Edited version of private ruling

Authorisation Number: 1011505136791

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Ruling

Subject: Residency - foreign employment income

1. Were you a resident of Australia for income tax purposes for the period you were a member of a Public Service Superannuation Scheme (PSS)?

Yes.

2. Were you a resident of Australia for income tax purposes after you resigned from your employment with an Australian government organisation and were not a member of a PSS?

No.

3. Was your income derived from your employment as a locally engaged staff (LES) in an Australian government organisation in Country A while you remained a resident of Australia, assessable in Australia?

No.

4. Was your income derived from your employment as a LES in an Australian government organisation in Country A as a foreign resident of Australia, assessable in Australia?

No.

This ruling applies for the following period

Year ended 30 June 2007

Year ended 30 June 2008

The scheme commenced on

1 July 2005

Relevant facts

You are citizen of Country A by birth and became citizen of Australia after migrating to Australia.

Your Country A citizenship allows you to remain indefinitely in Country A.

You worked in an Australian government organisation.

Your intention was to travel before moving to Country A.

Your employer in Australia offered and granted you leave without pay for a period of time.

You applied for Country A passport before you left Australia to allow you to live and work in Country A.

Your partner, who is an Australian, also moved with you to Country A and applied for a Country A visa which gives them permission to live and work freely for several years with an option to apply for residency or further extend their visa after this time.

You and your partner both wanted to have a more permanent visa which allows you to live in Country A for an extended period of time.

You initially travelled to Country X before living in Country Y for several months.

You started searching for employment while living in Country Y and found a vacancy notice within an Australian government organisation and applied for that position.

You stated you were not posted from Australia to undertake this employment nor moved to Country A for the purpose of rendering these services but to live in Country A and the position came up at the right time.

You were notified of securing that employment while visiting your family in Country Z on your way to Country A.

You arrived and commenced work in Country A with an Australian government organisation as a LES before you resigned from your employment in Australia.

You resigned from your employment in Australia several months after joining your employment in Country A.

Your initial contract was for the period of one year. Your contract was extended several times with a likelihood of further extension.

You are not intending to take any further extension of this employment contract as you wish to pursue other study or employment opportunities.

You stated:

· your salary was paid into a bank account in Country A

· you did not pay any taxes in Country A

· you started paying taxes in Country A several months after commencing your employment

· you are considered to be a resident of Country A

· you accommodation in Country A was shared and long term leases.

You stated:

· you continue to live in the shared houses with your partner due to rental costs and your wishes to live closer to your workplaces in Country A

· country A has been your primary and only domicile since you arrived in Country A

· you opened a bank account in Country A on arrival in Country A

· you have joined a gym and registered with doctors and a dentist in Country A

· you hold store membership with several stores in Country A

· you have purchased an annual multi trip travel insurance policies while living in Country A

· you have extended family in Country Z and Country M.

Prior to leaving Australia you were contributing to the Public Sector Superannuation Scheme (PSS).

You stated:

· you were a member of the PSS until you resigned from your employment in Australia

· during your time with the Australian government organisation in Country A, no contributions were made into your PSS account

· your employer made contributions to the Australian Government Employees Superannuation Trust (AGEST) immediately upon commencement of your employment in Country A

· AGEST contributions stopped when you started paying taxes in Country A

· your partner never worked for the Australian government or been a member of the PSS Scheme.

You have returned to Australia for a holiday few times for short periods of time since first leaving Australia.

Your leave was accrued as a result of your services in Country A.

You were not sure if you would come to Australia on a more permanent basis.

In Australia:

· you do not have any assets except a bank account which you use to pay any outstanding debt

· you maintain your association with Australia through your family and friends.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Subsection 6-5(2)

Income Tax Assessment Act 1997 Subsection 6-5(3)

International Tax Agreements Act 1953

Reasons for decision

Your residency status for taxation purposes and the source of income determines your liability for Australian taxation.

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident will include ordinary income derived from all sources, whether in or out of Australia, during the income year.

Residency

The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are:

· The resides test

· The domicile test

· The 183 day test

· The Superannuation test.

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides.

However, where you do not reside in Australia according to ordinary concepts, you may still be considered to be a resident of Australia for tax purposes if you meet the conditions of any one of the other three tests.

In your case, you meet the conditions of the superannuation test.

The superannuation test

An individual is still considered to be a resident if that person is an eligible member of the PSS established by deed under the Superannuation Act 1990, or that person is the spouse or child under 16 of such a person.

In your case, you were a member of the PSS until you resigned from your employment with an Australian government organisation in Australia.

Therefore, you will be treated as a resident of Australia under the domestic law under this test up to the period you were a member of the PSS.

Dual residency

In your case, you are a dual resident as you are also considered to be a resident of Country A. A dual resident individual is an individual who is a resident of both Australia and Country A for income tax purposes.

The tax treaty between Australia and Country A (the Country A Agreement) operates to avoid the double taxation of income received by Australian and the Country A residents.

The Country A Agreement provides rules (the 'tie-breaker' rules) to ensure that a dual resident individual is treated as a resident of only one of the countries for the purposes of working out the liability to tax on their income under the Country A Agreement.

The tie-breaker rules do not change a taxpayer's residency status for domestic law purposes.

The Country A Agreement provides that the residency of an individual for the purposes of the Country A Agreement shall be determined in accordance with the following rules:

· if the individual has a permanent home available in both countries, or in neither country, the individual shall be deemed to be a resident of the country in which they have a habitual abode. If the individual has a habitual abode in both countries, or in neither country, the individual is deemed to be a resident of the country with which their personal and economic relations are closest

· if the Contracting States in which the centre of vital interest is situated cannot be determined, the individual shall be deemed to be a resident only of the State of which that individual is a national

· if the individual is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall endeavour shall endeavour to resolve the question by mutual agreement

In your case, you have a permanent home available at all times in Country A as you were renting an accommodation there. Your personal and economic relations were also closest with Country A as you were working there and your partner accompanied you. Therefore, you would be treated solely as a Country A resident under the Country A Agreement.

In your case, you have a permanent home available at all times in Country A as you were renting an accommodation there. Therefore, you would be treated solely as a Country A resident under the Country A Agreement. Further, your personal and economic were closer with Country A.

Assessability of Country A source income

The Country A Agreement provides that salaries, wages and other similar remuneration paid by Australia to an individual in respect of services rendered in the discharge of governmental functions shall only be taxable in Australia. However, such salaries, wages and other similar remuneration shall be taxable only in the Country A if the services are rendered in Country A and the recipient is a resident of Country A who:

· is a national of the Country A; or

· did not become a resident of Country A solely for the purpose of rendering the service.

In your case, you are a citizen of Country A and you did not move to Country A for the sole purpose of taking up employment in Country A. Therefore, the income you received from Country A would only be taxable in Country A under the Country A Agreement. Hence, it would not be assessable in Australia under subsection 6-5(2) of the ITAA 1997.

Foreign employment income as a foreign resident of Australia

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a foreign resident taxpayer includes ordinary income derived directly or indirectly from all Australian sources during the income year and other ordinary income that a provision includes as assessable income on some basis other than having an Australian source. Subsection 995-1(1) of the ITAA 1997 defines foreign resident to mean a person who is not a resident of Australia for the purposes of the ITAA 1936.

In your case you became a foreign resident of Australia on the day you resigned from your employment from your employer in Australia. Your employment income from the Australian government organisation in Country A is earned as a foreign resident of Australia from the date you resigned from your employment in Australia. Accordingly your income in Country A as a foreign resident of Australia is not assessable in Australia under subsection 6-5(3) of the ITAA 1997.

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