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Authorisation Number: 1012314917221

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Ruling

Subject: Residency and assessability of financial support for volunteering

Questions and Answers:

Question 1:

Are you a resident of Australia for taxation purposes?

Answer:

No.

Question 2:

Is the financial support you receive while volunteering overseas included in your assessable income in Australia?

Answer:

No.

This ruling applies for the following period:

1 July 2012 until 30 June 2015.

The scheme commenced on:

1 July 2012.

Relevant facts and circumstances:

You are over 16 years of age.

You were born in Australia and you are an Australian citizen.

You left Australia travelled to another country to volunteer.

You will volunteer overseas for two years. You will remain in the same place and have rented accommodation for the period you will be there.

You will return permanently to Australia when you're volunteering ceases.

You have no assets overseas.

You own a residential property in Australia which you have rented out while you are overseas.

You have taken only limited personal belongings overseas with you. The remainder of your personal belongings are in storage in Australia.

You resigned from your job in Australia before leaving to go overseas to volunteer.

You do not pay tax in the country you are volunteering in because you are not earning any money in that country.

You have social and family connections in Australia.

You have never been employed by the Commonwealth of Australia.

Neither you nor your spouse are members of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990?

Neither you nor your spouse are eligible employees in respect of the Commonwealth Superannuation Scheme (CSS) which was established under the Superannuation Act 1976.

While you are volunteering will receive financial support in the form of gifts of money from people and entities in Australia.

The money gifted to you is deposited into one of your Australian bank accounts.

You fully rely on this support to live in the foreign country.

Relevant legislative provisions:

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

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 10-5

Income Tax Assessment Act 1997 Section 15-2

Reasons for decision

Residency for taxation purposes

Section 995-1 of the Income tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for tax purposes as 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 subsection 6(1) 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 resides test,

· the domicile (and permanent place of abode) test,

· the 183 day test, and

· the superannuation test.

Where one or more of the above tests is satisfied, a taxpayer will be an Australian resident for taxation purposes.

The primary test for determining the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word 'resides'.

Where an individual is not considered to be residing in Australia according to the ordinary meaning of the word, they will still be considered to be a resident of Australia for taxation purposes if they meet the conditions of one of the other three tests.

The resides test

The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'.

The Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01 defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

Taxation Ruling IT 2650 - Income Tax: residency - permanent place of abode outside Australia specifies that a person's place of abode is where they live.

In your case, you left Australia and intend to remain overseas for at least two years and you have rented accommodation overseas for that two year period. Considering this, it cannot be said that you are residing in Australia according to the ordinary meaning of the word 'reside'.

The domicile (and permanent place of abode) test

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. A person's domicile of origin will not usually change, but can in some circumstances. For example, a person can acquire a domicile in another country by choice.

To acquire a domicile by choice, a person must have an intention to reside permanently in a country outside their domicile of origin.

Taxation Ruling IT 2650 states that a person with an Australian domicile who is living outside Australia will retain their Australian domicile if they intend to return to Australia on a 'clearly foreseen and reasonably anticipated contingency' - at the end of a specific period of overseas employment for example.

You were born in Australia; therefore your domicile of origin is Australia.

As you have no intention to reside permanently overseas, and in fact have stated your intention to return to Australia at the end of specified period, you will retain your Australian domicile for the period you are volunteering overseas.

A person who's domicile is in Australia will be an Australian resident for taxation purposes unless the Commissioner is satisfied the person has established a permanent place of abode outside of Australia.

IT 2650 states that a 'permanent place of abode' does not have to be everlasting or forever and does not mean an abode in which a person intends to live for the rest of their lives.

Essentially, IT 2650 notes that a person's place of abode is where they live and is a question of fact to be determined in the light of all the factors of a particular case.

Some of the factors which have been considered relevant by the Courts and Boards of Review/Administrative Appeals Tribunal and which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode include:

· The intended and actual length of the taxpayer's stay in the overseas country.

· IT 2650 notes that for taxpayers who normally reside in Australia, a period of two or more years is generally regarded as substantial in terms of determining whether or not a taxpayer can be said to have a permanent place of abode in another country, particularly if the taxpayer has a fixed or habitual place of abode in the other country for that period.

· Whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time.

· Whether the taxpayer has established a home outside Australia.

· In relation to this factor, IT 2650 notes that the fact that an individual has established his or her home (in the sense of a dwelling place; a house or other shelter that is the fixed residence of a person, family or household) in an overseas country would tend to show that the place of abode in the overseas country is permanent.

· IT 2650 also notes that an intention to return to live in Australia in the foreseeable future does not prevent a taxpayer setting up a 'permanent place of abode' elsewhere in the meantime.

· Whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence.

· The duration and continuity of the taxpayer's presence in the overseas country.

· The durability of association that the person has with a particular place in Australia.

IT 2650 specifies that the weight given to each factor will vary depending on the individual circumstances of each case and that while no single factor is decisive in its own right, the greater weight should be given to factors (c), (e) and (f) than to the remaining factors.

You resigned from your job in Australia and travelled to an overseas country to volunteer for at least a two year period, after which you will return permanently to Australia. You have arranged to live in rented accommodation in the overseas country. You have rented out your Australian home and placed the majority of your belongings in storage in Australia. Considering these facts, it can be said that you have abandoned your Australian home and have established a place to live in the overseas country that will be the fixed residence for you for the next two years.

Considering the above, you are not considered to be a resident of Australia under the domicile test because it is considered that you have established a permanent place of abode the overseas country.

The 183-day test

Where a person is present in Australia for 183 days during an income year, the person will be a resident of Australia for taxation purposes 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.

As you are considered to have established a permanent place of abode outside of Australia and do not intend to return to in Australia until 2014, you are not considered to be a resident under this test.

The superannuation test

Under this test, a person will be considered to be a resident of Australia for taxation purposes if they are eligible to contribute to, or are a member of, one of the Commonwealth superannuation funds.

A person will also be considered to be a resident under this test if they have a spouse who is eligible to contribute to, or is a member of, one of the Commonwealth superannuation funds, or if they are a child under 16 of such a person.

Neither you, nor your spouse, are eligible to contribute to a Commonwealth superannuation fund, and you are over the age of 16. Accordingly, you are not a resident under this test.

Conclusion - your residency status

Based on your facts, you will not satisfy any of the tests of residency outlined in subsection 6(1) of the ITAA 1936 during the period you volunteer in Country X. Accordingly, you will not be an Australian resident for taxation purposes between mid August 2012 and July 2014.

Assessability of gifts and pledges of money

As a non-resident taxpayer:

· section 6-5 of the ITAA 1997 provides that your assessable income in Australia includes the ordinary income you derive from all sources in Australia, and

· section 6-10 of the ITAA 1997 provides that your assessable income in Australia includes the statutory income you derive from all sources in Australia.

Income from rental properties located in Australia is an example of ordinary income that is included in a non-resident's assessable income in Australia under the provisions of section 6-5 of the ITAA 1997.

A list of amounts that constitute statutory income under Australian tax law is contained in section 10-5 of the ITAA 1997. Included in the list is section 15-2 of the ITAA 1997 which deals specifically with 'allowances and other things provided in respect of employment or services' and which states in subsection 15-2(1):

· Your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you.

While you are volunteering overseas you receive gifts of money that originate in Australia. These amounts are potentially assessable to you under the provisions of section 15-2 of the ITAA 1997. However, before considering whether or not these amounts fall within the gamut of section 15-2 of the ITAA 1997, it is first necessary to determine the source of the amounts. If the source is not Australian, the amounts will not be assessable to you because of the operation of section 6-10 of the ITAA 1997.

Australian courts have previously considered the concept of 'source' in relation to employment income (salary and wages for example) and the principles espoused by the courts to determine the source of employment income can equally be applied to the gifts and pledges of money you receive.

Generally, Australian courts have held that the source of employment income is where the employee performs their duties. Thus, employment income earned while carrying out duties in Australia is considered to be sourced in Australia. Employment income earned while being carried out overseas is considered to be sourced in that overseas country.

Regardless of the fact that these gifts of money originate in Australia, they are being given to you because of the volunteering you are doing. Accordingly, we consider the source of the gifts to be the overseas country where you are doing the volunteering, rather than Australia.

As we consider the gifts and pledges of money to be from a source outside Australia, there is no need to consider whether or not the amounts fall within the gamut of section 15-2 of the ITAA 1197. Regardless of whether they do or not, the amounts would not be included in your assessable income under the provisions of section 6-10 of the ITAA 1997 on the basis that they are statutory income amounts received by a non-resident of Australia from a source outside Australia.

Conclusion - Assessability of gifts and pledges of money

The gifts and pledges of money you receive while volunteering overseas are not included in your assessable income in Australia for the period you are a non-resident of Australia for tax purposes.

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