Edited version of your written advice

Authorisation Number: 1012745807892

Ruling

Subject: Temporary resident visa

Question and Answer

As a taxpayer present in Australia on a temporary resident visa, are you a temporary resident as defined by subsection 995-1(1) of the income Tax assessment Act 1997?

Yes

As a temporary resident are you required to include amounts of income from foreign sources in your Australian assessable income after 1 July 2006?

No

As a temporary resident are you an attributable taxpayer in relation to a controlled foreign company?

No

This ruling applies for the following period

Financial year ended 30 June 2007

Financial year ended 30 June 2008

Financial year ended 30 June 2009

Financial year ended 30 June 2010

Financial year ended 30 June 2011

Financial year ended 30 June 2012

Financial year ended 30 June 2013

Financial year ended 30 June 2014

The scheme commences on

1 July 2006

Relevant facts and circumstances

You and your spouse moved to Australia in 200X.

Neither you or your spouse are Australian citizens.

You and your spouse remain in Australian under a temporary resident visa.

You own more than 10% of shares in a non-resident company.

The company has disposed of capital assets since you moved to Australia.

The company has derived income since you moved to Australia.

Relevant legislative provisions

Section 361 of the Income Tax Assessment Act 1936

Section 8-1 of the Income Tax Assessment Act 1997

Section 118-12 of the Income Tax Assessment Act 1997

Section 768-910 of the Income Tax Assessment Act 1997

Section 768-915 of the Income Tax Assessment Act 1997

Section 768-960 of the Income Tax Assessment Act 1997

Section 885-10 of the Income Tax Assessment Act 1997

Section 995-1 of the Income Tax Assessment Act 1997

Section 32 of the Migration Act 1958

Reasons for decision

Income derived by a temporary resident

Effective from 1 July 2006, section 768-910 of the ITAA 1997 makes ordinary and statutory income derived by a temporary resident from a source other than an Australian source non-assessable non-exempt income.

Who is a temporary resident?

A temporary resident is a person who satisfies three tests (definition of "temporary resident", s 995-1(1)). The person:

1. must hold a temporary visa granted under the Migration Act 1958

2. must not be an Australian resident within the meaning of the Social Security Act 1991, and

3. must not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991.

This means that a person who is, or whose spouse is, an Australian resident (as defined in the Social Security Act 1991) is not entitled to the temporary residents' exemption. In that Act, an Australian resident is defined as a person who resides in Australia and is an Australian citizen, the holder of a permanent visa or a protected special category visa holder. You hold a temporary visa, you are not an Australian citizen and neither is your spouse.

Income of a temporary resident that is made non-assessable non-exempt income

From the 2006/07 income year, amounts are non-assessable non-exempt income if they are:

• ordinary income derived directly or indirectly from a source other than an Australian source by a person who is a temporary resident when the income is derived, or

• statutory income, other than a net capital gain, derived from a source other than an Australian source by a person who is a temporary resident when the income is derived (section 768-910(1)).

Section 768-910(1) has effect subject to section 768-910(3) which provides that some amounts derived by a temporary resident are not non-assessable non-exempt income. These are amounts relating to employment or services performed by the temporary resident (see "Income that is not made non-assessable non-exempt income" below). This does not apply to your non-employment income from a company.

Capital gains and losses of a temporary resident may be disregarded under section 768-915 provided you are a temporary resident when the sale of the assets occurred and you would otherwise not be deemed to have made a capital gain under Division 885 which deals with foreign residents becoming Australian residents.

Consequences of the income being non-assessable non-exempt income

The consequences of your non-employment in the foreign country income being non-assessable non-exempt income are:

• no tax liability arises from the derivation of the income

• outgoings incurred in deriving the income are not deductible (section 8-1(2)(c))

• capital gains and losses do not generally arise on the disposal of an asset that is used only to produce non-assessable non-exempt income (section 118-12(1)), and

• the income is not counted in reducing prior year losses that can be deducted in the current year or in reducing tax losses carried forward to later years.

Attributable taxpayer in relation to a controlled foreign company

A resident taxpayer who represents a personal interest in a foreign resident company greater than 10% is an attributable taxpayer [section 361 of the Income Tax Assessment Act 1936 (ITAA 1936)]. You have indicated that your personal interest in the foreign resident company is greater than 10%.

As a temporary resident, you are not an attributable taxpayer as temporary residents are excluded from the definition of attributable taxpayer for the income years commencing on or after 1 July 2006 (section 768-960 of the ITAA 1997). Therefore as a temporary resident your interests in the non-resident company are specifically excluded from the controlled foreign company rules.