Edited version of your written advice

Authorisation Number: 1012882381339

Date of advice: 22 September 2015

Ruling

Subject: Residency

Question and answer

1. Is your salary from your overseas company assessable in Australia?

Yes.

2. Are the bonus payments you received from your company assessable in Australia?

No.

3. Are the dividends you receive from your company assessable in Australia?

No.

4. Is the interest received from Australian deposits assessable in Australia?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a resident of Australia for taxation purposes under domestic law.

You are a resident of country Y for taxation purposes under domestic law.

You are a resident of Country Y under the double tax agreement between Australia and Country Y.

You came to Australia in XXXX.

You were in Australia for more than 183 days in both the financial years.

You have an investor's visa to enter Australia.

You are the sole shareholder, director and president of the overseas company.

You remotely work for the company in Australia.

Your rental property in Australia is used 50% for work purposes carrying out your work for the company from a home office.

Your day to day involvement with the company is carried out in Australia via phone and internet communications.

The business does not require you to be physically present in country Y to do your work.

You intend on returning to country Y periodically to fulfil your company duties.

You are paid a salary from the company.

You received a bonus payment from the company which was paid to you as a shareholder.

You receive dividends from the company.

You receive interest from investments in Australia.

Relevant legislative provisions:

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

Income Tax Assessment Act 1936 Subsection 6(1).

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia.  However, where you are a foreign resident, your assessable income includes only income derived from an Australian source. 

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

The Country Y agreement operates to avoid the double taxation of income received by residents of Australia and Country Y.

Article Z of the agreement between Australia and Country Y considers the assessability of dependant personal services.

Article Z says:

'1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in that other State.

2. Notwithstanding the provisions of paragraph 1, remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the year of income or the taxation year as the case may be, of that other State and either -

(a) The remuneration does not exceed in the said year the greater of the following amounts:

(i) three thousand country Y dollars and

(ii) two thousand six hundred Australian dollars; or

(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of that other State and the remuneration is not deductible in determining taxable profits of a permanent establishment or a fixed base which the employer has in that other State.'

The source of a taxpayer's income is the place where the services are performed: French v. FC of T (1957) 98 CLR 398.

In your case, your salary has an Australian source as you were physically present in Australia during the XXXX and XXXX income years you carry out your day to day work via phone and internet from your home office in Australia.

You can carry out your work anywhere in the world as long as you have a phone and internet.

You were in Australia for more than 183 days in the relevant income years.

Accordingly, your salary is assessable under section 6-5 of the ITAA 1997.'

Bonus payments

Section 6(1) of the ITAA 1936 provides that a dividend includes: 

(a) Any distribution made by a company to any of its shareholders, whether in money or other property; and 

(b) Any amount credited by a company to any of its shareholders as shareholders.  

Subsection 44(1) of the ITAA 1936 provides that the assessable income of a resident shareholder of a company (whether the company is a resident or a non-resident) shall include dividends paid by the company out of profits derived by it from any source.

The bonus payments you received in the XXXX and XXXX income years are dividends as you received the payments as a shareholder.

Article Z1 of the DTA between Australia and Country Y considers the tax treatment of dividends.

Article Z1 says:

1. Dividends paid by a company which is a resident of one of the Contracting States for the purposes of its tax, being dividends to which a resident of the other Contracting State is beneficially entitled, may be taxed in that other State.

The dividends and the bonus payments will only be taxable in Country Y.

Article Z2 considers the assessability of interest.

Article Z2 says:

'1. Interest arising in one of the Contracting States, being interest to which a resident of the other Contracting State is beneficially entitled, may be taxed in that other State.

2. Such interest may be taxed in the Contracting State in which it arises, and according to the law of that State, but the tax so charged shall not exceed 15 per cent'

The interest you receive from deposits in Australia will be taxed in Australia at a rate not exceeding 15%.

The interest from deposits in Country Y will only be taxable in Country Y.