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This edited version has been archived due to the length of time since original publication.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 your private ruling

Authorisation Number: 1012312575438

Ruling

Subject: Residency, foreign income

Question 1

Are you an Australian resident for tax purposes for the period you will be undertaking a research fellowship in an overseas country?

Answer

No

Question 2

Will the income you receive from your research fellowship in a foreign country be taxable in Australia?

Answer

No

This ruling applies for the following periods

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commences on

On or after 1 July 2012

Relevant facts and circumstances

You will be departing Australia during the 2012-13 financial year to undertake a fellowship overseas. 

The fellowship is for a period of X years. You will be living overseas for X years from the date you arrive.  

You will receive allowances as part of the fellowship.

The fellowship you have been awarded requires you to conduct your research overseas for Y consecutive months under the leadership of a host researcher.

You are currently residing with your parents, and will be moving out when you leave for overseas. All belongings (not being taken with you) will be left with your parents. 

You will be residing in an international guest residence for all the period you will be overseas. You intend to open an overseas bank account. You only anticipate returning to Australia for short holidays whilst you are undertaking the fellowship.

You intend to return to Australia after the X year fellowship has concluded. 

You are not a member of the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS). 

You do not own any residential property in Australia. You will maintain one bank account in Australia. You do not have a spouse or children.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5,

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

Income Tax Assessment Act 1936 Paragraph 6(1)(a).

Reasons for decision

The concept of whether an individual is an Australian resident for tax purposes is important under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Subsection 6-5(2) of the ITAA 1997 states that, if you are a resident, your assessable income will include all ordinary income derived from all sources in or out of Australia; while subsection 6-5(3) of the ITAA 1997 states that, if you are not a resident, your assessable income will include ordinary income derived from Australian sources.

An Australian resident is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to be a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

The terms 'resident' and 'resident of Australia', in regard to an individual, are defined in paragraph 6(1)(a) of the 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 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 meet the conditions of one of the other three tests.

The resides test

The ordinary meaning of the word 'reside', according to the Shorter Oxford English Dictionary, 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 maintaining a home overseas where you will be residing for a period of X years, and you have obtained a full time Fellowship overseas, you would not be 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. 

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 or by operation of law. 

In order to show that a new domicile of choice in a country outside 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 intend to return to Australia after the X year Fellowship ends. Therefore, you are considered to have maintained your Australian domicile.

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 may maintain an association with Australia while away, your associations overseas will be more significant as you will:

Therefore, it is considered that you will establish a permanent place of abode overseas. Therefore, you would not be a resident of Australia for tax purposes under the domicile test.

The 183-day test  

Where 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 will not satisfy this test as you are required to stay in the overseas country for Y consecutive months to complete your research and would not be present in Australia for the 183 days required, and, in addition, you will 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 PSS or the CSS or a spouse of such a person.

You are not a member of the PSS or the CSS or a spouse of such a person.

Therefore, you would not be treated as a resident under this test.

Your Resident Status

As you would not be deemed to be a resident of Australia under any of the tests of residency outlined in paragraph 6(1)(a) of the ITAA 1936, you would not be considered to be a resident of Australia for tax purposes from the date of your departure from Australia.

Assessability of fellowship income

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 sources, within Australia, during the income year.

As your research fellowship income will be paid from a foreign source while you are a non-resident, this income will not be taxable in Australia.

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