Edited version of your written advice

Authorisation Number: 1051283107707

Date of advice: 18 September 2017

Ruling

Subject: International - residency - working holiday visa.

Question 1:

Were you a resident of Australia for income tax purposes for the year ended 30 June 2017?

Answer:

Yes

Question 2:

Is your income earned while on a Working Holiday Visa after 31 December 2016 subject to tax at a rate of 15% (under $37,000)?

Answer:

Yes

This ruling applies for the following period:

Year ended 30 June 2017

The scheme commenced on:

December 2016

Relevant facts and circumstances:

You are a citizen of Country A who travelled to Australia on a working holiday visa, arriving in December 2016. You intend to migrate to Australia.

You worked in various positions using your working holiday visa to obtain employment.

You have leased a unit in Australia and you have purchased a car. You have furnished the unit.

You have established Australian bank accounts and have transferred your funds from overseas into your Australian accounts. You retain minor assets such as personal effects and a vehicle in Country A but plan to sell this vehicle. Hence most of your assets are now held in Australia.

You have registered a relationship. When you receive the certificate from this ceremony you will apply for a Partner Visa.

You have established family and social connections in Australia by joining local groups.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Subsection 995-1(1)

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Rates Act 1986 Subsection 3A

Reasons for decision

The tax-free threshold is the amount of money an Australian resident can earn before they pay income tax.

An Australian resident is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to be 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 while Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia (TR 98/17) outlines the guidelines used to determine whether the individual is a resident.

The definition provides four tests to ascertain if an individual is a resident of Australia for income tax purposes. These tests are:

1. The resides test (residence according to ordinary concepts)

2. The domicile test

3. The 183 day test

4. The superannuation test

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 the individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for income tax purposes if they meet 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'.

TR 98/17 considers the residency status of individuals entering Australia and states that the period of physical presence or length of time in Australia is not, by itself, decisive when determining whether an individual resides here. However, an individual’s behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here.

Paragraph 22 of TR 98/17 provides that the Commissioner’s view of the law is that six months is a considerable time when deciding whether an individual’s behaviour is consistent with residing here.

TR 98/17 also states that when assessing whether an individual’s behaviour is consistent with residing here, the following factors are taken into account:

● intention or purpose of presence;

● family and business/employment ties;

● maintenance and location of assets; and

● social and living arrangements.

No single factor is necessarily decisive. The weight given to each factor varies depending on individual circumstances.

Intention or purpose of presence

Paragraph 48 of TR 98/17 provides that a settled purpose, such as employment or education, may support an intention to reside in Australia. However, the intention must be more than merely being a traveller or visitor who may supplement their savings by obtaining casual employment.

Paragraph 51 of TR 98/17 states that the visa notation on the passport is an indicator of the individual’s purpose for being in Australia but it is not the only consideration in determining residency for tax purposes.

In your case, you came to Australia on a working holiday visa. According to the Department of Immigration and Border Protection, the main purpose of a working holiday visa is to allow you to have an extended holiday while supplementing your funds with short-term work.

The Commissioner is satisfied that you had significant employment ties in Australia in the year ended 30 June 2017.

Maintenance and location of assets

Paragraph 57 of the TR 98/17 provides that occupation of a dwelling in Australia, that the individual owns or is purchasing, suggests establishment of a home in Australia. Other assets in Australia, such as motor vehicles and bank accounts, add further weight to the individual having established behaviour consistent with residing here.

Social and living arrangements

Paragraph 59 of the TR 98/17 provides that social and living arrangements such as joining sporting or community organisations, redirecting mail to Australia or committing to a residential lease during the individuals stay in Australia may indicate they are residing here.

While in Australia, you were staying in a unit with a one year lease. We consider this accommodation to be more than temporary and not conditional on your employment with your employer.

Your living arrangements while in Australia are aligned with that of a migrant arriving in Australia rather than those of a temporary visitor.

Conclusion

Based on the facts and information you have provided, it is considered that you have established a degree of continuity, routine or habit over a considerable time during the year ended 30 June 2017 that is consistent with residing here.

Accordingly, you are a resident of Australia for income tax purposes under the resides test for the year ended 2018.

The domicile test

If a person is considered to have their domicile in Australia they will be considered a resident of Australia unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

A person’s domicile is in their country of origin unless they acquire a different domicile of choice or operation of law. To obtain a different domicile of choice, a person must intend to make their home indefinitely in another country and also be able to prove this (usually by applying for a permanent residency visa).

In your case, you are a citizen of Country A. You came to Australia on a working holiday visa. This visa does not allow you to stay in Australia permanently. Your working holiday visa has not yet expired and you intend to apply for a Partnership visa when your certificate of registration of your relationship is received.

As you have not (as yet) applied to stay in Australia indefinitely you have retained your overseas domicile.

Therefore, you are not a resident of Australia for income tax purposes under the domicile test.

The 183 days test

Where a person is present in Australia for 183 days during the year of income the person will be a resident, unless the Commissioner is satisfied that the person’s usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

If the precondition for the application of the 183 day test is met, i.e. being in Australia for more than one half of the year of income, there is a presumption that the person is a resident. This presumption will only be defeated if the prescribed exception applies; that is, the Commissioner is satisfied that the person’s usual place of abode is outside Australia and that person does not intend to take up residence in Australia.

You are a resident under this test as the Commissioner is not satisfied you have a usual place of abode outside Australia or that you do not intend to take up residence in Australia.

The superannuation test

This test is not relevant in your situation as it only applies to persons eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person.

You were not a member of the PSS or the CSS, a spouse of such a person, or a child under 16 of such a person.

Residency status

As you do satisfy at least one of the tests of residency outlined in subsection 6(1) of the ITAA 1936, you are a resident of Australia for income tax purposes for the year ended 2017 from the date of your arrival in Australia.

Tax Rate While on Working Holiday Visa

Since you are working in Australia while on a 417 visa your taxation rate is defined and set as outlined in the Income Tax Rates Act 1986. Section 3A of this act defines a working holiday maker. The rate of tax applying to working holiday makers is defined in Schedule 7 of this act.

Schedule 7 refers to Part III of the act which defines the tax rate as being 15% for income which does not exceed $37,000. Accordingly, any income you derived from your employment in Australia after 31 December 2016 while you remain on a working holiday visa will be subject to a tax rate of 15% under $37,000.

As a resident for part of the 2016/2017 financial year you are obliged to lodge your income tax return as a resident and report your income as outlined in Individual Tax Return Instructions. You will be obliged to report your income and employment deductions in the “Income” section as well as to complete the section “Adjustments” which will require you to include your income while working on a working holiday visa from 1 January 2017. This income must be included at item A4 of the return. This working holiday income will be taxed at 15%.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).