAA 1997, regardless of whether the recipient is a resident or non-resident of Australia for taxation purposes.

However, and also as indicated above, where an individual is receiving a payment from Australia but is residing in another country, the application of any DTA between Australia and the other country needs to be considered to determine which country has taxing rights over the payments.

Australia has a DTA with Country A.

When examining the application of any of Australia's DTAs it is necessary to establish how the payments being received by the taxpayer are categorised for the purposes of the DTAs.

The Commissioner has issued Taxation Determination TD 93/151 - Income tax: are periodic workers' compensation payments made by Comcare, 'pensions' for purposes of the pensions articles in Australia's double taxation agreements (DTAs)?

Paragraph 1 of Taxation Determination TD 93/151 states that a pension is defined in The Macquarie Dictionary, 2001, 3rd edn, The Macquarie Library Pty Ltd, NSW as: '1. a fixed periodical payment made in consideration of past services, injury or loss sustained, merit, poverty etc. 2. an allowance or annuity.'

The meaning of the term 'pension' was also considered by Hill J. in the Federal Court in Tubemakers of Aust Ltd v. FC of T 93 ATC 4207; (1993) 25 ATR 183. His Honour concluded that the essential characteristic of a pension is only that there be periodical payments.

We consider the salary continuance payments you are receiving are similar to the Comcare payments referred to in TD 93/151 in that they are fixed periodical payments made in consideration of injury or loss sustained. As such those payments are considered to be a pension for the purposes of the DTA with Country A.

Article 18 of the DTA with Country A deals with the taxation treatment of pensions. It provides that pensions sourced in Australia and paid to a resident of Country A may only be taxed in Country A.

Article 4 of the DTA with Country A deals with residence and provides that a person is a resident of Country A for the purposes of the DTA with Country A if they are liable to tax as a resident of Country A.

You have stated that you have been a resident of Country A for taxation purposes since you returned there.

Accordingly, the salary continuance payments you receive on a monthly basis from an Australian source may only be taxed in Country A since you returned there and will not be assessable in Australia while you remain a resident of Country A.

Conclusion

Based on the facts you have provided:

• you were not a resident of Australia for taxation purposes in the financial year ended 30 June 2014,

• you will not be a resident of Australia for taxation purposes in the year ended 30 June 2015, and

• the salary continuance payments you receive on a monthly basis from an Australian source may only be taxed in Country A since you returned there and will not be assessable in Australia while you remain a resident of Country A.