Private ruling: Residency
Date of advice: 9 January 2018
Published: May 2018
Ruling period: Year ended 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 1 July 2016

Ruling: Date of advice: 9 January 2018 | Questions and answers | 1. Are you a resident of Australia for taxation purposes? | No. | 2. Are you carrying on a business of trading the Product? | No. | 3. Is income derived from trading the Product assessable in Australia? | Yes.

Relevant facts and circumstances: You are an Australian citizen. You lived in Australia from birth to until you moved to foreign country A. You have lived in foreign country A for several years. Since then, you have considered yourself to be a non-resident of Australian for taxation purposes. Though you live in foreign country A, you work in foreign country B. You are a resident of foreign country B for income tax purposes. You have an account with Entity A who is based in City A, Australia. Entity A hold funds of yours that are not being invested in open trades. You undertake your trading in the Product with Entity A. There is no written agreement that outlines the trading relationship between you and Entity A; they only provide you with a platform for trading the Product and Contracts for Difference. The number and value of trades of the Product you have or will make per day is hard to predict as you use a program to place trades automatically but you currently average ten trades per week. You send your instructions on what to trade and when to open and close your position through the brokers) online trading platform. Your trading is not transacted through an Australian bank account. It occurs through your broker. You have provided a copy of documents from the broker. You have not requested or received advice from the taxing authorities of foreign country A and foreign country B regarding if the gains or losses on your trading are taken into account in either country.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 6(1) | Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Subsection 6-5(3) | Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 15-5 | Income Tax Assessment Act 1997 Section 25-40 | Income Tax Assessment Act 1997 Subsection118-37(1) | Income Tax Assessment Act 1997 Subsection 995-1(1) | International Tax Agreements Act 1953 Residency | 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. | You have lived in foreign country A for several years. Since then, you have considered yourself to be a non-resident of Australian for taxation purposes. | Based on the facts you have provided, we can conclude that you will not satisfy any of the tests of residency. | Accordingly you are not a resident of Australia for income tax purposes under section 995-1(1) of the ITAA 1997 and subsection 6(1) of the ITAA 1936. | Assessable income of a foreign resident | As a non-resident of Australia for tax purposes, you will only be assessable in Australian on Australian your sourced income subject to the relevant Double Tax Agreement (DTA) between Australia and the country where you are resident. | Carrying on a business | Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11) specifically refers to primary production. However the same principles apply to all businesses. The indicators of carrying on a business which the courts have considered to be relevant include: | a. whether the activity has a significant commercial purposes or character; | b. whether the taxpayer has more than just an intention to engage in business; | c. whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity; | d. whether there is regularity and repetition of the activity; | e. whether the activity is of the same kind, and carried on in a similar manner, to that of ordinary trade in that line of business; | f. whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit; | g. the size, scale and permanency of the activity, and | h. whether the activity is better described as a hobby, a form of recreation or sporting activity. | No one indicator is decisive ( Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922). The indicators must be considered in combination and as a whole. | In applying factors (a) to (h) from TR 97/11 to determine whether you are carrying on a business, it is acknowledged that the activity undertaken by you has some characteristics that aligned with it being a business, rather than a hobby such as the purpose of profit, and it is characterised by regular and repetitive activity. | After consideration of all of the relevant indicators and the circumstances of your case, it is concluded that you are not carrying on a business of trading the Product as your level of knowledge and preparation is limited and not as sophisticated as that of a person who would be in the business of trading in the Product. You also do not place any trades yourself. You use a program to place trades automatically. This makes you dependant on the program used. You also currently average about ten trades per week. | Profit making | The Product is a Contract for Difference (CFD) based on the relative exchange rate between selected currencies. | CFDs are discussed in depth in TR 2005/15: Income tax: tax consequences of financial contracts for differences | A gain or a loss from a financial contract for differences will be respectively assessable income under section 6-5 or an allowable deduction under section 8-1 of the ITAA 1997 where the profit or loss was made in a business operation or commercial transaction for the purpose of profit making. | Financial contracts for differences are productive of a gain or loss stemming from exposure to typically short term financial risk. The risks assumed in financial contracts for differences, namely stock indices, individual shares, currencies, financial products, interest rates, and commodities are all the basic subject matter of the financial services industry. | You have entered into the trading in the Product for the purpose of profit making, so any profit is potentially assessable income. | Double Tax Agreements (DTAs) | As you are a non-resident and you are not carrying on a business, we look at DTAs to determine which country has the taxing rights over the income you derive from trading CFDs in forex. The two agreements to be considered are: | ● Foreign country A Agreement. | ● Foreign country B Agreement. | The foreign country A and foreign country B Agreements are located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. These agreements operate to avoid the double taxation of income received by residents of Australia, foreign country A and foreign country B. | Under both the foreign country A and foreign country B DTAs, if your income is not business income and not salary and wage income then you can be taxed on that income at source which, in your case, is Australia: | ● the country A Agreement provides that income which is not business income and not salary and wage income may be taxed in Australia. | ● the country B Agreement provides that income which is not business income and not salary and wage income may be taxed in Australia. | Under the DTAs of both foreign country A and foreign country B your income for trading the Product will be taxed where it is derived, which is Australia. | Therefore, income you derive from trading the Product is Australian sourced income and is therefore assessable in Australia under section 6-5 of the ITAA 1997.