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Edited version of your written advice
Authorisation Number: 1012700813923
Ruling
Subject: Residency and foreign source income
Questions and answers
1. Are you a resident of Australia for taxation purposes?
No.
2. Is your overseas employment income assessable in Australia?
No.
This ruling applies for the following periods
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
The scheme commenced on
1 July 2014
Relevant facts and circumstances
You and your spouse have been in foreign country X several years and will remain there working for your employer.
You will rent an apartment in foreign country X.
You have adult children, X living in Australia and one in foreign country Y.
You own a house in Australia which is rented.
You own investment properties in Australia.
You have shares and property and equity trusts in Australia.
You intend to spend part of your annual holidays in Australia and part in foreign country Y.
You have opened bank accounts with your spouse overseas.
You and your spouse are not employees of the Commonwealth Government of Australia.
Your present intention is to return to Australia. However, you may remain overseas when your current contract expires.
You are applying for an extension of two previous private rulings. You state that the facts are the same as these previous rulings.
Reasons for decision
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 foreign resident, your assessable income includes only income derived from an Australian source.
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
• the superannuation test.
The first two tests are examined in detail in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (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 a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.
The resides (ordinary concepts) test
The outcomes of several Administrative Appeals Tribunal (AAT) cases have determined that the word 'resides' should be given the widest meaning and there have been a number of factors identified which can assist in determining if a particular taxpayer is a resident of Australia under this test.
Recent case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the 'resides' test:
You have provided a copy of the new contract.
(i) Physical presence in Australia
(ii) Nationality
(iii) History of residence and movements
(iv) Habits and "mode of life"
(v) Frequency, regularity and duration of visits to Australia
(vi) Purpose of visits to or absences from Australia
(vii) Family and business ties to different countries
(viii) Maintenance of Place of abode.
These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in IT 2650 and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.
It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances.
There are several factors outlined above which indicate that you have ceased to be a resident of Australia. Specifically;
• you lived and worked in foreign country X
• you have live there with your spouse
• you live in a rented apartment in foreign country X
• you have opened bank accounts with your spouse overseas
• you will spend only part your annual holidays in Australia.
Based on a consideration of all of the factors outlined above, you are not a resident of Australia according to ordinary concepts as you will not maintain a continuity of association with Australia for the relevant period.
The domicile and permanent place of abode test
Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia, unless the Commissioner is satisfied that their permanent place of abode is outside of Australia.
Domicile
A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. A person may acquire a domicile of choice in another country if they have the intention of making their home indefinitely in that country. The intention needs to be demonstrated in a legal sense, for example, by way of obtaining a migration visa, becoming a permanent resident or becoming a citizen of the country concerned.
As you are still an Australian citizen while living in foreign country X, your domicile is Australia and remains unchanged.
Permanent place of abode
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.
Although you maintain an association with Australia through your investments, your associations with foreign country X are more significant as you will:
• be renting a home in which you live with your spouse;
• have a fully furnished home;
• have obtained employment for another several years;
• purchase some shares;
• have many friends and associates in the area; and
• open bank accounts with your spouse in foreign country X.
Based on these facts, it is therefore considered that you have established a permanent place of abode in foreign country X. Therefore, you are not a resident of Australia under the 'domicile and permanent place of abode' test of residency.
The 183-day test
Under the 183 day test you are considered a resident of Australia if you are present in Australia for a total period of more than half of the year of income, i.e. 183 days, unless the Commissioner is satisfied that your usual place of abode is outside Australia and you do not intend to take up residence in Australia.
You do not satisfy this test as you have established a permanent place of abode outside of Australia.
The superannuation test
An individual is considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Service Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person. To be eligible to contribute to those schemes, you must be or have been a Commonwealth Government employee.
You are not a member of the PSS or the CSS or a spouse of such a person, or a child under 16 of such a person. Therefore, you will not be treated as a resident under this test.
Your residency status
As you are not a resident of Australia under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, you are not considered to be an Australian resident for taxation purposes.
Overseas employment income
Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a foreign resident of Australia includes all the ordinary income derived directly or indirectly from all Australian sources during the income year.
A foreign resident is a person who is not a resident of Australia.
Salary and wages are regarded as ordinary income.
The source of income derived from employment is generally the place where the duties or services are performed (Federal Commissioner of Taxation v. French (1957) 98 CLR 398; (1957) 11 ATD 288; (1957) 7 AITR 76).
As your employment duties are carried on outside of Australia, they are considered to be sourced out of Australia. Therefore the income derived in relation to such employment is not assessable in Australia under subsection 6-5(3) of the ITAA 1997 as you are a foreign resident.
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