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Edited version of private ruling

Authorisation Number: 1011742173330

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Ruling

Subject: Residency

Question 1

Are you an Australian resident for tax purposes while you live and work in Country X?

Answer

No

Question 2

Are your salary and wages from Country X assessable in Australia?

Answer

No

This ruling applies for the following period

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

The scheme commenced on

1 July 2011

Relevant facts and circumstances

You are an Australian citizen.

You are leaving Australia to live and work in Country X.

You intend living in Country X for at least two to five years.

You have permanent residency in Country X.

You intend renting and then buying an apartment in Country X.

In Australia, you live alone in rented accommodation, and are currently undergoing divorce proceedings.

You intend selling the family home, depending on the result of the proceedings.

Your spouse and children will remain in Australia.

You intend visiting Australia two to three times a year to visit your children and on business.

You have investments equity funds in Australia which you will exit when you leave Australia.

Neither you nor your spouse is eligible to contribute to a Commonwealth superannuation scheme such as the CSS or PSS.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 995-1(1)

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

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

 

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 an Australian resident 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 an Australian resident for tax purposes if they meet the conditions of one of the other three tests.

As you intend living in Country X indefinitely, you are not considered to be residing in Australia under this 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.

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 their 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 have advised that it is your intention to make your home indefinitely in Country X. You live in rented accommodation in Australia, intend selling the family home if possible, and will take out a long term lease and then purchase a residence in Country X. Your associations with Country X are significant as you have permanent residency there, will be residing and working there, creating and maintaining economic and social ties in that country.

Based on these facts, it is considered that you will establish a permanent place of abode in Country X.

The 183-day test

This test does not apply to you as it has been identified that your permanent place of abode is in Country X.

The superannuation test

An individual is still considered to be an Australian resident for tax purposes if that person is eligible to contribute to a Commonwealth superannuation scheme such as the PSS or the CSS, or that person is the spouse or child under 16 of such a person. 

This test does not apply to you as you and your spouse are not eligible to contribute to the PSS or the CSS.

Your residency status

In your case, you are not considered an Australian resident for tax purposes under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936. Accordingly, you are deemed a foreign resident from the date of your departure from Australia.

Foreign salary and wages

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

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; (1957) 11 ATD 288; (1957) 7 AITR 76).

Therefore, the salary and wages you receive from employment in Country X have a foreign source.

In your case, you are a foreign resident and the services are performed in Country X.

Therefore, because the employment income is derived from a source out of Australia, the salary and wages you receive from your employment in Country X are not assessable in Australia under subsection 6-5(3) of the ITAA 1997.

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