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Edited version of private ruling

Authorisation Number: 1011599651347

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Ruling

Subject: Residency for tax purposes

1. Are you a resident of Australia for taxation purposes?

Yes.

2. Do you include your income derived overseas in your Australian tax return?

Yes.

This ruling applies for the following period:

Year ending 30 June 2011

The scheme commenced on:

1 July 2010

Relevant facts and circumstances

You are a citizen of Australia and you were born in Australia.

You are going overseas for a period of 12 months to work.

You intend to return to Australia after the position ceases.

You currently live with your parents and you intend to return to Australia and reside with them.

No other family members will be accompanying you to overseas.

You have no assets in overseas.

You have a bank account and vehicle in Australia.

You have no social and sporting connections with the overseas country.

You have sporting and social connections in Australia.

You have never been an employee of the Commonwealth Government.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 6(1).

Income Tax Assessment Act 1997 Section 6-5.

Reasons for decision

Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident as a person who is a resident of Australia for the purpose of the Income Tax Assessment Act 1936 (ITAA 1936).

The terms resident and resident of Australia, in regard to an individual, are 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:

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.

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 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.

In your case, you will be going overseas for a period of 12 months. You intend to return to Australia when your contract ends.

As you are leaving Australia for a relatively short period of time and your intension is not to live permanently overseas it is considered that you reside 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 will have not established a permanent place of abode in overseas based on the following information:

Based on these facts, the Commissioner is not satisfied that you have established a permanent place of abode outside Australia. Consequently, you satisfy the domicile test.

You are an Australian resident for taxation purposes under the resides and domicile tests. Therefore, it is not necessary to consider the 183 day test and the superannuation tests.

Your residency status

You are considered to be a resident of Australia for taxation purposes for the period you are overseas. 

As a resident of Australia, you are assessable on the ordinary income you derive from all sources, whether in or out of Australia, during the income year (section 6-5 of the ITAA 1997). This is subject to the operation of any double tax agreement (DTA). DTAs override the ITAA 1936 and the ITAA 1997 in the event of any inconsistency (subsection 4(2) of the International Tax Agreements Act 1953 (the Agreements Act).

Double Tax Agreements

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements contained in the Agreements Act.

The double tax agreement with xxxx deals with salary and wages.

The DTA says that where a person is a resident of both countries, he shall be deemed to be a resident solely of the country in which he has a permanent home available to him. If he has a permanent home available to him in both countries, or if he does not have a permanent home available to him in either of them, he shall be deemed to be a resident solely of the country with which his personal and economic relations are the closer.

We consider that you would be deemed to be a resident of Australia under the DTA either because you have a permanent home available to you in Australia or because your personal and economic relations are closer to Australia than they are to xxx . Therefore, Australia has the taxing right to all your employment income, but xxx also has the right to tax the income you derived there. Australia will allow a foreign tax credit limited to the amount of Australian tax paid on the income under the DTA.

The commissioner is not able to advise you on whether you are required to lodge a tax return in xxx . You will need to contact the authorities to discuss that with them.

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