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1 Are you subject to tax on the disposal of the assets, or taxed each year on either the interest earned or any dividends that may have accrued or any capital gains?

1 Yes Question 2 Are you required to substantiate the cost base of the assets on the day you become a permanent resident for tax in Australia for future taxation purposes after that date? Answer 2 Yes Question 3 Will the Individual Savings Account retain its tax free status, under the double tax agreement (DTA) when you return to Australia and become a tax resident? Answer 3 No This ruling applies for the following periods : Year ending 30 June 20XX Year ending 30 June 20XX Year ending 30 June 20XX Year ending 30 June 20XX Year ending 30 June 20XX The scheme commenced on: 01 July 20XX

You are an Australian citizen but not a resident for tax in Australia. You are a resident for tax purposes in Country A. You are married to a Country A citizen and live in a property in Country A. You own a property in Australia. You and your spouse reside in the property when you visit Australia. You are intending to return to live in Australia around 1 July 20XX. You have advised that you will become a permanent resident for tax in Australia from the time you return to live in Australia. You have invested in Individual Savings Accounts (ISA) in Country A. The ISA is made up of cash, stocks, and shares. No tax is payable in Country A on the interest earned on the cash ISA or income and capital gains on the ISA stocks and shares. You stated that you are aware that on your return to Australia, and upon becoming a permanent resident for tax, you will be subject to tax on your worldwide income.

Income Tax Assessment Act 1997 section 6-5 Income Tax Assessment Act 1997 section 855-45

Question 1 Detailed reasoning Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that Australian residents are assessable on ordinary income derived directly or indirectly from all sources, whether Australian or overseas, and statutory income from all sources, whether in or outside of Australia. When you relocate to Australia on a permanent basis, you will satisfy the Australian residency tests and will therefore be subject to Australian tax on your worldwide income. You have advised that you are aware of Australia's taxation of worldwide income for permanent residents. We refer you to Articles 10 and 11 of the International Tax Agreements Amendment Act 2003 (the Act) regarding information on dividends and interest received. Question 2 Detailed reasoning

If you acquired an overseas asset before you became an Australian resident, you treat the asset as though you acquired it when you became an Australian resident for their market value at that time. This is sometimes called 'deemed acquisition'. Similarly, if you stop being an Australian resident while holding an overseas asset, you treat the asset as though you disposed of it when you stopped being an Australian resident. Section 855-45 of the ITAA 1997 applies so that your CGT assets will be assessable under Parts 3-1 and 3-3 of the ITAA 1997 (including any foreign shares and stocks) with the first element of the cost base of your assets being the market value at that time. In your case, your deemed acquisition date will be the date you become an Australian resident if you held foreign assets prior to that date. You will not be eligible for the 50% CGT discount if you disposed of these assets within 12 months of the deemed acquisition date. Question 3 Detailed reasoning In determining liability to Australian tax on foreign sourced income it is necessary to consider not only the income tax laws, but also any applicable tax treaty contained in the International Agreements Act 1953

(the Agreements Act). Schedule 1 to the Agreements Act contains the tax treaty convention between Australia and Country A for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital gains. The terms 'a Contracting State' and 'the other Contracting State' means the Country A or Australia, as the context requires. Article 21 of the Act provides that: •                If a Country A resident derives income or gains, and •                One or more of the listed treaty Articles (Articles 6 to 8, 10 to 16, and 18) allow Australia to tax that income, then: •                Australian tax law will treat that income as having an Australian source, even if it would not normally be sourced in Australia under domestic rules. Article 22 of the Act, Elimination of double taxation Subject to the provisions of the laws of Australia from time to time in force which relate to the allowance of a credit against Australian tax of tax paid in a country outside Australia (which shall not affect the general principle of this Article).

Country A tax paid under the laws of Country A and in accordance with this Convention, whether directly or by deduction, in respect of income or gains derived by a person who is a resident of Australia from sources in Country A shall be allowed as a credit against Australian tax payable in respect of that income. Subject to the provisions of the law of Country A regarding the allowance as a credit against Country A tax of tax payable in a territory outside of Country A (which shall not affect the general principle hereof). Australian tax payable under the laws of Australia and in accordance with this Convention, whether directly or by deduction, on income or chargeable gains from sources within Australia (excluding in the case of a dividend, tax payable in respect of the profits out of which the dividend is paid) shall be allowed as a credit against any Country A tax computed by reference to the same income or chargeable gains by reference to which the Australian tax is computed.

Where under this Convention any income or gains are relieved from tax in a Contracting State and, under the law in force in the other Contracting State, a person in respect of that income or those gains is taxed by reference to the amount thereof which is remitted to or received in that other State and not by reference to the full amount thereof, then the relief to be allowed under this Convention in the first-mentioned State shall apply only to so much of the income or gains as is taxed in the other State. Application to your circumstances You have advised that you understand you will be subject to Australian tax on your worldwide income once you return to Australian and become a permanent resident. Income derived from the ISA constitutes worldwide income for Australian tax purposes. Accordingly, you will be subject to Australian tax on the investment income derived from the ISA from the time you become a tax resident of Australia.

Upon returning to Australian and becoming a tax resident, the cost base of your overseas assets is deemed to have been acquired for CGT purposes at their market value at that time. Disposals of the assets will be subject to CGT and you can apply the 50% discount provided the assets have been held for at least 12 months after you relocate to Australia. The ISA investment is not taxed in Country A and therefore the DTA does not apply to these investments. The DTA prevents taxpayers from being taxed twice on income they receive. Therefore, any income you earn on your overseas investments is taxable in Australia as ordinary income under section 6-5, when you return to Australia and become a permanent resident for tax purposes.