Edited version of private ruling

Authorisation Number: 1011478914692

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Ruling

Subject: Residency, Living away from home allowance and income

1. Are you a resident of Australia for tax purposes?

Yes.

2. Is the income you received from your employment in country A assessable in Australia?

Yes.

3. Is your mobility payment assessable income in Australia?

Yes.

4. If the taxpayer is a resident for tax purposes, is the employer liable to deduct tax from salary/wages payable to the taxpayer for the overseas employment at resident rates?

Withdrawn.

5. If the employer deducts an amount of tax in accordance with an employment contract, is the employer liable to remit the amount deducted to the Australia Taxation Office?

Withdrawn.

6. If the answer to question 5 is 'yes', then is the employer required to record a credit for the amount deducted in the group certificate issued to the employee, and is the taxpayer/ employee entitled to a credit for the amount deducted against tax due on income assessable in Australia?

Withdrawn.

7. Is the taxpayer liable to tax in Australia on an allowance described as a 'living away from home allowance' paid in country A or is the taxpayer required to include the amount as assessable income in the year of receipt?

Withdrawn.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commenced on:

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are employed by an Australian employer.

You have accepted a temporary assignment in country A.

The terms of the assignment state that you continue to remain an employee of the Australian company during the assignment.

The contract for the assignment is three years.

You have moved with your family to country A for the assignment.

You never intended to stay overseas for more than two years.

You have children who are registered in schools in Australia.

You have care arrangement for your animals which ends after two years.

Your employer continues to pay you the superannuation guarantee amount on your salary.

Your salary is paid into your Australian bank account.

You are paid a premium as specified percentage uplift of your base salary. You receive the mobility premium as you do your normal salary and it is to compensate you for having to move for your employment.

You are paid an allowance by your employer for every day that you are in a certain area of country A. If you are outside this area, other than for business, you are not entitled to claim the allowance.

You submit a claim form every month for your living allowance and it is paid to cover the cost of items such as food.

You intend to return to Australia upon completion of your employment assignment and have no intention of setting up a permanent abode in country A.

You and your family reside in furnished accommodation provided by your employer.

You own a residence in Australia which has been rented at arms length since you left.

You and your family return to Australia for holidays.

You maintain an Australian bank account.

You have investments in Australia.

You have recently purchased a second property in Australia.

You have a vehicle in Australia which is garaged at a relative's house. You use this vehicle when you are in Australia on holidays.

You will be present in country A for more than 183 days in the relevant tax years.

For the country A tax year ending 2008 your employer provided you with salary payments on the basis that you are a non- resident of country A for country A tax purposes.

You have paid tax in country A.

During a telephone conversation you withdrew several questions from your application.

Relevant legislative provisions

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

Section 6-5 of the Income Tax Assessment Act 1997

Section 26(e) of the Income Tax Assessment Act 1936

Section 30(1) of the Fringe Benefits Tax Assessment Act 1986

Section 23AG(1AA) of the Income Tax Assessment Act 1936

International Tax Agreements Act 1953

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1

Residency

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are an Australian resident for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a non resident of Australia for taxation purposes, your assessable income includes only income from an Australian source.

Are you an Australian resident for tax purposes?

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 an Australian resident 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 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 an Australian resident for tax purposes if they satisfy the conditions of one of the three other tests.

1. The resides test

The ordinary meaning of the word reside, according to the dictionary definition, 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.

You are currently living in country A with your family therefore are not residing in Australia.

2. 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.

Domicile

Generally speaking, persons leaving Australia temporarily would be considered to have maintained their Australian domicile unless it is established that they have acquired a different domicile of choice by operation of law.

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.

You have taken on an assignment for a specified period of three years and intend to return to Australia after two years. Therefore, you are considered to have maintained your Australian domicile.

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.

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.

Taxation Ruling IT 2650 sets out several factors to be considered in determining whether a person has established a permanent place of abode outside of Australia.

The weight of each factor will vary on a case by case basis and no single factor will be decisive. The factors to be considered are:

· the intended and actual length of stay in the overseas country - the longer the stay, the more permanent in nature, the more likely that a permanent place of abode has been established. Generally, a period of two years or more is regarded as a substantial period of time; this however is not itself conclusive

· 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. This factor requires an intention to stay in a specific country overseas and not simply the intention to remain out of Australia

· 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

· whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence

· the duration and continuity of the taxpayer's presence in the overseas country, and

· the durability of association that the person has with a particular place in Australia, that is, maintaining Australian bank accounts, family ties and so on.

You signed a contract for a temporary assignment for a period of three years and you intend to return to your employment in Australia at the completion of the contract. Whilst in country A you are living in accommodation provided by your employer. You maintain a motor vehicle in Australia and return for holidays when you can. You have maintained strong ties with Australia.

You have not established a permanent place of abode in country A. You have maintained your Australian domicile. You have not satisfied the Commissioner that you have a permanent place of abode outside Australia. You are therefore a resident of Australia for tax purposes under this test.

The 183 day test

When 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.

You were not present in Australia for more than 183 days so this test does not apply to you.

The superannuation test

An individual is still considered to be a resident if that person is 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.

As you are a resident of Australia under the Domicile test this test does not need to be considered.

Your residency status

You are an Australian resident under the Domicile test for the period 2009 - 2011.

Question 2

Section 6-5 of the ITAA 1997 states that where you are an Australian resident for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia.

Section 23AG of the ITAA 1936 provides an exception to this general rule. According to this section, foreign earnings derived by an Australian resident taxpayer from at least 91 days' continuous employment in a foreign country may be exempt, provided certain conditions are met.

Section 23AG(1AA) of the ITAA 1936 provides that from 1 July 2009, this exemption only applies to income earned:

· as an aid or charitable worker employed by a recognised non-government organisation

· as a government aid worker, or

· as a government employee deployed as a member of a disciplined force.

Although you are in receipt of foreign earnings, you do not meet any of the requirements found in section 23AG(1AA) of the ITAA 1936. Therefore, the exemption does not apply to you and your income is assessable in Australia.

Double tax agreement

To determine your liability to pay tax in Australia, it is also necessary to consider any applicable double tax agreements contained in the International Tax Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that both Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

The Agreements Act states that for the purposes of the Agreement, a person is a resident of Australia if the person is a resident of Australia for the purposes of Australian tax.

As you are an Australian resident for tax purposes you satisfy this Article. Therefore, you are an Australian resident under the Agreements Act.

As you are a resident of Australia, and are in receipt of income from a source outside of Australia, that income will be taxable in Australia by virtue of the Agreements Act.

You may also be taxed on this income in country A, however you will need to seek assistance from the country A taxation authorities to determine this.

Question 3

'Mobility Premium'

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

You are in receipt of an amount from your employer which is referred to in your contract as a 'mobility premium'. The premium is defined as a percentage uplift of your base salary.

For taxation purposes this amount is an extension of your normal salary. Therefore, the amount retains its character as normal salary and wages and is assessable income to you under section 6-5 of the ITAA 1997.

Withdrawal of questions

Section 359-10 of the Taxation Administration Act 1953 (TAA 1953) provides that an applicant for a private ruling may withdraw the application at any time before it is made.

During a telephone conversation you withdrew several questions from your application. Accordingly, this request satisfies the requirements of subsection 359-10(3) of the Schedule 1 of the TAA 1953 and the Commissioner will not issue a ruling in respect of these questions. 

The following general guidance is provided in relation to your withdrawn questions.

General Taxation Advice

The following information is provided as written guidance. A taxpayer who relies on guidance will remain liable for any tax shortfall if the guidance is incorrect or misleading and they make a mistake as a result (unless a time limit imposed by the law precludes the liability). However, they will be protected against the shortfall penalty and interest on the tax shortfall provided they relied on that guidance reasonably and in good faith.

Living away from home allowance

Allowances are assessable under paragraph 26(e) of the ITAA 1936. However, allowances that are either fringe benefits or exempt benefits that fall within the meaning of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) are not assessable income (section 23L of the ITAA 1936).

A living away from home allowance (LAFHA) benefit arises where an employer pays an employee an allowance to compensate for additional expenses or disadvantages suffered because the employee (with or without family) has to live away from home for employment purposes.

Subsection 30(1) of the FBTAA provides that a payment will be a LAFHA when the following conditions are satisfied:

(a) The employer pays an allowance to an employee

(b) The whole or part of the allowance is compensation either for:

· additional expenses for which the employee cannot claim an income tax deduction; or

· additional expenses for which the employee cannot claim an income tax deduction and other disadvantages to which the employee is subject during a period.

(c) The additional expenses (or additional expenses and other disadvantages) arise because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment.

A LAFHA that is a fringe benefit under Division 7A of the FBTAA will be exempt income to the employee under section 23L of the ITAA 1936.

Foreign income tax offset

Australian resident individuals are taxed on their worldwide income. This means a taxpayer must include all income from foreign sources in his or her income tax return. If foreign tax has been paid on this income, he or she may be entitled to a non-refundable foreign income tax offset for the foreign tax paid.

If an Australian employer is paying a taxpayer while they are working overseas, the employer must withhold tax from any non-exempt foreign employment income. This also applies to any foreign employer that is registered for Australian Pay As You Go (PAYG) withholding.

If a taxpayer is employed by a foreign employer that is not registered for Australian PAYG withholding, it is unlikely that any amount will be withheld for Australian tax purposes. If the income is assessable, the foreign income will form part of the taxpayer's PAYG instalment income and he or she may be entitled to a non-refundable foreign income tax offset for the foreign tax that has been paid.