ATO Interpretative Decision

ATO ID 2001/226

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does an Australian Defence Force (ADF) member representing Australia in an overseas country that has a double tax agreement with Australia for an agreed contract term remain a resident of Australia for income tax purposes?

Decision

Yes. The taxpayer, an ADF member remains a resident of Australia for income tax purposes under subparagraph (a)(i) of the definition of resident in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

Facts

The taxpayer is an ADF member who took a posting to an overseas country that has a double tax agreement with Australia to perform government service for an agreed contract term. The ADF member is solely in the overseas country to perform these duties and intends to return to Australia at the end of the posting.

The taxpayer has a diplomatic passport with an official visa that authorises the ADF member's presence in that country only whilst representing Australia.

The taxpayer also has access to duty free goods, diplomatic privileges with respect to the law of that overseas country and access to a motor vehicle with diplomatic registration.

The taxpayer is accompanied by immediate family members. They are living in rental accommodation paid for by the Government of Australia.

The taxpayer has minimal assets (a bank account), in the overseas country and substantial assets in Australia.

The taxpayer is a member of an ADF superannuation scheme and will continue to make payments to that scheme whilst residing in the overseas country.

Reasons for Decision

An Australian resident is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to be a person who is a resident of Australia for the purposes of the ITAA 1936.

The term "resident" or "resident of Australia", in regard to an individual, is 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. These tests are:

(1)

residence according to ordinary concepts (primary test)

(2)

domicile and permanent place of abode test (first statutory test)

(3)

183 day rule (second statutory test)

(4)

Commonwealth superannuation test (third statutory test)

The first two tests are the most applicable in deciding whether a person remains an Australian resident for taxation purposes in the case where the person leaves Australia temporarily and is not actually living in Australia during the year of income.

In the present case, the taxpayer does not qualify as an Australian resident for taxation purposes under ordinary concepts as the taxpayer is not actually living in Australia during the period of appointment in the overseas country.

However, under the domicile and permanent place of abode test, a person will be a resident of Australia if he or she has an Australian domicile, unless the Commissioner (of Taxation) is satisfied that the person has established a permanent place of abode outside of Australia.

Taxation Ruling IT 2650 states at paragraph 10 that, 'In determining a person's domicile for the purposes of the definition of "resident" in subsection 6(1), it is necessary to consider the person's intention as to the county in which he or she intends to make his or her home indefinitely.'

In the present case, it is considered that the taxpayer will retain an Australian domicile as, under the employment contract, the taxpayer is to return to Australia at the end of the overseas appointment. This does not indicate an intention to make one's home indefinitely in another country.

Where the taxpayer's domicile is in Australia, it is necessary to consider whether or not the taxpayer has established a permanent place of abode outside of Australia.

The leading case on whether a permanent place of abode is outside Australia is FC of T v. Applegate 79 ATC 4307; (1979) 9 ATR 899. The Federal Court said that in respect of the definition of "resident", a permanent place of abode does not have to be "everlasting" or "forever".

IT 2650, sets out the factors that are used by this office in reaching a state of satisfaction as to a taxpayer's permanent place of abode. These are summarised at paragraph 5 in the Ruling as:

(a)

the intended and actual length of the taxpayer's stay in the overseas country;

(b)

any intention either to return to Australia at some definite point in time or to travel to another country;

(c)

the establishment of a home outside Australia;

(d)

the abandonment of any residence or place of abode the individual may have had in Australia;

(e)

the duration and continuity of the taxpayer's presence in the overseas country; and

(f)

the durability of association that the individual has with a particular place in Australia.

It is considered that the taxpayer has not demonstrated that a permanent place of abode has been established in the overseas treaty country for the following reasons:

•

the overseas appointment is only for a limited period;

•

the taxpayer entered the overseas treaty country on a diplomatic passport with an official visa that authorised him to remain in that country only whilst representing the Commonwealth of Australia;

•

the taxpayer and immediate family reside in rental accommodation provided by the Government of Australia;

•

the taxpayer enjoys all the privileges, access to duty free goods etc, of an accredited diplomatic agent;

•

the taxpayer has substantial assets in Australia;

•

the taxpayer was and continues to be a contributing member of the employer's superannuation fund.

Therefore, the taxpayer remains an Australian resident for tax purposes in accordance with the extended definition of "resident" in subsection 6(1) of the ITAA 1936 - the domicile and permanent place of abode test.

Legislative References:
Income Tax Assessment Act 1936
   subsection 6(1)

Case References:
Federal Commissioner of Taxation v. Applegate
   79 ATC 4307
   (1979) 9 ATR 899

Related Public Rulings (including Determinations)
IT 2650

Keywords
Residency
Income
Australian Defence Force Official
Diplomatic passport
Senior ADF Official

Business Line:  Small Business/Individual Taxpayers

Date of publication:  21 August 2001
Date reviewed:  17 January 2014

ISSN: 1445-2782