Edited version of private advice

Authorisation Number: 1051967126393

Date of advice: 30 March 2022

Ruling

Subject: Residency - temporary resident

Question

Are you a temporary resident of Australia for taxation purposes?

Answer

Yes.

Question

Is your foreign rental income and bank interest assessable in Australia?

Answer

No.

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 commences on:

1 July 2020

Relevant facts and circumstances

You are a citizen of a foreign country.

Your spouse is a citizen of a foreign country.

You and your spouse are in Australia under the provisions of a temporary visa.

Your visa was sponsored by your employer. You have been employed as a doctor on a full time basis.

Your visa expires four years after it was granted.

You commenced working for your employer shortly after your visa was granted.

Your spouse and children have accompanied you to Australia. You and your family are renting a property.

You have household effects, a motor vehicle, and a bank account in Australia.

You own a rental property in a foreign country and the property produces rental income.

You earn bank interest from a foreign bank account.

You and your family intend to settle in Australia after the expiration of your visa and intend to apply for a permanent visa.

Your children are currently studying in a local school in Australia.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 6-15

Income Tax Assessment Act 1997 Section 768-910

Income Tax Assessment Act 1997 Section 768-915

Income Tax Assessment Act 1997 Section 855-15

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

Reasons for decision

Assessable income and residency for taxation purposes - general

As a general rule, the assessable income in Australia of an individual who is a resident of Australia for taxation purposes will include all the ordinary and statutory income they earn from all sources, in and out of Australia. For example, interest income is a form of ordinary income and capital gains are a form of statutory income.

Although an individual may be a resident of Australia for taxation purposes, he or she may also be a temporary resident for taxation purposes at the same time. Where this is the case, the temporary resident provisions of Australia's tax law may operate to exclude certain foreign source income of the individual from being assessable in Australia.

Residency for taxation purposes

Section 995-1 of the Income tax Assessment Act 1997 (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 for taxation purposes. If residency is established under the resides test, the remaining three tests do not need to be considered.

The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside' which is not defined in Australian taxation law.

In Dempsey and Commissioner of Taxation [2014] AATA 335 the Administrative Appeals Tribunal noted that the settled position of the courts (at ultimate appellant level) as to the meaning of the word resides for the purposes of subsection 6(1) of the ITAA 1936 is that the word:

bears its ordinary English meaning, which 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".

Based on the facts you have provided, we consider you are residing in Australia according to the ordinary meaning of the word and are therefore a resident of Australia for taxation purposes under this test. As a consequence, the remaining tests of residency do not need to be considered in your case.

Temporary residency for taxation purposes

Subsection 995-1 of the ITAA 1997 provides that an individual is a temporary resident for taxation purposes if:

•                    they hold a temporary visa granted under the Migration Act 1958, and

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

•                     they do not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991.

The Social Security Act 1991 defines an Australian resident as a person who resides in Australia and is an Australian citizen, the holder of a permanent visa, or a protected special category visa holder who was in Australia on or before 26 February 2001.

Based on the facts you have provided you are a temporary resident of Australia for taxation purposes because:

•                    you hold a temporary visa issued under the Migration Act 1958, and

•                    neither you nor your spouse are Australian residents within the meaning of the Social Security Act 1991.

Temporary residents and assessable income

Subdivision 768-R of the ITAA 1997 provides an exemption for most foreign income derived by individuals who are temporary residents of Australia for taxation purposes. This exemption is explained in part by the following extract from Paragraph 1.23 of the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006:

This Bill makes ordinary income derived from a foreign source during the period the taxpayer is a temporary resident non-assessable non-exempt income. This measure also applies to all statutory income that has a source other than Australia......... on which the taxpayer would otherwise be taxed.

Income that is non-assessable, non-exempt income is not assessable income under the provisions of subsection 6-15(3) of the ITAA 1997.

Section 768-910 of the ITAA 1997 provides that ordinary income (such as interest) and statutory income (with the exception of net capital gains) derived by a temporary resident from sources outside Australia are non-assessable, non-exempt income.

Capital gains or losses made by temporary residents are specifically dealt with by section 768-915 of the ITAA 1997. In simple terms, the effect of section 768-915 of the ITAA 1997 is that temporary residents are subject to the same capital gains tax (CGT) rules as foreign residents. This means that if you are a temporary resident, you can disregard (and therefore exclude from your assessable income in Australia) any gain or loss made from a CGT event that is not taxable Australian property.

Taxable Australian property is defined in section 855-15 of the ITAA 1997.

Your rental income and bank interest in foreign countries are not included in the definition of taxable Australian property.

Conclusion

Based on the facts you have provided:

•                    You are both a resident and temporary resident of Australia for taxation purposes.

•                     Because you are a temporary resident for taxation purposes your assessable income in Australia does not include the foreign rental income and interest income from foreign countries.