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Ruling

Subject: Residency, main residence and gifts of income

Question 1

Are you a resident of Australia for income tax purposes?

Yes.

Question 2

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

No.

Question 3

Are you eligible to claim a CGT main residence exemption following a period of absence where your home ceased to be your main residence and is used for income producing purposes for less than six years?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commences on:

1 July 2012

Relevant facts and circumstances

You departed Australia several years ago to participate as a volunteer in an educational project in Country A

Your role is as an education building officer. This has been with local teachers and in the provincial University.

You have received sponsorship funds from family, friends and community groups to assist you in your living expenses in Country A.

The funds are donated to you voluntarily and are used to pay for your living expenses such as food, rent, utilities, household equipment, commuting fares and air fares.

You have received the donations as lump sum amounts and will continue to receive donations in instalments.

You have a designated bank account where the donated funds are deposited and you are able to access the funds while you are in Country A.

You have returned to and departed Australia on several occasions.

During these periods you were on leave and spent the time with family, attending religious gatherings, debriefing and sharing with supporters of the work.

While in Australia you stayed with family and friends.

You lived in your main residence from the date of purchase until you took up work overseas.

Your main residence was rented out for the period you were overseas.

You are currently living in the house and will be for the next Y months.

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

You do not have a permanent place to live overseas.

You do not have any assets overseas.

You own shares and have a bank account in Australia.

Your family resides in Australia.

You consider Australia your home.

You will be renting your property out when you return overseas.

You will not be selling your house when you return overseas.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Paragraph 118-110(1)(b).

Income Tax Assessment Act 1997 Paragraph 118-190(1)(b).

Income Tax Assessment Act 1997 Subsection 118-120(2).

Income Tax Assessment Act 1997 Section 118-145.

Income Tax Assessment Act 1936 Subsection 6(1).

Tax Administration Act 1953 Subsection 359 - 3592) of Schedule 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 resides test

· the domicile test

· the 183 day test, and

· the superannuation test.

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. 3^rd 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, bank accounts and investments in Australia. You also do not have any assets or 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

Assessability of income

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:

· they are received because of, in respect of, for, or in relation to any income-producing activity of the church worker.

· it is possible to relate the receipt of the gift to any income-producing activity on the part of the church worker.

· it is possible to point to any employment, personal exertion or other income-earning activity by the church worker of which the receipt of the gift is in a relevant sense a product or incident.

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:

· a personal gift received for personal reasons, without any connection with any income-producing activity on the part of the recipient;

· a gift or gratuity made only on grounds personal to the recipient;

· if a gift is referable exclusively to the attitude of the donor personally to the church worker personally;

· a voluntary payment received by a church worker from a family member, a friend or acquaintance, on grounds personal to the recipient, to assist his or her personal needs.

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.

Main residence

Subsection 359-35(2) of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that a private ruling does not have to be given if making the ruling would prejudice or unduly restrict the administration of a taxation law. This includes where the scheme, to which the application relates is not seriously contemplated or hypothetical.

You do not intend to sell the property but continue to rent it out while you are working overseas. We cannot rule on this issue until you decide to dispose of your property. Accordingly, the application for a private ruling for the purposes of Division 359 of Schedule 1 to the TAA has been declined.

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