Edited version of private advice

Authorisation Number: 1012675647044

Ruling

Subject: Residency and assessability of Australian government research grant

Questions and answers:

1. Were you a resident of Australia for taxation purposes from 1 July 201XX to 30 June 20YY?

No.

2. Is the salary paid to you for the period 1 July 20XX to 30 June 20YY through your Australian government research grant included in your assessable income in Australia?

No.

This ruling applies for the following period:

1 July 20XX - 30 June 20YY.

The scheme commenced on:

1 July 20XX.

Relevant facts and circumstances:

You were born in Australia.

You are an Australian citizen.

You are not a citizen of any other country.

You have no spouse or children.

Several years ago you moved from Australia to another country to pursue research opportunities.

You continue to reside in the other country.

You have a work related visa that does not entitle you to permanent residence in the other country.

You have always intended to return to Australia.

You will return to Australia in several years time.

You were awarded an Australian government research grant.

You used the grant to fund your research activities in the other country between 1 July 20XX until 30 June 20YY. During this time you were paid a salary from the grant funds.

Prior to leaving Australia you were living in a rented house and/or living with your parents.

You have only limited assets in Australia.

You have maintained professional, social, and/or sporting connections with Australia since you left.

Since you left Australia you have returned on several occasions for short periods during which you have visited family, friends and colleagues, and attended several conferences.

You were not in Australia for more than 183 days (not necessarily consecutively) in any of the financial years to which this ruling relates.

You have never been employed by the Commonwealth of Australia.

You are not a member of the Commonwealth Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990.

You are not an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS) which was established under the Superannuation Act 1976?

You are not the spouse or a child under 16 of a person who is a member of the PSS or an eligible employee in respect of the CSS.

Since arriving in the other country you have been living in privately rented accommodation.

You have only limited assets in the other country.

You have developed professional, social, and sporting connections in the other country since you have been living there.

You are a resident of the other country for taxation purposes and have paid tax there. You are not subject to a certain level of tax liability in the other country.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5.

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

Income Tax Assessment Act 1936 Section 6(1).

Reasons for decision

Assessable income - general

Under the provisions of section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) the assessable income of an individual who is a resident of Australia for taxation purposes includes the ordinary income they earn from all sources, in or out of Australia. Conversely, only ordinary income from an Australian source is included in the assessable income in Australia of an individual who is a non-resident of Australia for taxation purposes.

Different tax rates apply to individuals who are residents and non-residents of Australia for taxation purposes. The main difference being that individuals who are non-residents are not entitled to the tax free threshold which (for the financial years ended 30 June 2013 and 30 June 2014) was $18,200.00.

Although a payment may be considered ordinary income and generally assessable under the provisions of section 6-5 of the ITAA 1997, there are some instances where such a payment may be excluded from an individual's assessable income in Australia. For example, in cases where an individual receives a payment from Australia for work carried out in another country, the provisions of any DTA between Australia and the country in which the work is carried out need to be considered. These agreements generally make provisions for such payments to be taxable in only one of the countries that is a party to the agreement.

There are therefore several issues to be determined when considering whether or not payments from Australia to an individual for work carried out in another country are assessable in Australia. These are:

• whether or not the income is ordinary income and therefore assessable under the provisions of section 6-5 of the ITAA 1997,

• the residency status of the individual for taxation purposes, and

• the impact of any applicable double tax agreement on the assessability of the payment.

Income status of salary paid from a research grant

Income by way of salary paid to an individual through a research grant is ordinary income and is therefore assessable under the provisions of section 6-5 of the ITAA 1997.

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. The tests are:

• the resides test,

• the domicile test,

• the 183 day test, and

• the superannuation test.

If any one of these tests is met, an individual will be a resident of Australia for taxation purposes.

The resides test is the primary test for determining the residency status of an individual for taxation purposes. If residency is established under the resides test, the remaining three tests do not need to be considered. However, if residency is not established under the resides test, an individual will still 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'. As the word 'reside' is not defined in Australian taxation law, it takes it's ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936.

In Dempsey and Commissioner of Taxation [2014] AATA 335 (29 May 2014) the Administrative Appeals Tribunal noted that the settled position of the courts (at ultimate appellant level) as to the meaning of the word resides in the ITAA 1936 is that the word:

bears its ordinary English meaning, which 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".

Based on the facts of your case, the Commissioner accepts that you have not resided in Australia according to the ordinary meaning of the word since you left Australia several years ago.

The domicile test

Under this test, a person whose domicile is Australia will be a resident of Australia for taxation purposes, unless the Commissioner is satisfied the person's permanent place of abode is outside Australia.

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.

In order to acquire a new domicile by choice, a person must have an intention to make their home indefinitely in a country outside their domicile of origin. Sufficient proof of such an intention is considered to exist in cases where a person is granted permanent residency, or becomes a citizen of a country outside of their domicile of origin.

You have an Australian domicile. Although you have been living and working in the other country for several years, you have stated you intend to return to Australia in several years time. Furthermore, you have a work related visa that only allows you to reside in the other country if you have a job and does not entitle you to permanent residence in the other country.

Accordingly, we consider that you have retained your Australian domicile and you will be a resident of Australia under this test unless the Commissioner is satisfied you have a permanent place of abode outside Australia.

Taxation Ruling IT 2650 - Income tax: residency - permanent place of abode outside Australia specifies 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. In essence, Taxation Ruling IT 2650, specifies 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 a particular case

Based on the facts of your case, the Commissioner is satisfied that between 1 July 20XX and 30 June 20YY you had a permanent place of abode in the other country. Accordingly, you were not a resident of Australia for taxation purposes under this test during that time.

The 183-day test

Under this test, a person who is in Australia for 183 days (not necessarily consecutively) during an income year may be considered a resident of Australia for taxation purposes, unless the Commissioner is satisfied the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

You were not in Australia for more than 183 days in any of the financial years to which this ruling relates. As a result, and based on the facts you have provided, you were not a resident of Australia for taxation purposes under this test between 1 July 20XX and 30 June 20YY.

The superannuation test

Based on the facts you have provided, the Commonwealth superannuation test does not apply to you and you are not a resident of Australia for taxation purposes under this test.

Conclusion - your residency status

Based on the facts you have provided, you were not a resident of Australia for taxation purposes between 1 July 20XX and 30 June 20YY.

The impact of the double tax agreement between Australia and the other country on the assessability of salary received from an Australian government research grant by an individual working in the other country

As indicated above, salary paid through a research grant is ordinary income and is therefore assessable in Australia under the provisions of section 6-5 of the ITAA 1997. This will generally be the case regardless of whether the recipient is a resident or non-resident of Australia for taxation purposes.

Also as indicated above, where an individual is receiving a payment from Australia for work carried out in another country, the application of any applicable DTA between Australia and the other country needs to be considered in determining the country in which that payment will be assessable.

Australia has a DTA with the other country.

Under the provisions of the DTA between Australia and the other country, an Australian government research paid to an individual is only taxable in Australia, unless the work for which the grant was made is carried out in the other country and the individual is a citizen of that country, or has a certain level of tax liability in that country. In the latter case, such a grant is only taxable in the other country.

You are an individual. You were paid a salary from an Australian government research grant for employment which was exercised in the other country. You are not a citizen of that country but you are a resident of that country for tax purposes and you are subject to a certain level of tax liability in that country.

Based on the facts you have provided, the provisions of the DTA between Australia and the other country apply to make the salary you received from the grant between 1 July 20XX and 30 June 20YY assessable only in the other country.

Conclusion

Between 1 July 20XX and 30 June 20YY you were a non-resident of Australia for taxation purposes.

Between 1 July 20XX and 30 June 20YY, the provisions of the DTA between Australia and the other country apply to make the salary you received from the grant between 1 July 20XX and 30 June 20YY assessable only in the other country.

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