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Ruling

Subject: residency and income from gifts

Questions and answers:

Are you a resident of Australia for income tax purposes?

Yes.

Are donated funds that you receive to carry out volunteer work in Country A, assessable income?

No.

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commenced on:

1 July 2010

Relevant facts and circumstances

You are a citizen of Australia.

You spend most of your time overseas but visit Australia either once a year sometimes twice a year.

You have been a full time staff member of a non profit organisation for a number of years and are a part of their long term, Country A staff team.

You have been working overseas for more than 10 years

You are eligible to receive both Medicare and Centrelink benefits.

Your nearest family live in Australia.

You intend to continue to work overseas for the foreseeable future.

You own a house in Australia as well as having bank accounts here.

You do not own a house overseas and are renting.

You are supported through gifts from family and friends who individually agree/decide to support you.

You do not receive an income from the non- profit organisation nor does your financial support come via them.

You do not intend to reside overseas permanently but at this stage you do not know when you will return to Australia permanently.

You consider Australia your home.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(2).

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1936 Subsection 6(1).

Reasons for decision

Residency

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 have been residing in Country A for several years, 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 Australia 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 of Australia has been adopted, the person must be able to 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, although you have been living in Country A for several years, your associations with Australia are considered to be more significant as you have retained your house and bank accounts in Australia. You also do not have a permanent place to live overseas.

Based on these facts and that you intend to return to Australia, it is considered that you have not established a permanent place of abode in Country A. Therefore, you are considered to have maintained your Australian domicile. Accordingly, you are an Australian resident for income tax purposes under the domicile test.

Your residency status

As you are deemed to be 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. Therefore, you are considered to be an Australian resident for income tax purposes for the period you will be in Country A

Income from gifts

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) requires residents of Australia to include in their assessable income ordinary income derived directly or indirectly from all sources both inside and outside of Australia.

Taxation Ruling IT 2674 provides guidelines for determining whether gifts received by church workers (including missionaries and ministers of religion) are assessable under section 6-5 of the ITAA 1997.

IT 2674 at paragraph 28, states that gifts are assessable income if:

A gift received in the above circumstances is assessable income even if the donor is not legally obliged to make a gift, or if the gift is made by a family member, friend or fellow worker.

Furthermore, if a substantial reason (which does not have to be the dominant reason) of receiving the gift as a reward for some income-producing activity, the gift is assessable income even though the gift was also made as an expression of goodwill and received on personal grounds.

Paragraph 32 of IT 2674 goes on to explain that gifts are not assessable income when they are:

In your case, we consider the donated funds you receive to carry out volunteer work in Country A as personal gifts as they have no connection with any employment, services rendered to the donors, nor are they related to any income activities conducted by you.

Therefore, the donated funds are not assessable income under subsection 6-5(2) of the ITAA 1997.

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