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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of private ruling

Authorisation Number: 1011615220682

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for income tax purposes?

Answer: No.

Question 2

Is the income you derive from your employment in country X exempt from tax in Australia?

Answer: Yes.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2006

Relevant facts and circumstances

You are a citizen of Australia.

You are employed by an Australian resident company on a contract basis in country X from the conclusion of the 2009 financial year.

You have been employed in country X since 2007 when you started your original employment contract with another Australian resident company and continued working with your current employer.

You signed a new employment contract in country X and you have been asked to further continue your services until 2012 which you intend to accept.

You have travelled to country X on a Long Stay - work permit, which is renewed every 12 months.

You are entitled to six weeks annual leave with one return flight to Australia every 12 months.

Your annual leave accrues as a result of your services in country X, but taken early for trips to visit family etc.

Your spouse was granted a visa and started residency in country X in 2007.

Your spouse has resided in country X since 2007 until present.

The visa does not permit your spouse to work in country X.

Your spouse stays in a residential long stay apartment building but you reside four nights a week in the project accommodation and spend three nights of the week with your spouse in the apartment.

This arrangement has been in place since 2007.

Your spouse is entitled to one return flight to Australia every six months.

You have purchased a car for your spouse, a few electrical appliances and furniture in country X.

You own a house in Australia, which is not rented out and all your personal property and belongings are in the house.

You returned to Australia to carry out building maintenance on your house and lived in it for three weeks.

Previously you have not visited the house for two and half years.

You also have invested in a block of land in Australia.

You normally stay with family members and friends or motel accommodation during your visits so that you can spend as much time as possible with your children and grandchildren.

You would make time to visit your children every six months for two weeks at any one time.

Your children have never lived with you in country X.

You are required to leave country X for a short period to re-apply for your two to four term Long Stay visa if you accept to stay longer than 2011.

Your spouse's and your resident cards must be stamped every 12 months after that.

You do not intend to stay in country X permanently and it is unlikely that you will reside in country X after the project finishes.

You plan to return to Australia to retire in several years time if you do not find a project that suits your career path and skill set.

You are not a Commonwealth Government of Australia employee.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

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

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

Reasons for decision

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

The 183 day and superannuation tests are not relevant in your case.

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.

As you are residing in country X you are not considered to reside in Australia under the resides test.

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.

The expression permanent 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 the person intends to live for the rest of their life. It should be contrasted with a temporary or transitory place of abode outside of Australia.

Taxation Ruling IT 2650 outlines some of the factors considered relevant in determining a person's permanent place of abode. These are summarised at paragraph 23 of the ruling as:

The weight to be given to each factor will vary with the individual circumstances of each particular case and no single factor is decisive.

Residency status

In your case:

All these factors are relevant, however, the length of time you will be overseas is of sufficiently long enough period that the weight of that factor exceeds the combined weight of the other considerations. Therefore, it is considered that you have established a permanent place of abode outside of Australia. Accordingly you are a foreign (non) resident of Australia for income tax purposes.

Foreign employment income

Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a foreign resident of Australia includes all ordinary income derived directly or indirectly from all Australian sources during the income year.

A foreign resident is a person who is not a resident of Australia.

Salary and wages are regarded as ordinary income.

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

The source of income derived from employment is generally the place where the duties or services are performed (Federal Commissioner of Taxation v. French (1957) 98 CLR 398; 11 ATD 288; (1957) 7 AITR 76).

In your case, your employment duties that are carried outside of Australia are considered to be sourced out of Australia. Therefore, the income derived in relation to such employment is not assessable under subsection 6-5(3) of the ITAA 1997 as you are a foreign resident.

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