Edited version of private ruling

Authorisation Number: 1011469042576

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Ruling

Subject: Foreign income - residency

Question

Are you a resident of Australia from the date of your departure to Country X?

Answer

Yes.

This ruling applies for the following periods

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commenced on

1 July 2010

Relevant facts

You are going to depart Australia for Country X in the 2010-11 year of income.

You will be employed in Country X by your Australian company.

You and your spouse are not members of a Commonwealth Government Superannuation Fund.

You will return to Australia several times a year for work purposes.

You are going to be in Country X for a minimum of X months and a maximum of Y months.

You will be residing in rental accommodation when in Country X.

You will be renting your house in Australia.

You will be selling your car in Australia and buying one in Country X.

You will be moving your furniture to Country X.

You will open a bank account in Country X.

The disposition of all your other assets will not change.

Your intention is to return to Australia.

The trustee of your family trust is a company.

The trustee company is incorporated in Australia.

Relevant legislative provisions

Subsection 6(1) of the Income Tax Assessment Act 1936

Section 12-35 of Schedule 1 to the Taxation Administration Act 1953

International Tax Agreements Act 1953

Section 10 of the Domicile Act 1982

Section 6-5 of the Income Tax Assessment Act 1997

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

Reasons for decision

Residency Status

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:

1. the resides test

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 the resides test. However, where an individual does not satisfy this test, they will be considered to be a resident of Australia for tax purposes if they satisfy one of the other tests.

The three tests which are relevant to your circumstances are the first, second and fourth tests

The resides test

The ordinary meaning of the word "reside", according to the Shorter Oxford English Dictionary, 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 will be living in rented accommodation in Country X, you do not satisfy this test.

The domicile test

If a person is considered to have their domicile in Australia they will be considered an Australian 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 Australia has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country (section 10 of the Domicile Act 1982).

Thus, a person with an Australian domicile but living outside Australia will retain that domicile if he or she intends to return to Australia on a clearly foreseen and reasonably anticipated contingency for example, the end of his or her employment.

You are going to return to Australia at the end of your employment and accordingly you will retain your Australian domicile.

If a person has his or her domicile in Australia, the Commissioner has to be satisfied that the person's "permanent place of abode" is not outside Australia.

Place of abode

The expression "place of abode" refers to a person's residence, where one lives with one's family and sleeps at night (R v. Hammond (1852) 117 E.R. 1477 at p. 1488; Levene v. I.R.C.(1928) A.C.217 and I.R.C. v. Lysaght (1928) A.C.234). 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.

Some of the factors which have been considered relevant by the Courts and Boards of Review/Administrative Appeals Tribunal and which are used by this Office in reaching a state of satisfaction as to a taxpayer's permanent place of abode include (Income Tax Ruling IT 2650):

(a) the intended and actual length of the taxpayer's stay in the overseas country

Generally speaking, a taxpayer who leaves Australia with an intention of returning to Australia at the end of a transitory stay overseas would remain a resident of Australia for income tax purposes unless he or she can satisfy the Commissioner that a consideration of the other factors requires the conclusion that during the year of income his or her permanent place of abode was outside Australia. What constitutes a mere transitory stay overseas for these purposes would vary with the circumstances of each case. However, as a general proposition, an overseas stay for a duration of less than 2 years would be considered as being of a transitory nature.

(b)  whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time.

(c)  whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia for example leasing a dwelling. Purchase of a home in the overseas country would be a very relevant though not a conclusive factor

(d)  whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence. If a taxpayer leases out their home in Australia they have abandoned their Australian residence.

(e)  the duration and continuity of the taxpayer's presence in the overseas country; if a taxpayer moves between temporary accommodation in one country also if a taxpayer travels on a regular basis to Australia

(f) the durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

Weight of factors

Case law states that greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant.

It is considered that you have not established a permanent place of abode in Country X for the following reasons:

- You will not be transferring all your assets to Country X.

- You will be travelling back to Australia for work purposes six times per annum.

- You will be staying in Country X. for a minimum of X months and a maximum of Y months

- You will not be purchasing a dwelling in Country X, and

- Your intention is to return to Australia.

As you will not establish a permanent place of abode in Country X, you satisfy the domicile test. Accordingly, you will be a resident of Australia from your date of departure.

As you have established your residency under this test, there is no need to examine the remaining tests.

Note

Your other questions will need to be addressed as general advice either because they are too general or relate to the tax obligations of other entities.

Residency of the trust

A trust estate is taken to be a resident trust estate if at any time during the income year, a trustee of the trust estate was resident or the central management and control; of the trust estate was in Australia.

Section 6(1) of the ITAA 1936 specifies that a company being a resident of Australia means:

a company which is incorporated in Australia, or which, not being incorporated in Australia, carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia.

As the trustee company was incorporated in Australia it is a resident of Australia. Accordingly the trust is a resident of Australia.

Income of beneficiary

A beneficiary who is a resident (of Australia) at the end of the income year, and who is presently entitled to a share of the income of a trust estate and is not under a legal disability, is assessed under section 97 of the ITAA 1936 on a corresponding share of the net income of the trust estate. Accordingly this income is assessable in Australia.

Your employers tax obligations

Section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA) states that an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident includes the ordinary income derived from Australian and foreign sources during the income year.

Salary and wages are ordinary income.

Therefore any ordinary income derived from sources outside Australia, is included in your assessable income in Australia.

In determining liability to tax on Country X.sourced income received by a resident, it is necessary to consider not only the domestic income tax laws but also the applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act). Schedule X to the Agreements Act contains the treaty between Australia and Country X (Country X Agreement).

An Article of the Country X.Agreement provides that the salary and wages derived by a Australian resident in respect of employment exercised in Country X may be taxed in Country X. However subparagraph of the same Article provides that such salary and wages shall be taxed only in Australia if all the following conditions are met:

- the recipient is present in Country X for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the year of income of Country X, and

- the remuneration is paid by, or on behalf of, an employer who is not a resident of Country X, or is borne by or deductible in determining the profits attributable to a permanent establishment which the employer has in Australia, and

- the remuneration is neither borne by nor deductible in determining the profits attributable to a permanent establishment which the employer has in Country X.

As you will be going to Country X for a minimum of X months you do not satisfy condition a). Accordingly, your income can be taxed in Country X.

Rental income and expenses

As you are a resident of Australia deriving rental income from Australian sources your rental income is assessable in Australia in accordance with subsection 6-5(2) of the ITAA 1997.

The Rental properties 2010 guide is enclosed. Guidance regarding tax deductible expenditure is contained in pages 7-14.