Private ruling: Residency and assessable income
Date of advice: 8 July 2015
Published: July 2015
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Question and answer: | 1. Are you a resident of Australia for income tax purposes from the date of your arrival? | Yes. | 2. Is the interest that is accumulating in your tax free saving account assessable in Australia in the current income year? | No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You were born in Australia. You are a dual resident of Australia and country T. You left Australia and migrated permanently to country T. After many years of living in country T you gained citizenship. You lived and worked in country T for many years. After many years you left country T and returned to Australia. The purpose of your return was to live permanently in Australia. On arrival in Australia on you leased a house to live in. The lease will expire in 12 months at which point you will renew the lease or purchase a home. Your assets in Australia consist of bank account and motor vehicle. In addition, all your household items have either been disposed of or transported to Australia prior to your departure from country T. The assets that you own in country T consist of term deposits and superannuation accounts. You have a child, daughter/son in law and grandchildren in Australia. One of the primary reasons that you moved to Australia was to assist your child raise the children. You also have other family members living in Australia, including your sibling who will also move locally. You have a child, daughter/son in law and grandchild that will continue living in country T. You no longer have any social or sporting ties to country T. Your social and sporting ties to Australia consist of your local neighbourhood groups and local church. You have never been an employee of the Commonwealth Government of Australia. You have no intention of returning to country T and intend to reside permanently in Australia. You have a country T tax free savings account. The funds are held by the trustee of the 'XYZ Trust Company' located in country T. The funds being held by the 'XYZ Trust Company' are accumulating interest. You have not drawn any funds from this account to date and will not draw any funds from this account in the current income year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Section 10-5 | Income Tax Assessment Act 1936 Subsection 99B(1) | Income Tax Assessment Act 1936 Subsection 99B(2) | Income Tax Assessment Act 1997 Section 995-1 | Income Tax Assessment Act 1936 Subsection 6(1)

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". From the information that you have provided it is clear that since your arrival in Australia you have been residing in Australia according to the ordinary meaning of the word 'reside'. This is based on the fact that since your arrival you have remained in Australia where you have lived in long term accommodation. You have transported all your possessions to Australia and further you have not, nor do you have any intention of returning to country T. Based on these facts, the Commissioner accepts that from the date of your arrival you have been residing in Australia according to the ordinary meaning of the word. Therefore as you have been residing in Australia from the date of your arrival according to ordinary concepts you are a resident of Australia for income tax purposes under the 'resides test' from this date. As it has been established that you are a resident of Australia under the 'resides test' there is no need to consider the remaining three tests. | Detailed Reasoning - Your residency status: As it has been determined that you are a resident of Australia under the 'resides test' from the date of your arrival in Australia, from this date you are a resident of Australia for income tax purposes under subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997. | Detailed Reasoning - Assessable income: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources whether in or out of Australia. Interest earned is considered ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. | Detailed Reasoning - Trusts: A trust is an obligation imposed on a person or other entity to hold property for the benefit of beneficiaries. Trusts are widely used for investment and business purposes. The tax treatment of a trust and its beneficiaries depends on the nature of the beneficiaries' entitlements under the trust deed. Where a beneficiary does receive any distributions or have any of the trust assets applied for their benefit, they are not presently entitled to the assets of the trust at that point of time. Where the beneficiaries of a trust are not presently entitled to the assets of a trust, any taxation liabilities that arise with regards to the assets held by the trust will fall to the trustee of the trust. In your case you are a holder of an account which is held by the trustee of 'XYZ Trust Company' located in country T. The account is made up of capital that you have contributed to the account over a number of years and interest that has accumulated over these years. To date you are yet to receive a distribution from this trust for either the capital or the interest. Further you will not receive any distribution in the 20XX income year. Therefore, as you have not received any distributions or had any of the trust assets applied for your benefit, you are not presently entitled to the assets of the XYZ Trust Company at this point of time. As you are not presently entitled to any of the assets of the XYZ Trust Company, any taxation liabilities fall to the trustee of the XYZ Trust Company. Accordingly, any interest earned by your tax free savings account held by XYZ Trust Company is not assessable to you in the current income year under subsection 6-5(2) of the ITAA 1997.