Edited version of your written advice

Authorisation Number: 1012755096705

Ruling

Subject: Assessability of income

Question 1

Is your income derived during the income years 1 July 200X to 30 June 2013 assessable under the Income Tax Assessment Act 1997?

Answer

For the period 1 July 2008 to 200Y

Yes

For the period 200Y to 30 June 2013

No

This ruling applies for the following periods:

1 July 2008 to 30 June 2013

The scheme commences on:

1 July 2008

Relevant facts and circumstances

You are a citizen of country x.

You migrated to Australia in 200X.

You obtained a permanent resident visa in 200X.

You lived in rented premises when living in Australia.

You returned to country x to live with your spouse in 200Y before the birth of your younger child.

You lived in rented premises in country x with your spouse for the period commencing 200Y.

Between 1 July 200X and 30 June 2013 you received income from the following sources:

• interest from bank savings in Australia

• salary from xxxx that operated in country x

In your income tax returns lodged in Australia for the five income years commencing 30 June 200Y ending 30 June 2013, income disclosed was interest only.

In your income tax returns lodged in country x for the five income years commencing 30 June 200Y ending 30 June 2013, income disclosed was salary only.

You held an Australian driver's license during the relevant periods.

You have held a Medicare card during the relevant periods.

You held bank accounts both in country x and Australia.

You assets in Australia were your bank savings and a motor vehicle.

Relevant legislative provisions

Subsection 6(1) of the Income Tax Assessment Act 1936

Section 6-5 of the Income Tax Assessment Act 1997

Schedule 4 of the International Tax Agreement's Act 1953

Division 770 of the Income Tax Assessment Act 1997

Reasons for Decision

Section 6-5 (2) Income Tax Assessment Act 1997 provides:

(2)  If you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

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

An individual can be a resident of more than one country at the same time.

Resident of Australia

The terms 'resident' and 'resident of Australia' are defined in subsection 6(1) of the Income Tax Assessment Act 1936. So far as an individual is concerned these terms are defined to mean a person:

(a) who resides in Australia and includes a person:

(i) whose domicile is in Australia, unless the Commissioner is satisfied that the person's permanent place of abode is outside Australia;

(ii) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and that the person does not intend to take up residence in Australia; or

(iii) who is a member of the superannuation scheme established by deed under the Superannuation Act 1990

The above definition, in effect, provides four tests to ascertain whether an individual is a resident. These tests are:

• Residency according to ordinary concepts (resides test)

• The domicile test

• The 183 day test

• The superannuation test

The primary test is whether an individual resides in Australia according to the ordinary meaning of the word resides. If an individual qualifies as a resident under the "ordinary concepts" test it will not be necessary to apply any of the more specific tests.

Where an individual does not reside in Australia according to ordinary concepts, he or she may still be considered to be an Australian resident for tax purposes if they satisfy the conditions of one of the three other tests.

The resides test

Liability to tax arises annually and the question where a taxpayer resides must be determined annually according to the facts applicable to the particular year of income under consideration.

The following factors are relevant:

• intention or purpose of presence

• family and business/employment ties

• maintenance and location of assets

• social and living arrangements

• period of physical presence in Australia

Taxation Ruling TR 98/17 provides guidelines for determining the residency status of individuals entering Australia, which include migrants, visitors on holiday, and workers with pre-arranged employment contracts, visiting academics and students studying in Australia.

Paragraphs 15 and 16 provide:

'15. The ordinary meaning of the word 'reside' is wide enough to encompass an individual who comes to Australia permanently (e.g., a migrant) and an individual who is dwelling here for a considerable time.

16. A migrant who comes to Australia intending to reside here permanently is a resident from arrival'

You migrated to Australia and were granted permanent residency in 200X.

Between 1 July 200Z and xx 200Y you were absent from Australia for total of 40 days.

It is considered you satisfy the 'resides test' and were a resident of Australia under the Income Tax Assessment Act 1997 for this period.

You returned to country x in 200Y for the birth of your child.

Between 200Y and 30 June you lived with your spouse and younger child in country x and returned to Australia from time to time.

It is considered that you did not satisfy the 'resides test' for the period after 200Y.

It is therefore necessary to consider if you satisfy the statutory tests for the period 200Y to 30 June 2013.

The domicile test

You are considered to have acquired Australian domicile from the date of your arrival in Australia in 200X.

After 200Y under the 'domicile test', if the Commissioner is satisfied you had a permanent place of abode outside of Australia you will not be a resident of Australia.

It is therefore necessary to determine if you had a permanent place of abode outside Australia.

Permanent place of abode

The expression 'place of abode' refers to a person's residence, where they live with their family and sleep at night. In essence, a person's 'place of abode' is that person's dwelling place or the physical surroundings in which a person lives.

A permanent place of abode does not have to be everlasting or forever. It does not mean an abode in which a person intends to live for the rest of his or her life. An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a permanent place of abode elsewhere.

Taxation Ruling IT 2650 paragraph 23 outlines the elements to be considered when determining whether a person has established a permanent place of abode outside of Australia. The ruling states that all of the circumstances of each case need to be considered and not one factor is determinative. Factors to be considered include:

a) Intended and actual stay overseas

b) Whether the taxpayer intended to stay in the overseas country only temporarily and then to return to Australia at some definite point in time;

c) Intention to stay in one country or move between countries

d) Whether a home has been established outside of Australia

e) The duration and continuity of presence overseas

f) The durability of association with Australia

Taxation Ruling IT 2650 paragraph 26 provides:

Where a taxpayer leaves Australia for an unspecified or a substantial period and establishes a home in another country, that home will represent a permanent place of abode of the taxpayer outside Australia, subject to a consideration of the other factors listed in paragraph 23 above. As a broad rule of thumb, a period of about 2 years or more would generally be regarded by this Office as a substantial period for the purposes of a taxpayer's stay in another country.

The following facts were considered as relevant:

• You acquired Australian domicile when you arrived in Australia in 200X

• You departed Australia in 200Y to live in country x for the birth of your child

• For the majority of each year during the period 200Y to 30 June 2013 you remained in country x with your spouse and younger child

• You lived in rental accommodation in country x with your spouse and younger child

• You returned to Australia from time to time to visit your older child

• Your older child continued live in Australia and to attend school

• You returned to Australia to live permanently in 20XX

It is considered that although you maintained your Australian domicile, you established a permanent place of abode outside Australia in country x for a period commencing on or after 200Y that continued to 30 June 2013.

You do not satisfy the domicile test for the period commencing 200Y.

It is therefore necessary to consider if you satisfy the 183 day test.

The 183 day test

If a person is present in Australia for 183 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 were not present in Australia for 183 days for any of the income years commencing 1 July 200Y.

You do not satisfy the 183 day test for the period from 1 July 200Y to 30 June 2013.

It is therefore necessary to consider the 'superannuation test'.

The Superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person.

You do not satisfy the Superannuation Test

Conclusion

You were a resident in Australia for taxation purposes for the period 1 July 200X to 200Y.

Resident of Country X

You maintained your country x citizenship.

You lodged tax returns for all income years 200X to 2013 in country x in respect of the salary paid to you by the family business operating in country x.

It has been assumed that for the purposes of country x tax you were a resident of country x for the whole of the period 1 July 200X to 30 June 2013.

Double Taxation Agreement

As you were

• a resident of country x during the whole of the period 1 July 200X to 30 June 2013

• a resident of Australia period 1 July 200X to 200Y (under the resides test)

for taxation purposes, you were a resident both of Australia and country x for the period 1 July 200X to 200Y (the relevant period).

A Double Taxation Agreement (DTA) between Australia and Country x commenced xxxx; the DTA contains 'tie-breaker' rules to ensure that a dual resident is treated as a resident of only one of the countries for the purposes of the DTA.

To determine your tax obligations for the relevant period it is necessary to apply the tie breaker test.

Tie Breaker Test

Under this test your habitual abode was in Australia.

You are a resident of Australia for taxation purposes from 1 July 200X to 200Y.

Your worldwide income is therefore taxable in Australia.

Income tax paid in country x on income derived from country x may be offset against your income tax payable in Australia.