Edited version of your written advice

Authorisation Number: 1051366314246

Date of advice: 27 April 2018

Ruling

Subject: International Issues

Question 1

Are you a temporary resident of Australia for income taxation purposes?

Answer

Yes.

Question 2

Is your foreign income and capital gains (apart from income from working overseas for short periods) exempt from tax in Australia?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were born in Country A.

You are a citizen of Country A and Country B.

Your spouse is a citizen of Country A and holds a special category visa, subclass 444.

You arrived in Country C in the winter of 20XX.

You entered Country C on the special category visa, subclass 444.

You are not a Country C resident within the meaning of the Social Security Act 1991.

You were employed in Country C.

You earned interest from a Country C bank account.

You own an investment property in Country B.

You also own an investment property in Country A.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 361

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 118-12

Income Tax Assessment Act 1997 Section 768-910

Income Tax Assessment Act 1997 Section 768-915

Income Tax Assessment Act 1997 Section 768-960

Income Tax Assessment Act 1997 Section 885-10

Income Tax Assessment Act 1997 Section 995-1

Migration Act 1958 Section 32

Reasons for decision

From 1 July 2006, temporary residents will not have to pay tax in Australia on most of their foreign income if they:

● are an individual who is a resident of Australia for tax purposes, and

● satisfy the requirements of being a temporary resident.

Who is a temporary resident?

Under subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a taxpayer is a temporary resident if:

● they hold a temporary visa granted under the Migration Act 1958

● they are not an Australian resident within the meaning of the Social Security Act 1991, and

● their spouse (if applicable) is not an Australian resident within the meaning of the Social Security Act 1991.

You are a temporary resident because:

● you hold a temporary resident visa subclass 444 (special category visa) granted under the Migration Act 1958

● you are not an Australian resident within the meaning of the Social Security Act 1991 because you are not a Country C citizen or hold a permanent residency visa, and

● your spouse is a Country A citizen and is a holder of a special category visa, subclass 444.

Section 768-910 of the ITAA 1997 provides that ordinary income derived from a foreign source; excluding employment related income and capital gains on shares and rights acquired under employee share schemes, is exempt from income tax in Australia when derived by a temporary resident of Australia.

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.

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 Country A 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 excluded from the controlled foreign company rules.