Edited version of private advice

Authorisation Number: 1051832201523

Date of advice: 24 June 2021

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for tax purposes as defined by subsection 6(1) of the Income Tax Assessment Act 1936 for the period of this ruling?

Answer

Yes

Question 2

Are you a resident of Australia and the Country A for the purposes of Article 4(3) of the Country A Convention?

Answer

Yes

Question 3

Do you have a permanent home available to you in both Australia and the Country A under Article X of the Country A Convention?

Answer

Yes

Question 4

Are your personal and economic relations closer to the Country A and not Australia under Article X of the Country A Convention?

Answer

Yes

Question 5

Does Article X of the Country A convention determine that you a resident of the Country A for the application of the Country A Convention?

Answer

Yes

Question 6

Are you assessable on non-Australian rental income?

No

Question 7

Are you assessable on non-Australian dividend income?

Answer

No

Question 8

Are you assessable on non-Australian interest income?

Answer

No

Question 9

Are you assessable on other income derived from sources outside Australia?

Answer

No

Question 10

Are you assessable on income from the Country A trust set up by your late relative (19XX Settlement) that is not Australian sourced and is fully taxable in the Country A?

Answer

No

Question 11

Will you be assessable on non-Australian trust income, including any items of Country B discretionary trust income, derived by the Country B discretionary trusts already formed under the wills of your late relatives called the Number 1 "Will" Trust and the Number 2 'Will" Trust?

Answer

No

Question 12

Are your Australian sourced dividends, interest and royalty's income, whether derived personally or via trusts, assessable in Australia and taxed at rates limited under the Country A Convention, the maximum rates being 10% for interest, 15% for dividend and 5% for royalty income?

Answer

Yes

Question 13

Where any of the amounts in Question 13 are not subject to Australian tax, will the Commissioner consider those amounts constitute non-assessable non-exempt income pursuant to section 6-23 of the ITAA 1997?

Answer

Yes

Question 14

Are you assessable on non-Australian sourced income and capital gains (including non-Australian trust income and trust capital gains made prior to and on vesting)?

Answer

No

Question 15

As a resident of Australia, will you be liable for tax at resident rates and be eligible for tax offsets?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 20xx

Year ended 30 June 20xx

Year ended 30 June 20xx

Year ended 30 June 20xx

The scheme commenced on:

1 July 20xx

Relevant facts and circumstances

You are a resident of the Country A under their income tax laws.

You were born in the Country A and were naturalised in Australia in the mid-19xxs.

You studied at a university in Australia.

You left Australia in 19xx with your spouse to live in the Country A and you both have been there since then.

You and your spouse are still contemplating coming to Australia to live permanently in a later year but have made no decision when to do so.

You will decide to settle in Australia once your adult children decide where to settle themselves. One of your children lives in Sydney with his spouse. Your other two children still live in the Country A. They are mature children capable of living independently.

You and your spouse will continue to spend XX months a year in Australia, over Y months in the Country A, and any balances away from both countries on holidays. However, while the Covid pandemic applies, the number of months spent living in the Country A has dropped to X months so far in the current year and is not expected to increase until after mid-20xx.

Your intention of stay in Australia is holiday was focussed away from your business in the Country A. During your time in Australia you live in your home, purchased in 20xx, which you describe as a holiday home.

You have a home in City A which is occupied by one of your children. You jointly own the home with your spouse and you both continue to live there when not in Australia or a third country.

You had a small business in the Country A. When in Australia, the day to day running of this business was done remotely from Australia via the internet. The business was sold recently, but you will continue to be a director to facilitate the sale, handover and wind up of the company.

The assets of the company were sold for $XXX.

You are not employed in Australia and carry out charity work.

You jointly own X flats in Australia but do not derive income from them.

You have an Australian joint bank account and derive nominal interest income from It.

You will maintain your Country A drivers' licence, insurances, credit cards, bank accounts, health insurance, mobile phones, and internet service provider while in Australia. You have personal possessions, household effects and motor vehicles that will remain at your City A home. Your City A home will continue to be your postal address for service of bills and for the purposes of National Health Insurance.

You have no social or sporting connections in Australia, apart from the friends you made during your university days. You continue to maintain your social connections in the Country A, where all your extended family are based.

Your activities in Australia include attending theatre/cinema/events with friends each week, enjoying local events and festivals, visiting art galleries, boating, walking, kayaking, spending time with family, and accompanying your family on outings.

Non-Australian trust income

You are currently an income beneficiary and receive income from a Country A trust set up by your late relative (the 19xx Settlement). This income is in the main from Country A sources (there is no significant Australian sourced income at all). The income received will be fully taxable to you in the Country A. You are not currently a capital beneficiary and so are not presently entitled to trust capital gains nor to any distributions of trust capital.

You spend time with the trustees and family beneficiaries on the results of the underlying investments. These trusts are the main source of your cash flows for living expenses. One investment is a working farm in Country A, where you are a director, which involves regular quarterly meetings at the farm with the farm manager and staff (Covid pandemic restrictions permitting).

You are also a discretionary beneficiary in the income of various Country B discretionary family will trusts along with other relatives who live in the Country A and in Country B.

You will receive income from 2 Country B discretionary trusts formed under the wills of your late relatives called the Number 1 "Will' Trust and the Number 2 "Will' Trust. The trusts are managed and controlled by trustees resident in Country B, from sources within the Country B and from sources in other countries (excluding Australia).

After the ruling period, you may receive capital distributions from the Country B trusts, which are expected to be wound up prior to their vesting dates. The trust distributions represent accumulated income and capital gains which have not borne any Australian tax, as these trusts have not, and never had, any Australian assets.

You have advised that the approximate amount of income derived from foreign sources during the income year ended 30 June 20xx was as follows:

Country A managed investment portfolio A Country A Currency

Country A bank account B Country A Currency

Country A trust C Country A Currency

Country B trust capital distributions D Country B Currency

Relevant legislative provisions:

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

Section 6-5 of the Income Tax Assessment Act 1997

Section 6-10(5) of the Income Tax Assessment Act 1997

Section 6-23 of the Income tax Assessment Act 1997

Subsection 995-1(1) of the Income tax Assessment Act 1997

International Tax Agreement Act 1953

Convention between the Government of Australia and the Government of Country (the Country A Convention).

Reasons for decision

Residency - Question 1

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 (or conversely, a foreign resident) for income tax purposes.

These tests are:

1.    residence according to ordinary concepts test

2.    domicile and permanent place of abode test

3.    (3) 183-day test, and

4.    Commonwealth superannuation fund 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 a resident of Australia for tax purposes if they satisfy the conditions of one of the other three tests.

Residence according to ordinary concepts

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, is 'to dwell permanently or for a considerable time; having one's abode for a time'.

Taxation Ruling TR 98/17 considers the residency status of individuals entering Australia and states that the period of physical presence or length of time in Australia is not, by itself, decisive when determining whether an individual resides here. However, an individual's behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here.

In your case, you will reside in Australia as your behaviour reflects the required degree of continuity, routine or habit that is consistent with residing here.

This is because:

•         You will come to Australia for XX months per year and will be accompanied by your spouse for most of that time.

•         While you will not seek employment in Australia you are doing charity work which is not usual for someone on holiday.

•         You jointly own flats and a 'holiday home' in Australia You have an Australian joint bank account. You derive income from Australian sourced interest.

•         While you have personal assets in the Country A, you have similar assets in Australia to allow you to live in your home for the majority of each year.

As you are a resident of Australia under the resides test it is not necessary to consider the other residency tests. You will continue to be a resident of Australia for income tax purposes for the period of this ruling.

The Country A Convention - Questions 2-5

You are a resident of Australia for income tax purposes. You are also a Country A resident for Country A income tax purposes. Thus, you are a dual resident.

The double tax Convention between Australia and the Country A (Country A Convention) operates to avoid the double taxation of income received by Australian and Country A residents.

Article X of the Country A Convention deals with residence. In particular, paragraph Y of Article X of the Country A Convention states provides tiebreak tests:

In your case you have a permanent home in both Australia and Country A. Under subparagraph Y(a) of Article X of the Country A Convention, it is evident that you have a permanent home in both Australia and Country A. It is noted that you own real property in both Australia and the Country A and also have family members in Australia and Country A. However, you have a significant income stream from Country A and only derive nominal income from Australia. Therefore, you are considered to be a resident of the Country A under the Country A Convention because your personal and economic relations are closer to the Country A than Australia.

Accordingly, you are a resident of the Country A, and not a resident of Australia, under the Country A Convention.

Non-Australian income derived personally - Questions 6-9

You will not be assessable in Australia on income derived from sources outside Australia, unless it is included in your assessable income under a specific provision.

As you are a Country A resident under Article X of the Country A Convention, you will not be assessable in Australia on your non-Australian income from rent, dividends, interest or other income which you derive personally.

Non-Australian trust income - Questions 10 and 12

You are a beneficiary of a Country A trust, namely the 19xx Settlement. That trust is managed and controlled by trustees resident in and controlled from the Country A. The income is sourced from the Country A and other countries (excluding Australia).

Although you are presently entitled to trust income from the Country A trusts, you are not a resident of Australia under the Country A Convention. Further the income you receive from the trusts is fully taxable in the Country A. Accordingly, the income is not assessable in Australia.

You also are a beneficiary of Country B discretionary trusts formed under the wills of your late relatives called the Number 1 "Will' Trust and the Number 2 "Will' Trust. The trusts are managed and controlled by trustees resident in Country B, from sources within that country and from sources in other countries (excluding Australia).

As in the case of the Country A trusts, although you are presently entitled to trust income and capital gains from the Country B trusts, you are not a resident of Australia under the Country A Convention. Article YY of the Convention deals with 'other income' and states that income beneficially owned by a resident of the Country A, wherever arising, not dealt with in any other Article in the Country A Convention shall be taxable only in the Country A. Further, the income you receive from the trusts is not sourced in Australia. Accordingly, the income is not assessable in Australia.

Australian income from dividends, interest and royalties - Question 13

Under Article ZZ of the Country A Convention your Australian sourced dividends whilst being assessable to you, can only be taxed in Australia at a rate no more than 15 per cent of the gross amount of the dividends.

Under Article ZZ of the Country A Convention your Australian sourced interest whilst being assessable to you, can only be taxed in Australia at a rate no more than 10 per cent of the gross amount of the interest.

Under Article AA of the Country A Convention any Australian sourced royalties whilst being assessable to you, can only be taxed in Australia at a rate no more than 5 per cent of the gross amount of royalties.

Non-assessable non-exempt income - Question 14

Under section 6-23 of the ITAA 1997 an amount of ordinary income or statutory income is non-assessable non-exempt income if a provision of the ITAA 1997 or ITAA 1936 or of another Commonwealth law states that it is not assessable income and is not exempt income. Subdivision 11-B of the ITAA 1997 contains a check list of non-assessable non-exempt provisions.

Thus, where any of the amounts in Question 13 are not subject to Australian tax, the Commissioner will consider those amounts constitute non-assessable non-exempt income pursuant to section 6-23 of the ITAA 1997.

Non-Australian sourced income and capital gains - Question 15

Subsection 6-5(3) of the ITAA 1997 states:

If you are a foreign resident, your assessable income includes:

a)    the ordinary income you derived directly or indirectly from all Australian sources during the income year; and

Accordingly, in your case, you will be assessable on income derived from all sources inside Australia (and any other income that is included by a specific provision). You will not be assessable in Australia on income derived from sources outside Australia, unless it is included in your assessable income under a specific provision. This means your non-Australian sourced income (including non-Australian sourced trust income) and capital gains (including non-Australian trust capital gains) will not be assessable in Australia.

Tax rates and tax offsets - Question 16

Residents are subject to resident tax rates on their Australian sourced income. Residents are also generally eligible to claim personal tax offsets in their income tax return where the conditions of each tax offset is satisfied.

As you are a resident for tax purposes on your Australian sourced income for the years in question, any Australian sourced income including income from real property derived by you will be subject to tax at resident tax rates. These tax rates include the tax-free threshold for the whole year. You are also eligible for tax offsets, provided the conditions of the tax offsets are satisfied.