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Subject: Residency and foreign source income

Question 1:

Are you a resident of Australia for income tax purposes?

Answer:

No.

Question 2:

Is your foreign income exempt from income tax in Australia?

Answer:

Yes.

This ruling applies for the following periods:

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commenced on:

1 July 2011

Relevant facts and circumstances

You are an Australian citizen.

You have been working in country X for several years.

You are paid by a company in country X and pay income tax in country X.

The company you work for has a contract to continue its current activities for several more years.

You intend to remain working in country X for the foreseeable future.

You do not know when you will return to Australia.

You live with your family in employer provided accommodation.

Your spouse is a citizen of country X.

Your spouse is a partner in a business and owns an apartment and a vehicle.

You hold a country X driver's licence.

You have to renew your country X work permit each year.

You are classified as a foreigner in country X and are not allowed to own property or vehicles.

You travel to Australia once a year for two to three weeks to visit family and friends.

When you visit Australia you stay with family and friends or at hotels.

You do not have a residence or home in Australia.

You own two investment properties in Australia.

Your Australian Medicare card is no longer current.

You do not work for the Australian Commonwealth government.

Relevant legislative provisions

Income Tax Assessment Act 1997 - Section 6-5

Reasons for decision

Residency

The terms 'resident' and 'resident of Australia', in regard to an individual, are defined within the tax provisions and provides four tests to ascertain the residency status.

Relevant to your situation are the first two tests which are examined in detail in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650). In examining these tests, IT 2650 provides a number of factors which assist in assessing a taxpayer's situation against the tests. A copy of this ruling is available from www.ato.gov.au.

The resides test

Whether the individual resides in Australia according to the ordinary meaning of the word resides.

In your case, you are working full time and living with your family in country X. You spend the majority of your time in country X and only return to Australia for two to three weeks a year.

Therefore, you are not residing in Australia according to the ordinary meaning of the word and are not a resident of 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 established a permanent place of abode outside of Australia.

Domicile

The domicile of an individual is the place that is considered by law to be his or her permanent home. Individuals may change their legal domicile by choice if there is both a change of residence to another country and an intention of making the change permanently or at least indefinitely. IT 2650 explains that persons leaving Australia temporarily would usually 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 your case, you are an Australian citizen and your domicile of origin is Australia. You have been living and working in country X for three and a half years, have a country X spouse and do not have any firm plans for returning to Australia. However, you are considered by country X law to be a foreign citizen and you have to renew your work permit every 12 months. Therefore, you still have an Australian domicile.

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.

Permanent place of abode

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 have been living and working in country X for three and a half years, you live with your family, you have a country X driver's licence, you have no firm plans to return to Australia and you do not have a residence available to you in Australia.

Based on the above, the Commissioner is satisfied that you have established a permanent place of abode outside of Australia.

Therefore, you are not a resident of Australia under this test.

Your residency status

As you are not an Australian resident under any of the tests of residency, you will not be an Australian resident for taxation purposes for the 2012-13, 2013-14, 2014-15 and 2015-16 financial years.

Foreign source income

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 non-resident of Australia for taxation purposes, your assessable income includes only income derived from an Australian source. 

As you are a non-resident of Australia, your foreign employment income will be exempt from tax in Australia.

Further information - lodgment of income tax returns

Non-residents of Australia for taxation purposes are only required to lodge an income tax return if they derive income from within Australia such as rental income, interest income and dividend income. The exception to this is income that has had non-resident withholding tax withheld from it.

Foreign employment income does not have to be included on the Australian tax return of a non-resident.

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