Edited version of private ruling

Authorisation Number: 1011627379401

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Ruling

Subject: Residency and assessability of foreign research fellowship

1. Are you an Australian resident for income tax purposes?

No.

2. Do you need to pay tax in Australia on a foreign university training fellowship that is non-taxable in the host country?

No.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commenced on:

1 July 2009

Relevant facts and circumstances

You are a citizen of Australia and your spouse is a citizen of another country.

Your country of origin is Australia and your spouse's country of origin is not Australia.

You left Australia.

You have an residency visa for a foreign country.

Your spouse does not have a visa as she is a citizen of that country.

For the income year you were receiving training at a university in a foreign country.

You were receiving a fellowship during this training which is non-taxable in the host country.

The research fellowship is awarded in order to carry out a research project which is chosen by the research fellow and agreed upon with the host at a host institute in a foreign country.

The fellowship is provided to cover subsistence in the foreign country.

Under the guidelines and information for research fellows, you were required to find your own accommodation in the foreign country and register the details within one week of finding such accommodation.

The fellowship paid you an amount per month.

While undertaking the fellowship you were on leave without pay from your employer in Australia.

You expect to obtain employment in the foreign country in the future.

You have no current plans to seek work in Australia, but you will finish a contract with your employer. Most of it will be done from the foreign country with only a short visit to Australia to attend meetings.

While you are finalising this contract you are being paid by the Australian employer and you are no longer on leave without pay.

Your residency intention is to stay in overseas indefinitely with your spouse.

For a period of approximately one year you lived in the foreign country that hosted your fellowship.

Since then you have been living with your spouse in a neighbouring country.

You have a bank account in the host country. You do not have any other investments in the host country.

Before you went to the foreign country you lived in a flat that you rented in Australia. You no longer rent the flat and you do not own a house in Australia.

You have a bank account and some shares in Australia. You have some family and friends in Australia. You are no longer a member of any sporting clubs in Australia.

Your spouse's family live in the foreign country, you have friends in that country and the neighbouring country. You are not a member of any sporting clubs in either of those countries.

Neither you nor your spouse were employees of the Commonwealth Government.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 6(1)

Income Tax Assessment Act 1936 Section 128B(2)

Income Tax Assessment Act 1936 Section 128D

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 100-20

Income Tax Assessment Act 1997 Section 104-160

Income Tax Assessment Act 1997 Section 104-165

Income Tax Assessment Act 1997 Section 108-5

Reasons for decision

Residency

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) advises 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.

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:

· the resides test

· the domicile test

· the 183 day test, and

· the superannuation test

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

The primary test for deciding your residency status is whether you reside in Australia according to the ordinary meaning of the word resides. However, where you do not reside in Australia according to ordinary concepts, you may still be considered to be an Australian resident for tax purposes if you 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 one's settled or usual abode, to live in or at a particular place.

As you will be residing outside of Australia and you have plans to stay overseas indefinitely, you will not be considered to be residing in Australia.

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.

In your case, you have advised that you will be staying in either the host country or a neighbouring country indefinitely, returning to Australia for a short visit to attend a conference and for meetings with colleagues in order to finalise your contract with your Australian employer.

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 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.

Although you maintain an association with Australia through family, your bank account and investments in shares, your associations with the foreign countries are more significant as:

· you are residing with your spouse in rented accommodation

· you expect to obtain employment in the host country after completing your fellowship

· you have opened a bank account in the host country

· you have friends in the host country and the neighbouring country

· your spouse's family live in the host country, and

· you plan to live in the host country or the neighbouring country indefinitely.

Based on these facts, it is considered that you have established a permanent place of abode outside of Australia. Therefore, you will not be considered to be an Australian resident under the domicile test.

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 do not satisfy this test as you have established a permanent place of abode outside of Australia.

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 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 residency status

As you are not an Australian resident under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936, you ceased to be a resident from the date of your departure from Australia.

From the date you became a non-resident, your financial support from the fellowship will not be assessable in Australia.

Assessability in Australia of your fellowship income

As discussed above, section 6-5 of the ITAA 1997 explains that where you are a non-resident of Australia for taxation purposes your assessable income includes ordinary income from an Australian source.

Ordinary income is generally considered to include amounts you may receive in return for personal services, either as an employee or otherwise and also an amount received periodically or regularly for which you rely on for the maintenance of yourself and/or your dependants.

As you are not an Australian resident for taxation purposes and your fellowship income was not from an Australian source, it is exempt from tax in Australia under section 6-5(3) of the ITAA 1997.

Capital gains tax (CGT) - ceasing Australian residency

A capital gain or capital loss is made as a result of a CGT event happening to a CGT asset. CGT events are the different types of transactions that may result in a capital gain or capital loss and CGT assets include such things as real estate and shares.

CGT event I1 happens when you stop being an Australian resident. If on or after 12 December 2006, you cease to be an Australian resident for tax purposes, you are taken to have disposed of all your CGT assets that are not taxable Australian property for their market value on the day residency ceases.

There are five categories of assets that are taxable Australian property:

· taxable Australian real property (directly held)

· indirect Australian real property interests (other than category five)

· business assets used in an Australian permanent establishment of a non-resident

· options or rights over assets in categories one to three, and

· assets where a capital gain or capital loss is deferred when an individual ceases to be an Australian resident.

You advised that you own shares in Australia, therefore, CGT event I1 took place when you ceased to be resident of Australia. You can, however, choose to disregard all capital gains or capital losses arising from CGT event I1 happening. This choice, if made, must be made for all gains and losses from all CGT assets to which CGT event I1 applies. The choice is made on the day you lodge your income tax return in the year in which you ceased to be a resident, or within a further time period allowed by the Commissioner.

If this choice is made, the assets are taken to be taxable Australian property until the earlier of:

· a CGT event happening to the assets such as selling them, or

· you becoming an Australian resident again.

Interest income derived by a non-resident from investments in an Australian bank

Interest is ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997. Interest paid to a non-resident investor is subject to a withholding tax.

Where a non-resident taxpayer holds Australian investments they are required to advise the financial institution of their non-resident status and provide an overseas address. This notification allows the financial institution to follow the correct withholding tax procedures.

For more information about leaving Australia and the things you need to do to get your tax affairs in order read Leaving Australia overview available at our website.

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