Edited version of private ruling

Authorisation Number: 1011558112049

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Ruling

Subject: Residency and foreign source income

1. Where you a non resident of Australia for tax purposes from mid 2009?

Yes.

2. Is the income you received from your employment in country A assessable in Australia for the whole of the financial year ended 30 June 2010?

No.

3. Is the income you received from your employment in country A assessable in Australia from the beginning of the financial year until you became a non resident?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2010

The scheme commenced on:

1 July 2009

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 separated from your spouse.

Your matrimonial home is to be transferred to your spouse as a part of your separation settlement agreement. This agreement has only recently been signed and is not yet registered with the courts.

You have not lived in your matrimonial home since you seperated.

You do not have a permanent address in Australia.

Prior to your separation you were already spending most of your time living in country A.

You rent an apartment in country A. The lease started for a period of one year and it was automatically renewed after that for the following years on a year by year basis.

Your lease is currently valid and additional renewals are optional on a year by year basis.

You do not own any property in country A as it is legally impossible for foreigners to own property.

You have established a residence in country A.

You have a permanent residence permit in country A.

You spent less than 183 days in Australia during the financial year for the purpose of visiting family and to finalise your affairs in Australia.

When in Australia visiting your family you rented apartments.

You carried out most of your work in country A during the financial year.

During the financial year you spent over half of the year in country A. You also worked for a small number of days in country B, and attended various business meetings in other countries.

You spent a number of days travelling between projects during the year.

You did not perform any work in Australia in the financial year.

Neither you nor you spouse are or have ever been commonwealth government employees.

Relevant legislative provisions

Section 6(1) of the Income Tax Assessment Act 1936

Section 6-5 of the Income Tax Assessment Act 1997

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Residency

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are an Australian resident for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a non resident of Australia for taxation purposes, your assessable income includes only income from an Australian source.

Are you an Australian resident for tax purposes?

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 an Australian resident for income tax purposes. These tests are:

1. The resides test

2. The domicile test

3. The 183 day test

4. The superannuation test

The first two tests are examined in detail in Taxation Ruling IT 2650.

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 an individual does not reside in Australia according to ordinary concepts, they may still be considered to be an Australian resident for tax purposes if they satisfy the conditions of one of the three other tests.

1. The resides test

The ordinary meaning of the word reside, according to the dictionary definition, is to dwell permanently, or for a considerable time, to have ones settled or usual abode, to live in or at a particular place.

You resided in country A for most of the financial year.

2. The domicile test

If a person is considered to have their domicile in Australia they will be considered an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

Domicile

Generally speaking, persons leaving Australia temporarily would be considered to have maintained their Australian domicile unless it is established that they have acquired a different domicile of choice by operation of law.

In order to show that a new domicile of choice in a country outside of Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country.

You are living and working in country A on a permanent residence permit, however, you have not acquired a new domicile there. You have maintained your Australian domicile.

Permanent place of abode

The expression 'place of abode' refers to a person's residence, where they live with their family and sleep at night. In essence, a person's 'place of abode' is that persons dwelling place or the physical surroundings in which a person lives.

A permanent place of abode does not have to be everlasting or forever. It does not mean an abode in which a person intends to live for the rest of his or her life. An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a permanent place of abode elsewhere.

Taxation Ruling IT 2650 sets out several factors to be considered in determining whether a person has established a permanent place of abode outside of Australia.

The weight of each factor will vary on a case by case basis and no single factor will be decisive. The factors to be considered are:

· the intended and actual length of stay in the overseas country - the longer the stay, the more permanent in nature, the more likely that a permanent place of adobe has been established. Generally, a period of two years or more is regarded as a substantial period of time for the purpose of taxpayers stay; this however is not itself conclusive

· whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time. This factor requires an intention to stay in a specific country overseas and not simply the intention to remain out of Australia

· whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia

· whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence

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

· the durability of association that the person has with a particular place in Australia, that is, maintaining Australian bank accounts, family ties and so on.

You have been living in country A for a number of years while maintaining your family home in Australia, you are employed in country A and do not intend to maintain any place of abode in Australia following the separation from your spouse.

The Commissioner is satisfied that you have established a permanent place of abode in country A when you separated from your spouse. You are therefore a non resident of Australia for tax purposes under this test from when you separated from your spouse.

The 183 day test

When 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 present in Australia for more than 183 days so this test does not apply to you.

The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person.

Neither you nor your spouse are or have ever been an employee of the commonwealth.

Your residency status

You were a resident of Australia until a specific date at which point you became a non resident of Australia.

Assessability of income

Section 6-5 of the ITAA 1997 states that where you are an Australian resident for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia.

Section 23AG of the ITAA 1936 provides an exception to this general rule. According to this section, foreign earnings derived by an Australian resident taxpayer from at least 91 days' continuous employment in a foreign country may be exempt, provided certain conditions are met.

Section 23AG(1AA) of the ITAA 1936 provides that from 1 July 2009, this exemption only applies to income earned:

· as an aid or charitable worker employed by a recognised non-government organisation

· as a government aid worker, or

· as a government employee deployed as a member of a disciplined force.

Although you are in receipt of foreign earnings, you do not meet any of the requirements found in section 23AG(1AA) of the ITAA 1936. Therefore, the exemption does not apply to you and your income is assessable in Australia.

As you were a resident of Australia you are taxable in Australia on your foreign source income until that point in time. From when you are a non resident and only Australian sourced income is taxable in Australia.

Foreign income tax offset

Foreign income tax offset is available to a taxpayer for foreign income tax paid on an amount that is included in assessable income. Entitlement to the tax offset arises only to the extent that the foreign income tax has been paid on an amount included in assessable income (section 770-10 of the ITAA 1997).

More information on the calculation of the foreign tax offset is available in the Guide to foreign income tax offset rules 2009-2010 (NAT 72923) on the Tax Office website www.ato.gov.au.

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