Private ruling: Residency and beneficial ownership
Date of advice: 2 September 2015
Published: September 2015
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: 1 July 2011

Ruling: Questions and answers: | 1. Were you a resident of Australia for income tax purposes? | No. | 2. Are you and your spouse jointly assessable on dividends derived from shares held solely under your name? | Yes.

Relevant facts and circumstances: Residency You were born in Country Z and are a citizen of Country Z. You have a spouse and children. Your children are all independent and of adult age. You are a permanent resident of Country Y and recently gained permanent residency in Australia. You were employed in Country Y for many years and have recently retired. A number of years ago you formed the intention of retiring permanently in Country Z. Prior to your retirement you began building at retirement home in Country Z that was completed in just prior to your retirement. When you moved into your retirement home you realised that there was numerous structural defects. At this point your children (who were living in Australia) invited you to joint them. Shortly after you arrived in Australia, due to a requirement of your permanent residency visa. Shortly after you purchased a home in Australia and shipped all your home contents to Australia. During the income year you spent the majority of your time in Country Z rectifying the defects of your home and working towards its disposal. Your Country Z home was finally disposed of in the following income year. Throughout the income year you and your spouse spent a limited time present in Australia. Your spouse has accompanied you throughout your visits in and out of Australia. After moving into your Australian home you disposed of your overseas motor vehicle. Neither you nor your spouse, have ever been Australian Commonwealth Government employees. Dividends You and your spouse have a joint account. Over a number of years you have purchased foreign shares and received dividends. When setting up the share trading account your broker advised that it was more practical to manage the share trading account under the one name, therefore your name was exclusively listed on the trading account. Although you were solely listed on the share trading account, the funds used to finance the purchase of the shares were drawn from your joint account that is held by you and your spouse. Dividends that were derived from your shares have been paid directly into your joint account.

Relevant legislative 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(2).

Reasons for decision: Detailed Reasoning - 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 (and permanent place of abode) test, • the 183 day test, and • the superannuation test. The first two tests are examined in detail in TAXATION RULING NO. IT 2650 INCOME TAX: Residency - Permanent Place Of Abode Outside Australia . The latter two tests are relatively self-explanatory as they require the individual to either be physical present in Australia for a period greater than 183 days or be eligible to contribute to the PSS or CSS superannuation schemes. An individual need only satisfy the conditions of one of the four tests to be deemed a resident of Australia for income tax purposes. | 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'. As the word 'reside' is not defined in Australian taxation law, it takes its ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936. In Dempsey and Commissioner of Taxation [2014] AATA 335 (29 May 2014) the Administrative Appeals Tribunal noted that the settled position of the courts (at ultimate appellant level) as to the meaning of the word resides in the ITAA 1936 is that the word: bears its ordinary English meaning, which 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". Based on the facts of your case, the Commissioner accepts that you were not residing in Australia according to the ordinary meaning of the word. Significant in reaching this conclusion is that during the income year in question you were only physically present in Australia for a limited period. | Detailed Reasoning - The domicile test: Under this test, a person whose domicile is in Australia will be considered a resident of Australia for taxation purposes unless the Commissioner is satisfied the person's permanent place of abode is outside Australia. In your case your domicile of origin is Country Z, however you moved to Country Y and gained permanent residency therefore electing Country Y as your domicile of choice. After retiring you moved back to Country Z, therefore re-establishing Country Z as your domicile of choice. Therefore your domicile for the year in question was Country Z. It is acknowledged that during the year in question you were in the process of establishing Australia as your domicile of choice, however base on the facts of your case the Commissioner is satisfied that this was in a preliminary stage. Further, as you were only present in Australia for a limited period and you still had ownership of your home in Country Z home it could be reasonably argued that you had maintained a permanent place of abode outside of Australia. Therefore you were not a resident of Australia for income tax purposes under the domicile test. | Detailed Reasoning - The 183-day test: Where a person is present in Australia for 183 days during the year of income the person will be a resident, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia. You were not physical present in Australia for a period of greater than 183 days. Therefore you were not a resident of Australia for income tax purposes under the 183 day test. | Detailed Reasoning - The Superannuation test: An individual is considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Service Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person. Generally Commonwealth Government employees are eligible to contribute to the PSS or CSS. You have never been a member of a CSS or PSS. Accordingly, you were not a resident under this test. | Detailed Reasoning - Your residency status: As you were not a resident of Australia under any of the tests of residency outlined under subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, you were not an Australian resident for taxation purposes. | Detailed Reasoning - Assessability of dividends: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Dividends from shares are ordinary income. Taxation Determination TD 92/106 Income tax: who should be assessed to interest earned on a joint bank account? contains the Commissioners interpretation on who should be assessable for interest earned on a joint account. Although this determination deals with interest, the same principals can be applied to dividend income. Paragraph 1 and 2 of Tax Determination 92/106 states: 1. Interest income on a joint bank account should be assessed to income tax to the persons who are beneficially entitled to the income (see MacFarlane v. FC of T 86 ATC 4477 at 4486-7; (1986) 17 ATR 808 at 819-20). That entitlement depends on the beneficial ownership of the moneys in the account. The general presumption is that holders of acounts in joint names have joint beneficial ownership of the moneys in equal shares. This presumption is rebuttable by evidence to the contrary (see Case Z7 92 ATC 131; AAT Case 7675 (1991) 22 ATR 3591). 2. In a self assessment environment, interest income on a joint bank account should be returned by taxpayers according to who has the beneficial entitlement to the interest. Considering the facts of your case, the Commissioner is satisfied that both you and your spouse are beneficially entitled to the dividends derived from your shares despite you being solely listed on the share trading account. This is based on the fact that the purchase of the shares was financed from an account that is jointly held under both you and your spouse's name. In addition, the dividends that are derived from the shares are also paid into this joint account. Further, the Commissioner is satisfied that reason for the share trading account being held solely in your name was for practical purposes only. Accordingly, any dividends derived from your shares are jointly assessable to both you and your spouse under subsection 6-5(2) of the ITAA 1997.