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Edited version of your written advice
Authorisation Number: 1051452739737
Date of advice: 09 November 2018
Ruling
Subject: Foreign source income
Question 1
As a temporary resident will distributions for a Country B based trust be subject to Australian Tax?
Answer
No.
Question 2
As a temporary resident would the transfer of cash to Australia be subject to Australian Tax?
Answer
No.
Question 3
As a temporary resident will gains and income from overseas investments be subject to Australian Tax?
Answer
No.
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
● You hold a temporary Visa granted under the Migration Act 1958.
● You are not an Australia resident within the meaning of the Social Security Act 1991.
● You do not have a spouse.
● You work full time.
● You are not a tax resident anywhere else in the world.
● You lodge your income tax returns as a resident.
● You have lived in Australia since February 20XX.
● In December 20XX your Parent passed away.
● The majority of their assets passed into an overseas based discretionary trust.
● The trust is to be wound up.
● All overseas tax liabilities will be met by the trustees.
● After transferring the assets into your name they will remain overseas.
● At a future point you will look to transfer funds to Australia.
● You intend to apply for a permanent visa.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 995-1
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.
Section 995-1 of the ITAA 1997 defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).
The terms ‘resident’ and ‘resident of Australia’, in regard to an individual, are defined in subsection 6(1) of the ITAA 1936. The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. The tests are:
● the resides test,
● the domicile test,
● the 183 day test, and
● the superannuation test.
If any one of these tests is met, an individual will be a resident of Australia for taxation purposes.
The resides test is the primary test for determining the residency status of an individual. If residency is established under the resides test, the remaining three tests do not need to be considered.
If residency is not established under the resides test, an individual will still be a resident of Australia for taxation purposes if they meet the conditions of one of the other three tests.
The resides test
The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3rd edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; having one's abode for a time', and according to the Compact Edition of the Oxford English Dictionary (1987), is 'to dwell permanently, or for a considerable time, to have one's settled or usual abode, to live in or at a particular place'.
Although the question of whether a person resides in a particular country is a question of fact, the courts have referred to and taken into account various factors considered to be relevant. These are:
● whether the person is physically present in that country at some time during the year of income
● the history of the person's residence and movements
● if the person is a visitor to the country, the frequency, regularity, duration and purpose of the visits
● if the person is outside the country for part of the relevant income year, the purpose of the absences
● the family and business ties which the person has with the particular country, and
● whether a place of abode is maintained by the person in the relevant country or is available for his or her use while there.
Taxation Ruling IT 2650 Income tax: residency – permanent place of abode outside of Australia emphasises the intended and actual length of the individual's stay in an overseas country, any intention to return to Australia or travel elsewhere, the establishment or abandonment of any residence, and the durability of association that the individual maintains with a particular place in Australia as the main factors to be considered when determining the residency status of individuals leaving Australia.
As you are currently living and working in Australia, you meet the requirements of the resides test.
Whilst it is not necessary to meet more than one test to determine residency for tax purposes (we have already established that you are a resident under the ‘resides’ test), we will also include a discussion of the other residency tests for completion.