Edited version of private advice

Authorisation Number: 1051441272638

Date of advice: 30 October 2018

Ruling

Subject: Residency

Question

Will my income, derived from my business in Country A, be taxed under Australian law while I live and work in Country A but remain an Australian permanent resident (under Immigration law)?

Answer

No

Question

Will dividends from shares I own in a company in Country A be taxed under Australian law?

Answer

No

Question

Will capital gains from non-Australian assets be taxed under Australian law during the period that I live and work in Country A?

Answer

No

Question

Will a private limited company established in Country A, with shares owned by myself and my spouse, be taxed under Australian law while I live and work in Country A?

Answer

Invalid

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20YY, and

Year ending 30 June 20ZZ

The scheme commences on:

Spring 20AA

Relevant facts and circumstances

You will shortly be issued an Australian corporate sponsored permanent residency visa for Australia.

You will be moving to Country A to start a business there with your spouse. This business will be a private company with shares owned 50% by you and 50% by your spouse. All business activities will take place outside Australia.

Your spouse does not hold an Australian visa, nor does your spouse work in Australia.

You may return to Australia in about X years to commence your taxation residency, although the exact date of return is uncertain at this point in time. During your absence from Australia you will live and work in Country A and will have no employment or other business income in Australia.

Neither you nor your spouse has ever been employed by the Australian Commonwealth government and neither belongs to any Commonwealth superannuation scheme such as CSS or PSS.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 6(1)

Taxation Administration Act 1953 paragraph 388-50(1)(b)

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.

The terms 'resident' and 'resident of Australia', in regard to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are:

·         the resides test,

·         the domicile test,

·         the 183 day test, and

·         the superannuation test.

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides. However, where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.

Resides Test

The outcomes of several Administrative Appeals Tribunal (AAT) cases have determined that the word 'resides' should be given the widest meaning and there have been a number of factors identified which can assist in determining if a particular taxpayer is a resident of Australia under this test.

The Courts and the Tribunal have generally taken into account the following eight factors in considering whether an individual is an Australian resident according to ordinary concepts in an income year:

·         Physical presence in Australia;

·         Nationality;

·         History of residence and movements;

·         Habits and 'mode of life'

·         Frequency, regularity and duration of visits to Australia;

·         Purpose of visits to or absences from Australia;

·         Family and business ties with Australia compared to the foreign country concerned; and

·         Maintenance of a place of abode.

These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in IT 2650 and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.

It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances.

In Landy v FC of T 2016 ATC 10-435;[2016] AATA 754, the taxpayer took on a supervisory role at an oilfield in Oman that lasted 21 months. On or before departure, he cancelled his Medicare, notified his private health insurance fund, requested his name be removed from the electoral roll and completed an outgoing passenger card indicating that he was leaving Australia permanently. However, throughout his employment in Oman he financially supported his wife in Australia, garaged his two motor vehicles at her home, maintained a joint bank account with his wife, maintained his offices as director and secretary of an Australian company (his wife being the other director and shareholder) and resumed living with his wife on his return. The AAT found that the taxpayer's lack of severance of connections with Australia, and the lack of establishment of enduring and lasting living ties with Oman, required a conclusion that the taxpayer had not ceased to be a resident of Australia as ordinarily understood.

In your case, you are a citizen of Country B who departed Australia in winter 2018 with the intention of residing overseas permanently.

You departed Australia to join your husband in Country A where you occupied your newly established abode.

You are not a resident for tax purposes under the resides test after departure. Before this date you are considered to have maintained an enduring association with Australia as you had an abode in Australia which continued to be occupied by yourself.

The domicile test

Under the domicile test, a person is a resident of Australia if their domicile is in Australia unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

Domicile

"Domicile" is a legal concept to be determined according to the Domicile Act 1982 and common law rules. A person's domicile is in their country of origin unless they acquire a different domicile of choice or operation of law. To obtain a different domicile of choice, a person must have the intention to make their home indefinitely in another country, usually done by obtaining a migration visa. The domicile of choice which a person has at any time continues until that person acquires a different domicile of choice.

In your case, you are a citizen of Country B. You applied for permanent residency in Australia and anticipate receiving this visa shortly. You have chosen to live in Country A for the next few years.

You are regarded as not having an Australian domicile and are therefore not an Australian resident under this test.

The 183 days test

Where 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.

In your circumstances you have not travelled to Australia for visits after your departure in. You are not a resident for tax purposes under this test.

The superannuation test

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

You are not a contributing member of the PSS or the CSS or a spouse of such a person, or a child under 16 of such a person. You are not a resident for tax purposes under this test.

Residency status

As you satisfy none of the four tests of residency outlined in subsection 6(1) of the ITAA 1936, you are not a resident of Australia for income tax purposes from your date of departure.

Reasons for decision - Income, Dividends and Capital Gains

As a non-resident for taxation purposes you are only required to declare income earned in Australia. Therefore your income, dividends and any capital gains earned outside Australia would not be declarable in Australia and would not be taxable under Australian law.

Reasons for decision - Company

As this ruling addresses concerns of a private taxpayer it cannot also address a question or questions about an unrelated party - in this case a separate company. Accordingly this question is invalid.

This application includes no details of the entity and hence a ruling cannot be prepared.

An application for a private ruling must contain a declaration signed by the taxpayer or their agent (paragraph 388-50(1)(b) Taxation Administration Act). We may however treat applications from non-agents that do not contain a declaration as valid if they contain the taxpayer's signature.

A company can apply for a ruling both on its own behalf and on behalf of someone else. A representative of the company must sign a corporate application.

We accept ruling requests from a wide variety of corporate officers including -

·         Company accountants and lawyers

·         Financial officers

·         Payroll officers

·         Directors

·         Public Officers

Should the company director(s) wish to lodge an application for a ruling such a request would be addressed as a separate ruling.