Private ruling: residency
Published: March 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Questions and answers: | 1. Are you a resident of Australia for tax purposes from the date you arrived in Australia? | Yes. | 2. Is your income from foreign sources derived from the date you arrived in Australia assessable? | No. | 3. Is your income from Australian sources derived from the date you arrived in Australia assessable? | Yes.

Relevant facts and circumstances: Your and your spouse's country of origin is a foreign country. You and your spouse hold dual nationality in both the foreign country and Australia. You and your spouse became Australian citizens. Both of you have held Australian passports since then, as well as passports for the foreign country. You retired. In the foreign country, you worked for a multi-national company and you were paid solely in the foreign country. After retiring, you remained a taxpayer in the foreign country with a company pension and various investments based in the foreign country. You and your spouse intend to live in Australia for approximately six months each year and in the foreign country for the remainder of the time. It is possible that the amount of time spent in Australia would change at some point but not in the foreseeable future. You and your spouse originally arrived in Australia several years ago. You took up a job in Australia. You worked in Australia for the subsequent years in different states until you left to return to the foreign country. You and your spouse have been coming to Australia off and of for a number of years. You and your spouse own a house in Australia (including its contents) and a car. In Australia you also have a cheque account and savings accounts and term deposits with a bank. These are in joint names with your spouse. You have owned a house in the foreign country for several years. The house is your permanent place to live when you are in the foreign country. You do not rent it out while you are in Australia. Your residence in the foreign country is your only property in the foreign country. To fund your living expenses in Australia you have transferred savings from the foreign country. You will continue to do this as and when necessary. The money is transferred into your Australian bank accounts. The only income you receive in Australia is interest on term deposits. During the tax year this amounted to roughly $X. You receive an occupational pension from your previous employer which is paid in the foreign country. In addition to this you receive income from bank accounts, investment bonds (term deposits) and dividends from shares of approximately X per year. You have no relatives in Australia. You have children in the foreign country. They are independent of you and have no plans to live in Australia. Your social and sporting connections in Australia are friends and are membership of a number of clubs and voluntary organisations. Your social connections with the foreign country are your extended families. While in the foreign country you participate in similar activities to Australia. Relevant legislation provisions: Income Tax Assessment Act 1997 Subsection 995-1(1) Income Tax Assessment Act 1936 Subsection 6(1) Income Tax Assessment Act 1997 Subsection 6(5) International Tax Agreements Act 1953 Section 4 International Tax Agreements Act 1953 Section 5


Reasons for decision: Detailed Reasoning - Residency: The Australian Taxation Office (ATO) view on the residency status of individuals entering Australia is contained in which notes that it is not necessary for an individual to be an Australian citizen or hold a permanent residence visa to be a resident of Australia for taxation purposes. The terms 'resident' and 'resident of Australia', in regard to an individual, are defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and 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 · the superannuation test. If one of these tests is met, an individual will be a resident of Australia for taxation purposes. Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia states that 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 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 satisfy the conditions of one of the other three tests. | Detailed Reasoning - The resides test: The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'. The Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01 defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'. Taxation Ruling TR 98/17 notes that the ordinary meaning of the word 'reside' is wide enough to encompass an individual who migrates permanently to Australia or one who is simply dwelling in Australia for a considerable time. In most cases, the Commissioner accepts that a visit to Australia of less than six months is not sufficient time to be regarded as residing here. However, when an individual is in Australia for six months or more, the Commissioner takes into consideration the individual's behaviour over the time spent in Australia to determine if there is any degree of continuity, routine or habit in the individual's behaviour that is consistent with residing here. In assessing an individual's behaviour while in Australia, the Commissioner considers a number of factors, including: · intention or purpose of presence - TR 98/17 notes that having a settled purpose supports an intention to reside in Australia · family and business/employment ties - TR 98/17 notes that the presence of family in Australia may indicate an individual is residing here · maintenance and location of assets - TR 98/17 notes that having assets in Australia, such as bank accounts, adds weight to concluding an individual's behaviour is consistent with residing here · social and living arrangements - TR 98/17 specifies that social and living arrangements are the way an individual interacts with their surroundings during their stay in Australia. Joining a professional organisation and committing to a residential lease are two examples of social and living arrangements that may indicate an individual is residing here. In your case you, · intend to live in Australia for approximately six months each year and in the foreign country for the remainder of the time · have a spouse who will accompany you to Australia · have obtained Australian citizenship while retaining your foreign country citizenship · own a furnished house in Australia which you will live in whilst here · receive interest income in Australia from term deposits. You also have a cheque account and savings accounts here · have social and sporting connections in Australia with friends and membership of a number of clubs and voluntary organisations In view of the above and on balance, the Commissioner considers that your behaviour in Australia does reflect a sufficient degree of continuity, routine and habit that is consistent with residing here. Accordingly, you are considered to be an Australian resident for taxation purposes while in Australia under the resides test. As you have passed one of the tests of residency it is not necessary to consider the domicile, 183-day and superannuation tests. | Detailed Reasoning - Conclusion - residency: As you are a resident of Australia under one of the tests of residency outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, you are considered to be an Australian resident for taxation purposes. The foreign country-Australian double tax agreement You have stated you are also a resident of the foreign country for tax purposes. Accordingly, to determine your residency and your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements. Section 4 of the International Tax Agreements Act 1953 (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 ITAA 1997 where there are inconsistent provisions (except in some limited situations). Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an agreement listed in section 5 has the force of law. The foreign country agreement is listed in section 5 of the Agreements Act. The foreign country agreement operates to avoid the double taxation of income received by residents of Australia and the foreign country. An article of the foreign country agreement deals with residency for taxation purposes and contains 'tiebreaker' clauses which can be used to determine where an individual is resident for the purposes of the agreement. The relevant tiebreaker in your case is contained in a paragraph of the article of the foreign country agreement which states that: … if a permanent home is available in both States, or in neither of them, that individual shall be deemed to be a resident only of the State with which the individual's personal and economic relations are closer (centre of vital interests) In your situation, we consider you to be a resident of Australia for tax purposes while you have stated you are also a resident of the foreign country. By applying the tiebreaker test, we now consider that, on balance, your centre of vital interests is the foreign country. This is because you have: · more income and sources of income from the foreign country, when compared with Australia, from which you derive only interest income, and · greater family connections with the foreign country, having an extended family network there, whereas in Australia you have only your spouse. Therefore, as your economic and personal ties are closer to the foreign country this makes you, for the purposes of the agreement, a resident of the foreign country. Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a foreign resident of Australia includes only income derived in Australia during the income year. This means that your income from foreign sources is not assessable in Australia as you are a foreign resident for the purposes of the foreign country agreement. Another article of the foreign country agreement advises that interest income derived by a resident of the foreign country shall be taxable only in the foreign country unless it is derived in Australia. If the interest is earned in Australia then the income may also be taxed in Australia, but at a rate that does not exceed 10% of the gross amount of the interest. Therefore, only your Australian sourced income, which is bank interest, will be taxed in Australia and at the rate of 10% of the gross amount. This is deducted at source by your financial institution. It does not need to be included in an Australian tax return.

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