Edited version of private advice

Authorisation Number: 1052094539827

Date of advice: 14 June 2023

Ruling

Subject: Residency and foreign government pension

Question 1

Are you a resident of Australia for taxation purposes?

Answer

Yes.

Question 2

Is your foreign government pension assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following periods:

Period ended 30 June 20XX

Period ended 30 June 20XX

Period ended 30 June 20XX

Period ended 30 June 20XX

Period ended 30 June 20XX

Period ended 30 June 20XX

Period ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were born in Country A

You relocated to Australia in 20XX

You previously held property in Country C, however this has now been sold.

You hold no property in Country A your country of birth.

You receive a foreign Country C pension as a result of your civil service employment with the Country C government.

Your pension is paid into an overseas bank account.

Employment

At the time of your employment, you were seconded to Country D on behalf of the Country C government.

You worked overseas and retired in Country D and also worked in Country C and retired.

After retirement, you chose to live in Australia.

You qualified for the age pension in Australia.

Since 20XX you have largely remained in Australia, only taking short trips overseas.

Your most recent income tax returns have been lodged as an Australian resident for tax purposes.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income tax Assessment Act 1936 section 27H

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 section 10-5

International Tax Agreements Act 1953 section 4

Reasons for decision

For tax purposes, whether you are a resident of Australia is defined by subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

The definition has four tests to determine your residency for income tax purposes. These tests are:

•         the resides test

•         the domicile test

•         the 183 day test, and

•         the Commonwealth superannuation fund test.

It is sufficient for you to be a resident under one of these tests to be a resident for tax purposes.

Our interpretation of the law in respect of residency is set out in Draft Taxation Ruling TR 2022/D2 Income tax: residency tests for individuals.

The resides test

The resides test is the primary test of tax residency for an individual. If you reside in Australia according to the ordinary meaning of the word resides, you are considered an Australian resident for tax purposes.

Some of the factors that can be used to determine whether you reside in Australia include:

•         period of physical presence in Australia

•         intention or purpose of presence

•         behaviour while in Australia

•         family and business/employment ties

•         maintenance and location of assets

•         social and living arrangements.

No single factor is decisive, and the weight given to each factor depends on your specific circumstances.

Where an individual does not reside in Australia according to ordinary concepts, they will still be an Australian resident if they meet the conditions of one of the other tests.

The domicile test

Under the domicile test, if your domicile is in Australia, you are a resident of Australia unless the Commissioner is satisfied that your permanent place of abode is outside Australia.

Whether your domicile is Australia is determined by the Domicile Act 1982 and the common law rules on domicile. For example, you may have a domicile by origin (where you were born) or by choice (where you have changed your home with the intent of making it permanent).

Whether your permanent place of abode is outside Australia is a question of fact to be determined in light of all the facts and circumstances of each case. Key considerations in determining whether you have your permanent place of abode outside Australia are:

•         whether you have definitely abandoned, in a permanent way, living in Australia

•         length of overseas stay

•         nature of accommodation, and

•         durability of association.

The 183-day test

Under the 183 day test, if you are present in Australia for 183 days or more during the income year, you will be a resident, unless the Commissioner is satisfied that both:

•         your usual place of abode is outside Australia, and

•         you do not intend to take up residence in Australia.

The question of usual place of abode is a question of fact and generally means the abode customarily or commonly used by you when are physically in a country.

The Commonwealth superannuation test

An individual is a resident of Australia if they are either a member of the superannuation scheme established by deed under the Superannuation Act 1990 or an eligible employee for the purposes of the Superannuation Act 1976, or they are the spouse, or the child under 16, of such a person.

Application to your circumstances

We have considered each of the statutory tests listed above in relation to your particular facts and circumstances. We conclude that, for the income year, you are resident of Australia as follows.

Taking into account your individual circumstances, we have concluded that you are resident of Australia according to ordinary concepts.

We also consider that your domicile is in Australia and the Commissioner is satisfied that your permanent place of abode is not outside Australia. We considered the following factors in forming our conclusion:

•         Your main residence is in Australia.

•         You relocated to Australia in July 20XX.

•         Since 20XX you have largely remained in Australia, only taking short trips overseas.

•         You qualified for and are currently in receipt for the Australian age pension.

•         Your most recent income tax returns have been lodged as an Australian resident for tax purposes.

You intend on remaining in Australia and will be in Australia for more than 183 days.

You are a resident of Australia for taxation purposes.

Pension - assessable income

As an Australian resident, your assessable income includes ordinary and statutory income from all sources whether in or out of Australia (sections 6-5 and 6-10 of the ITAA 1997).

Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business.

Other characteristics of income that have evolved from case law include receipts that:

•         are expected,

•         are relied upon, and

•         have an element of periodicity, recurrence or regularity.

In your case, you have been in receipt of a public service foreign pension from Country C since the 20XX year. These pension payments are considered to be ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997 as they share the characteristics of being expected, relied upon and are paid on a periodic or regular basis.

We also note that annuities and pensions paid from foreign superannuation funds or foreign pension schemes to provide superannuation benefits are also included in assessable income under section 27H of the ITAA 1936. Section 10-5 of the ITAA 1997 lists statutory provisions about assessable income which include section 27H of the ITAA 1936.

In determining your liability to pay tax in Australia it is also necessary to consider the operation of any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and the ITAA 1997 where there are inconsistent provisions (except in some limited situations).

The Convention between Australia and Country C operates to avoid the double taxation of Australian and Country C residents.

Article 17 of the Country C Convention provides that a pension will only be taxable in the country of residence of the recipient.

Accordingly, the pension you receive from the foreign scheme is taxed only in Australia under Article 17 of the Country C Convention and is assessable in Australia under section 6-5 of the ITAA 1997.

The pension payments are to be included at label L in Question 20 of the Supplementary section of the tax return.