Private ruling: Residency and assessable income
Published: November 2014
Date scheme commenced: 1 July 2013

Ruling: Questions and answers: | 1. Are you a resident of Australia for income tax purposes? | Yes. | 2. Is your employment income that you have received post your arrival in Australia, assessable in Australia? | Yes.


Relevant legislative provisions: Income Tax Assessment Act 1936 Section 6(1) | Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Subsection 995-1(1) | Income Tax Assessment Act 1997 Section 768-910

Reasons for decision: Detailed Reasoning - Summary reason for decision: You are a temporary resident of Australia as well as resident of Australia for income tax purposes. Any employment income that you derive post your arrival in Australia, including the income that you received from your country T employer after your arrival in Australia. Under the articles of the Australian and country T Double Tax Agreement, any employment income that you received post your arrival in Australia is assessable in Australia. This includes any employment income that you received from country T. For any Australian tax that has been imposed on the income that you have received from your country T employer, you are allowed a credit against any country T tax applicable only with regards to the same income. | Detailed Reasoning - Residency: 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) and subsection 995(1) of the ITAA 1997. The definition provides four tests which will help us ascertain whether you were a resident of Australia for income tax purposes when you came here on a working holiday in early 2011. These tests are: (i) residence according to ordinary concepts; (ii) the domicile test; (iii) the 183 day/usual place of abode test; and (iv the Commonwealth superannuation test. The primary test for deciding your residency status is whether you resided in Australia according to the ordinary meaning of the word resides. However, where you were not residing in Australia according to ordinary concepts, you may still have been considered a resident of Australia for tax purposes if you satisfied the conditions of one of the other three tests. | Detailed Reasoning - Residence according to ordinary concepts: 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 discusses the Commissioners view on the residency status for tax purposes of individuals entering Australia. The ruling states that when determining residency according to ordinary concepts we must look at all the facts and circumstances of each individual. In particular, their behaviour and period of physical presence in Australia are significant aspects and are examined together with the following factors: _ intention or purpose of presence; _ family and business/employment ties; _ maintenance and location of assets; and _ social and living arrangements | Detailed Reasoning - Behaviour: You arrived in Australia with your spouse as a result of your spouse's employment. During the period that you will be present in Australia you intend to enrol in a course of study. Since your arrival you have obtained long term rental accommodation and have acquired household goods, car etc. This behaviour is consistent with someone who has established a routine or pattern of habitual behaviour in Australia. | Detailed Reasoning - Period of physical presence in Australia: When behaviour consistent with residing here is demonstrated over a considerable period of time, you will be regarded as a resident from the time the behaviour commences. The Commissioner's view of the law is that 6 months is a considerable time when deciding whether an individual's behaviour is consistent with residing here. In your case you entered Australia on a temporary visa that will expire in a number of years. Since your arrival in Australia, you have not left Australia. During your stay in Australia you intend to return to country T for a short holiday to visit family. This period of physical presence in Australia is sufficient to conclude that you are maintaining a degree of continuity in Australia. In view of the above, the Commissioner considers that your behaviour in Australia reflects a degree of continuity, routine and habit that is consistent with residing here. Accordingly, you are an Australian resident for income tax purposes from the date of your arrival in Australia under the 'resides test'. As you have satisfied one of the four residency tests, it is not necessary to consider the remaining 3 tests. | Detailed Reasoning - Your residency status: As you are considered to be a resident of Australia under one of the tests of residency outlined in subsection 995-1(1) of the ITAA 1997 and subsection 6(1) of the ITAA 1936, you are an Australian resident for taxation purposes from the date of your arrival in Australia. | Detailed Reasoning - Temporary residents: Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer is a temporary resident if: a) they hold a temporary visa granted under the Migration Act 1958; b) they are not an Australian resident within the meaning of the Social Security Act 1991 , and c) their spouse is not an Australian resident within the meaning of the Social Security Act 1991 . Under the Social Security Act 1991 , an Australian resident is a person who resides in Australia and is either an Australian citizen or holds a permanent resident visa. In your case, you hold a temporary resident visa granted under the Migration Act 1958 . Neither your or your spouse is an Australian citizen or permanent resident visa holder. Therefore, you are a temporary resident as you are not an Australian resident within the meaning of the Social Security Act 1991. Accordingly, you are an Australian resident for taxation purposes who also qualifies as a temporary resident under subsection 995-1(1) of the ITAA 1997. | Detailed Reasoning - Assessable income: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the year. Income derived from employment is classified as ordinary income according to ordinary concepts and therefore assessable under section 6-5(2) of the ITAA 1997. Subdivision 768-R of the ITAA 1997 provides an exemption for most foreign source income derived by temporary residents of Australia. However income that is derived from employment that is exercised in Australia, is Australian sourced and therefore assessable Australia. | Detailed Reasoning - Double tax agreement: 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). 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 country T Agreement is listed in section 5 of the Agreements Act. The country T Agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The country T Agreement operates to avoid the double taxation of income received by residents of Australia and country T. | Detailed Reasoning - Residency tiebreaker test: Article 4(1) of the country T agreement advises that a person is a resident of a Contracting State: a) in the case of country T, if the person is a resident of country T for the purposes of country T; and b) in the case of Australia, if the person is a resident of Australia for the purposes of Australian tax. Article 4(2) of the country T Agreement advises that a person is not a resident of Australia for the purposes of this convention if that person is liable to tax in Australia in respect only of income or gains from sources in Australia. In your case, you are an Australian resident for taxation purposes who also qualifies as a temporary resident, consequently only your Australian sourced income is subject to taxation in Australia. Therefore as you are a person that is liable to tax in Australia in respect only of income or gains from sources in Australia, you are not a resident of Australia for the purposes of the country T Convention. | Detailed Reasoning - Article 14: Article 14(1) of the country T Agreement advises that salaries, wages and other simular remuneration derived by a resident of country T in respect of employment shall be taxable only in the UK unless the employment is exercised in Australia. If the employment is exercised in Australia, such remuneration as it is derived from Australia may be taxed in Australia. Article 14(2)(a) of the country T Agreement advises that notwithstanding 14(1) of the country T Agreement, remuneration derived by a resident of country T in respect of employment exercised in Australia will only be taxable in country T unless the recipient is present in Australia for a period greater than 183 days in any 12 month period. | Detailed Reasoning - Article 22: Article 22(2) of the country T Agreement advises that Australian tax payable under the laws of Australia in accordance to the country T Agreement shall be allowed as a credit against any country T tax applicable to the same income by reference to which the Australian tax is computed. | Detailed Reasoning - Conclusion: You are a resident of Australia for tax purposes and also a temporary resident, hence only income that is Australian sourced in assessable in Australia. Therefore the income that you derived post your arrival in Australia will be assessable in Australia. For the purposes of Article 4 of the Australia and country T Agreement you are a resident of the country T, due to you being a temporary resident of Australia and therefore assessable in Australia only on your Australian sourced income (Article 4(2)). Under Article 14(1) of the agreement the income that you have received post your arrival will be taxable in both Australia and country T. The exemption from Australian income tax provided under Article 14(2)(a) is not applicable as you will be in Australia for a period greater than 183 days in the calendar year from the date of your arrival. Article 22(2) of the country T Agreement provides that you are entitled to a tax credit for any Australian tax payable, against any country T tax applicable to the income that you have received from your country T employer post your arrival in Australia.

Relevant facts: You were born in the country T and are a citizen of country T. | You have a spouse who accepted an employment opportunity in Australia. | Neither you nor your spouse is a citizen or permanent resident of Australia. | You arrived in Australia with your spouse on a temporary visa that allows you stay in Australia for an extended period. | On arrival in Australia you and your spouse found long term rental accommodation and acquired household items. | From your arrival in Australia you continued to be employed by your country T employer and receive employment income. Withholding tax was applied by your employer. | You have not left Australia since your arrival however you are planning to return to country T for a holiday for a short period. | Prior to arriving in Australia you lived in your parent's home in country T. | Your assets in Australia consist of a car, bank accounts, household goods etc. | Your assets in your country of origin consist of a bank account. | You do not have any social or sporting ties in Australia or country T. | You intend to enrol in a course of study while in Australia. | You were considered a resident of country T for tax purposes. | You are uncertain whether you will remain in Australia beyond your spouse's employment contract.