Edited version of private ruling

Authorisation Number: 1011579158483

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Ruling

Subject: Residency - Leaving Australia

Questions and Answers

1. Are you an Australian resident for tax purposes?

Yes

2. Is your overseas employment income assessable in Australia?

Yes

3. Are you required to lodge a tax return in Australia for the 2009-10 income year?

Yes

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You are an Australian citizen. Australia is your country of origin.

You left Australia in the year ended 30 June 2009 and have been living in Country X on a working holiday since then.

You hold a working holiday visa which is due to expire. Your visa has been approved by the Government in Country X to be extended for another two years.

The purpose of your visit to Country X is a working holiday.

You are employed as a guest services officer at a ski resort.

You live in rental accommodation at the ski resort where you work.

You plan to return to Australia semi-permanently in approximately one year.

Since first leaving Australia you have returned for holidays to visit family.

You have a bank account in Country X where your salary is paid into.

You pay income tax on your salary earned in Country X.

You continue to maintain a nexus with Australia in the following manner:

You maintain a bedroom with your belongings in your family home in Australia

You maintain a bank account in Australia

You are on the Australian electoral roll

You intend to return to Australia at the end of your working holiday.

You have never been a Commonwealth Government of Australia employee.

Assumptions

Relevant legislative provisions

Income Tax Assessment Act 1997  section 6-5

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

Income Tax Assessment Act 1997  subsection 6-15(2)

Income Tax Assessment Act 1997  section 11-15

Income Tax Assessment Act 1936  section 23AG

Income Tax Assessment Act 1936  subsection 23AG(1AA)

Reasons for decision

Residency

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. 

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 the most applicable in deciding wether a person remains an

Australian resident for taxation purposes and these are examined in detail in

Taxation Ruling IT 2650. The purpose of this ruling is to provide guidelines for

determining whether individuals who leave Australia temporarily to live overseas, for

example, on temporary overseas work assignments or on overseas study

leave, cease to be Australian residents for income tax purposes during their overseas

stay.

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. 3^rd 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'.

As you are currently residing in Country X, you are not considered to be residing in Australia.

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.

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

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.

In your case, you advised that you will return to Australia at the end of your working holiday. Therefore, you are considered to have maintained your Australian domicile.

A person acquires a domicile of choice in a country if they intend to make their home indefinitely in that country.

It is considered that your domicile is in Australia as:

· you have advised that it is your intention to return to Australia on a semi-permanent basis

· the purpose of your visit to Country X is a working holiday and not to move there permanently

· your family remains in Australia

· you have accommodation available to you with some of your belongings at your family home in Australia

· you have still maintained your name on the Australian electoral roll

Based on these facts, the Commissioner is not satisfied that you have established a permanent place of abode in Country X.

You are therefore, considered to be a resident of Australia for tax purposes under the domicile test.

Your residency status

As the Commissioner is satisfied that you are a resident of Australia under the domicile test of residency outline in subsection 6(1) of the ITAA 1936 there is no need to examine the remaining tests. Therefore, you are considered to be an Australian resident for tax purposes for the period you will be in Country X.

Foreign Employment Income

Subsection 6-5(2) of the TAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Salary and wages are ordinary income for the purpose of subsection 6-5(2) of the ITAA 1997.

Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not included in assessable income.

Section 11-15 of the ITAA 1997 lists those provisions dealing with income that may be exempt. Included in this list is section 23AG of the ITAA 1936, which deals with overseas employment income.

Subsection 23AG(1) of the ITAA 1936 provides that where Australian resident individuals are engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from that foreign service are exempt from tax in Australia. However, new subsection 23AG(1AA) of the ITAA 1936, which took effect from 1 July 2009, provides that those foreign earnings will not be exempt under section 23AG of the ITAA 1936 unless the continuous period of foreign service is directly attributable to any of the following:

· delivery of Australian official development assistance by your employer

· activities of your employer in operating a public fund declared by the Treasurer to be a developing country relief fund, or a public fund established and maintained to provide monetary relief to people in a developing foreign country that has experienced a disaster (a public disaster relief fund)

· activities of your employer as a prescribed charitable or religious institution exempt from Australian income tax because it is located outside Australia or the institution is pursuing objectives outside Australia

· deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force.

In your case:

· you have worked continuously overseas for a period greater than 91days

· you are employed by a ski resort as a guest services officer

· your foreign service is not directly attributable to any of the conditions specified in subsection 23AG(1AA)of the ITAA 1936.

Therefore, your foreign earnings are not eligible for exemption pursuant to section 23AG of the ITAA 1936.

Consequently, your income will not be exempt from Australian income tax under section 23AG of the ITAA 1936 and is assessable under subsection 6-5(2) of the ITAA 1997.

NOTE 

Australian resident individuals are taxed on their worldwide income. This means you must include all foreign-source income in your income tax return. If you have paid foreign tax on this income, you may be entitled to a non-refundable foreign income tax offset for the foreign tax you paid.

Conclusion

As you are domiciled in Australia, and do not have a permanent place of abode outside Australia, you are considered to be a resident of Australia for the duration of your employment overseas. Your foreign income is assessable in Australia and you are required to lodge a tax return in Australia. You may, however, be entitled to a non-refundable foreign income tax offset for the foreign tax you paid.

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