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Edited version of private ruling

Authorisation Number: 1011824431988

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Ruling

Subject: Residency

This ruling applies for the following periods:

Year ended 30 June 2010

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commenced on:

30 June 2010

Question 1:

Are you considered a non-resident for income tax purposes in Australia?

Answer 1:

No.

Facts:

Your country of origin is Australia and you are an Australian citizen.

You do not hold permanent residency or citizenship of another country.

You are employed as an independent contractor in a specific position with Employer A in Country A.

Your position commenced on a specific date during the financial year ended 30 June 2010 and is due to cease on a specific date during the financial year ending 2013 with the possibility of a further extension subject to the requirements of the client.

For the duration of your employment contract you are paid a daily salary and are employed for a minimum of a specific number of hours per day, for a specific number of days per week for a period of a specific number of weeks, followed by a specific number of weeks of unpaid rest and recreation leave.

You have taken rest and recreation leave for several specific periods during the financial year ending 30 June 2011.

During your periods of rest and recreation leave you have returned to Australia to visit and stay with your immediate family members.

Your return trips to Australia are paid for by your employer and you do not perform any work-related activities whilst on rest and recreation leave.

You state that you do not intend to return to Australia at the expiry of your current contract, and that it is your intention to seek work and remain permanently overseas.

You have not specified a particular foreign country in which you intend to reside permanently.

You have an account with a financial institution in Country A and state that you intend to purchase a motor vehicle in that country.

You have accounts with Australian financial institutions.

You have a property in Australia which is occupied by your immediate family.

Your immediate family are undertaking specific activities in Australia.

You are maintaining a motor vehicle and some of your possessions in Australia.

You are living in cost-free accommodation in Country A provided by your employer, with no formal lease agreement

You are residing in Country A on a temporary working visa.

You have no family or relatives in Country A.

You state that you have no sporting or social connections to either Country A or Australia.

You and/or your immediate family member are not eligible members of a Commonwealth superannuation scheme

You have stated that your employment income is subject to tax in Country A under their domestic law.

There is a Tax Treaty between Australia and Country A.

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 6-5(3).

Residency Status

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 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 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. 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'.

As you will be residing in Country A for a specific period, 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 state that you do not intend to return to Australia at the expiry of your current contract of employment, and that it is your intention to seek work outside Australia and remain permanently overseas.

However, you continue to maintain a link with Australia in the following manner:

In addition, your family ties remain solely with Australia which is evidenced by your regular visits to your immediate family who continue to reside in your Australian property and undertake specific activities in Australia.

The facts of your case indicate that you have continued to maintain your Australian domicile. As a result, the Commissioner is not satisfied that you have established a permanent place of abode in Country A and, therefore, are considered to be a resident of Australia for tax purposes under the domicile test.

As the Commissioner is satisfied that you are a resident of Australia under the domicile test of residency outlined in subsection 6(1) of the ITAA 1936 there is no need to examine the remaining tests.

Note:

You will need to include your employment income from Country A as foreign-source income at Item 20 (TaxPack Supplement) on your income tax return.

As you have indicated that your employment income in Country A is being taxed by the Country A tax authority, you may be eligible to claim the amount of Country A tax that you have paid as a foreign income tax offset at Item 20 (TaxPack Supplement) on your income tax return.

TaxPack Supplement has more information to assist you with completing Item 20.

The Tax Office can only provide advice on issues relating to Australian tax legislation. You will need to contact the Country A tax authority for advice on your tax obligations in Country A.

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