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Edited version of private ruling

Authorisation Number: 1011868189267

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Ruling

Subject: Residency status

Question 1

Are you an Australian resident for taxation purposes for the period you lived overseas?

Answer

No.

Question 2

Is your income derived overseas assessable in Australia?

Answer

No.

This ruling applies for the following period

Year ending 30 June 2009

The scheme commenced on

1 July 2008

Relevant facts

In 2008 you and your family departed Australia to take up full-time residence overseas after securing a full-time employment opportunity.

The employment offer was for three years. You then had the opportunity to extend at the end of the contract period subject to an employer offer.

Your intention was to remain living overseas indefinitely, employment permitting.

After temporary accommodation being provided by your employer for the first six weeks, you signed a 12 month lease for a two bedroom apartment. Your household items were freighted from Australia.

While overseas, your child attended school.

Unfortunately due to the Global Financial Crisis, your full time employment was terminated in 2009 after six months. As a result of the termination and related sponsorship withdrawal, your residency visa was also cancelled.

You tried to find alternative employment overseas and had several interviews, however you were unsuccessful. Without ongoing employment, sponsorship and a residency visa, you and your family had to leave the overseas country within 60 days of being terminated.

With the poor prospect of finding overseas employment elsewhere due to the crisis, you were forced to return to Australia.

Your Australian residence was put up for rent while you were overseas and rented shortly after your departure through a local real estate with a 12 month lease.

Once back in Australia, with your house rented, you temporarily lived with family until the lease expired.

You commenced employment in Australia soon after your return and later moved back into your house.

You and your spouse are not members of the Public Sector Superannuation or the Commonwealth Superannuation Scheme.

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).

Reasons for decision

Residency

Residency status is a question of fact. Your residency status is relevant in determining your liability to Australian income tax.

The term Australian resident is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to mean a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

Subsection 6(1) of the ITAA 1936 provides four tests to determine whether a person is a resident of Australia for income tax purposes. These tests are:

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 Macquarie Dictionary defines reside as to dwell permanently or for a considerable time, have ones abode for a time.

The Shorter Oxford English Dictionary defines reside as to dwell permanently, or for a considerable time, to have ones settled or usual abode, to live in or at a particular place.

The period of physical presence in Australia is not by itself decisive when determining whether an individual resides here. All the facts and circumstances that describe an individual's behaviour in Australia are relevant in determining the residency status. No single factor is necessarily decisive. The following factors are useful when determining whether a person is residing in Australia:

In your case, you lived and worked overseas for six months. You lived overseas a further two months before returning to Australia. The purpose in returning to Australia was for work.

Your family travelled with you overseas and returned to Australia with you after your employment contract was terminated. Whilst overseas, your son attended school.

During your time overseas, your Australian residential property was rented. You had signed a 12 month lease overseas for a two bedroom apartment. You had your household items freighted from Australia to you.

Although, your stay overseas was for only eight months, your original intention was to live and work overseas with your family for at least three years.

Based on the factors listed above, we consider that you were not residing in Australia for these eight months. Consequently you do not satisfy the 'resides test' and therefore it is necessary to consider the other three tests.

The domicile test and permanent place of abode

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, for example, through having obtained a migration visa.

Although you obtained a full residency visa status which allowed you to live and work overseas for a period, we do not consider that your domicile is overseas.

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. 

The expression 'place of abode' refers to a person's residence, where one lives with one's family and sleeps 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.

Taxation Ruling IT 2650 provides that the following factors are considered in determining a taxpayer's permanent place of abode:

IT 2650 states that as a general proposition, an overseas stay for a duration of less than two years would be considered as being of a transitory nature. 

However, in your case you intended to work and live overseas for an extended period, with your initial three year employment contract. Due to unforeseen circumstances you returned to Australia after eight months.

Acquisition of a home in the overseas country is generally a relevant though not a conclusive factor. You acquired a 12 month lease for an apartment when overseas.

Your house in Australia was rented on your departure from Australia.  

Although you maintained an association with Australia with family and your residential property, your association overseas for the eight months is more significant than those in Australia due to your employment and living arrangements. These circumstances support the view that your permanent place of abode was outside Australia during this period. 

As a result, you would not be considered a resident of Australia for income tax purposes under the domicile test. 

The 183-day test

You were not actually in Australia for 183 days in the 2008-09 financial year and are not considered to be a resident of Australia under this test.

The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the Public Sector Superannuation (PSS) or the Commonwealth Superannuation Scheme (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.

Summary

You do not satisfy any of the tests for Australian residency for the eight month period. Therefore you are not considered a resident of Australia for taxation purposes for this period. A person who is not a resident of Australia is a foreign resident.

Australian tax liability

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

Salary and wages are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

The source of income derived from employment is generally considered to be 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).

In determining your Australian tax liability on your foreign sourced income, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953.

Australia does not have a tax treaty with the relevant overseas country.

As your employment income from overseas is not sourced in Australia and you were a foreign resident for this period, you are not liable to Australian income tax on your overseas employment income.

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