Private ruling: Residency and assessable income
Date of advice: 17 March 2017
Published: August 2017
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2016

Ruling: Q1: Is your assessable Australian income taxed at resident rates? | A1: Yes. | Q2: Is your income you receive in Australia exempt income until date M? | A2: Yes. | Q3: Is your income you receive in Australia exempt income from date M? | A3: No.

Relevant facts and circumstances: You are a tax resident of Country X. You were qualified to be employed as a teacher prior to coming to Australia. You arrived in Australia in 2017. You entered Australia on visa. The purpose of your visit to Australia is to work as a teacher. You have been living in shared rental accommodation since your arrival in Australia. You intend to live in Australia for 12 months for the duration of your employment. You are employed to work as a teacher for less than 2 years. You intend to leave Australia by the end of the 2017 calendar year.

Relevant legislative provisions: Taxation Administration Act 1953 Subsection 12-1(1) of Schedule 1 Agreement between the Commonwealth of Australia and Country X for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital and to certain other Taxes | International Tax Agreements Act 1953 Agreement between Australia and Country X for the Elimination of Double Taxation with Respect to Taxes on Income and Capital and the Prevention of Fiscal Evasion and Avoidance | Income Tax Assessment Act 1997 Subsection 6-5(3) | Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision: Summary: As you will be living and working in one place for a considerable period you will be an Australian resident for tax purposes for the time you are in Australia. As your connection with Country X is stronger you will treated as a Country X resident for the purposes of the Double Tax agreement between Australia and Country X. Because of a change that occurred on Date M until Date M your income from teaching is not assessable in Australia but it is assessable from then. You may be entitled to a tax credit in Country X for some or all of any tax you pay in Australia. | Detailed Reasoning - Residency: 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. 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 for income tax purposes. These tests are: ● the resides test, ● the domicile test, ● the 183 day test, and ● the superannuation 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 to be a resident of Australia for tax purposes if they meet the conditions of one of the other three tests. | Detailed Reasoning - 1. The resides test: The ordinary meaning of the word 'reside', according to the Macquarie Dictionary , 2001, rev. 3 rd 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'. Taxation Ruling TR 98/17 Income Tax: residency status of individuals entering Australia emphasises that the quality and character of an individual's behaviour while in Australia assists in determining whether the individual resides here. All the facts and circumstances that describe an individual's behaviour in Australia are relevant. In particular, the following factors are useful in describing the quality and character of an individual's behaviour: ● intention or purpose of presence ● family and business/employment ties ● maintenance and location of assets, and ● social and living arrangements. No single factor is necessarily decisive and many are interrelated. The weight given to each factor varies depending on individual circumstances. In your case, you were qualified to be a teacher before your arrival in Australia; you entered Australia on a visa to work as a Teachers Assistant. Your intention is to live in Australia for 12 months during your employment; you have been living in shared rental accommodation since your arrival in Australia. You are a resident of Australia for tax purposes under the resides test. As you are a resident under this test, it is not necessary to determine whether you meet the requirements of the other three tests of residency. | Detailed Reasoning - Assessability of teaching income: Salary and wages are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997. In determining 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). The Country X agreement is located on the Austlii website (http://www.austlii.edu.au/) in the Australian Treaties Series database. The Country X agreement operates to avoid the double taxation of income received by residents of Australia and Country X. The Agreement provides that salary and wages derived by a resident of Country X for employment exercised in Australia may be taxed in Australia. However, this paragraph is subject to the conditions contained in an article of the Agreement. | Detailed Reasoning - Income before Date M: Before this date your circumstances and the Country X agreement operate to make you income exempt in Australia Subsection 12-1(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) states that there is no requirement to withhold an amount from a payment if the whole of the payment is exempt income of the entity receiving the payment. Therefore, your employer does not need to withhold tax from your salary received before Date N. | Detailed Reasoning - Income on or after Date M: After Date M your circumstances and the Country X agreement operate to make your income assessable in Australia. Therefore, the remuneration you receive from your teaching is not exempt from tax in Australia from Date N. | Detailed Reasoning - Tax credits: You may be eligible for a tax credit for tax paid in Australia when lodging your Country X income tax return to avoid double taxation. | Detailed Reasoning - Part year residency: You will need to consider the part-year tax -free threshold for the 2017 financial year for when you return to Country X and cease to be a resident of Australia for tax purposes. If you are leaving Australia with the intention to reside overseas, your tax-free threshold for the year will be lower than the threshold available to most taxpayers who are Australian residents for the full year. You are entitled to a threshold amount of $13,464 plus ($4,736 divided by 12, multiplied by the number of months you were an Australian resident, counting the month you left). An example of this calculation can be found at https://www.ato.gov.au/Individuals/Ind/Tax-free-threshold-if-you-are-leaving-Australia-with-the-intention-to-reside-overseas/