Edited version of private ruling

Authorisation Number: 1011571522950

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Residency - International

Is the income you earned in xx from your employment with the Australian Embassy as a local staff, assessable in Australia?

No.

This ruling applies for the following period:

30 June 2010.

30 June 2011.

The scheme commences on:

1 July 2009.

Relevant facts and circumstances

You migrated to Australia.

You are an Australian citizen.

Your home country is xx.

You have dual nationality.

You were working in Australia until 2009 and currently do not have any employment contract in Australia.

You have a bank account in Australia.

Whilst in Australia, you lived in a rental property which was partly furnished.

You left Australia to travel to xx for a holiday and intended to return to Australia. However, due to your parent's illness you continued to stay in xx.

Your parent is financially supporting you in xx and you are living at their residence.

You do not know when you will return to Australia.

You worked at the Australian Embassy in xx as a local staff.

You do not have any assets in Australia apart from a few furniture items that you have stored at your friends house.

You do not have any assets in xx.

You are not married and do not have any immediate family living in Australia.

You currently do not work in xx.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

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

Therefore, in order to determine whether your income will be assessable in Australia it is necessary to first determine your residency status for tax purposes.

Residency - Generally

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 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 a resident of Australia for tax purposes if they satisfy the conditions of one of the other three tests.

The resides test

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3rd edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; having one's abode for a time', and according to the Compact Edition of the Oxford English Dictionary (1987), 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'.

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 person's 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.

Some of the factors which have been considered relevant by the Courts and Boards of Review/Administrative Appeals Tribunal and which are used by this Office in reaching a state of satisfaction as to a taxpayer's permanent place of abode include:

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

· 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

· 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 bank accounts in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

In your case, you have been living outside of Australia and intended to return to Australia. Your parent became ill which resulted in you deciding to continue to stay in XX indefinitely. You also have all your family ties in XX. You therefore do not satisfy the resides test. It is thus necessary to consider the statutory tests of residency.

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" is a legal concept to be determined according to the Domicile Act 1982 and to the common law rules which the courts have developed in the field of private international law. The primary common law rule is that a person acquires at birth a domicile of origin, being the country of his or her father's permanent home. This rule is subject to some exceptions. For example, a child takes the domicile of his or her mother if the father is deceased or his identity is unknown. A person retains the domicile of origin unless and until he or she acquires a domicile of choice in another country, or until he or she acquires another domicile by operation of law (Henderson v. Henderson [1965] 1 All E.R.179; Udny v. Udny [1869] L.R.1 Sc.& Div. 441; Bell v. Kennedy [1868] L.R.1 Sc.& Div. 307 (H.L.)) .

In determining a person's domicile for the purposes of the definition of "resident" in subsection 6(1) of the ITAA 1936, it is necessary to consider the person's intention as to the country in which he or she is to make his or her home indefinitely. Thus, a person with an Australian domicile but living outside Australia will retain that domicile if he or she intends to return to Australia on a clearly foreseen and reasonably anticipated contingency.

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 or by operation of law. In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country, for example, through having obtained a migration visa. A working visa, even for a substantial period of time such as two years, would not be sufficient evidence of an intention to acquire a new domicile of choice.

In your case, you have dual citizenship and have not proved that you have an intention to make your home indefinitely outside Australia. Therefore the Commissioner is not satisfied that you have a domicile outside Australia. However, as you have been living outside Australia since and do not know when you will return to Australia, it is considered that your permanent place of abode is outside Australia. As such, you do not satisfy the 'domicile' test of residency.

183 day test

You qualify for residency under this test if you are physically present in Australia for 183 days or more in the year, unless your usual place of abode is outside of Australia and you don't intend to take up residence in Australia. This test is more applicable to persons coming to Australia.

As your usual place of abode is outside of Australia indefinitely, you do not satisfy this test for residency.

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.

You are not a member of the PSS or the CSS or a spouse of such a person, or a child under 16 of such a person. Therefore, you will not be treated as a resident under this test.

Your resident status

As you are not a resident of Australia under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936, you are not considered to be an Australian resident from the date when you had planned to return to Australia but decided to remain indefinitely in XX.

Salary derived while employed in XX not assessable in Australia.

From the date you become a foreign resident, your foreign-sourced income will be exempt from tax in Australia. Therefore, the salary you earned in XX will not be assessable in Australia.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).