Edited version of private ruling

Authorisation Number: 1011492388861

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Ruling

Subject: Residency - foreign source income

1. Are you a resident of Australia for income tax purposes for the year ended 30 June 2010?

Yes.

2. Is your income derived from your employment in Country A for the year ended 30 June 2010 exempt from tax in Australia?

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You are a citizen of Australia.

You are employed by an Australian resident Company, on a contract basis in Country A.

You have been working in Country A for the last several years when you started your original employment contract with a Company and continued working with your current employer.

You signed a new employment contract to continue working in Country A. Your employment contract has been further extended and you were asked to continue your services in future which you have accepted.

You have travelled to Country A on a Long Stay visa - work permit, which is renewed every 12 months.

You are entitled to several weeks of annual leave with one return flight to Australia every 12 months.

You stated your annual leave accrued as a result of your services in Country A, but taken early for trips to visit family and so on.

Your spouse is staying with you in Country A.

Your spouse stays in a residential long stay apartment building but you mostly reside in the project accommodation and share few nights of the week in the apartment with your spouse.

You have been using this arrangement for the last several years.

You have purchased a car for your spouse and few electrical appliances and furniture in Country A for convenience.

You own a house in Australia, which is not rented out and all your personal property and belongings are in your house.

You stay with your family members and friends or motel accommodation during your visits to Australia to spend as much time as possible with your children and grandchildren.

You have invested in a block of land in Australia.

Your spouse's and your resident cards must be stamped every 12 months.

Your children never lived with you in Country A.

You have children and grandchildren in Australia.

You would make time to visit your children twice a year for short periods at any one time.

It is unlikely that you will reside in Country A after the project finishes.

Your work involves working on other overseas projects and there is a high probability that your next assignment will not be in Australia.

You do not intend to reside in Country A permanently.

You plan to retire in Australia. If you do not find a project that suits your career path and skill set.

You were not an employee of Commonwealth Government of Australia employee.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1936 Section 23AG.

Income Tax Assessment Act 1936 Subsection 23AG(1).

Income Tax Assessment Act 1936 Subsection 23AG(7).

Income Tax Assessment Act 1936 Subsection 23AG(1AA).

Reasons for decision

Residency

The terms 'resident' and 'resident of Australia', in regard to an individual, are described in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition includes four tests to assist in determining whether you are 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 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 you do not reside in Australia according to ordinary concepts, you may still be considered to be a resident of Australia for tax purposes if you meet the conditions of one of the other three 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 ones settled or usual abode, to live in or at a particular place.

As you were residing in Country A for income year ended 30 June 2010 you are not considered to reside in Australia.

2. The domicile test

In order to show that a new domicile of choice in a country outside Australia has been adopted, you must be able to prove an intention to make your home indefinitely in that country.

A permanent place of abode does not have to be 'everlasting' or 'forever'. It does not mean an abode in which you intend to live for the rest of your life. An intention to return to Australia in the foreseeable future to live does not prevent you in the meantime setting up a permanent place of abode elsewhere.

As there is no evidence of intention to make your home indefinitely outside Australia, you are considered to have maintained your Australian domicile.

In addition, your associations with Australia are considered to be more significant for the following reasons:

· You are an Australian citizen

· You own a house and a block of land in Australia.

· Your house in Australia is not rented out and hold your personal property and belongings

· You visited Australia on a regular basis during your employment in Country A to meet your have children and grandchildren

· You were staying in a camp accommodation for four days and three days in an apartment where your spouse was living in Country A

· Your only asset in Country A was a car that you purchased for your spouse and few electrical appliances and furniture for convenience

· You do not have any intention to live in Country A after the completion of your project

· Your intention is to return to Australia to retire if you do not find any further project

Based on these facts, it is considered that you have not established a permanent place of abode in Country A. You are therefore considered to be a resident of Australia for tax purposes under the domicile test.

Your residency status

As you are deemed to be a resident of Australia under the domicile test of residency outlined in subsection 6(1) of the ITAA 1936 there is no need to examine the remaining test. Therefore, you remained an Australian resident for taxation purposes during your employment in country A.

Foreign employment income

Subsection 23AG(1) of the ITAA 1936 provides that foreign earnings of an Australian resident derived during a continuous period of foreign service of not less than 91 days employment in a foreign country are exempt from tax in Australia.

As from 1 July 2009, subsection 23AG(1AA) of the ITAA 1936 provides that foreign earnings derived by an Australian resident from 91 days continuous foreign service will only be exempt if the foreign service is directly attributable to:

· the delivery of Australia's overseas aid program by the individual's employer

· the activities of the individual's employer in operating a developing country relief fund or an overseas public disaster relief fund

· the activities of the individual's employer, being a prescribed institution that is exempt from Australian income tax

· the individual's deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force.

Foreign earnings as defined in subsection 23AG(7) of the ITAA 1936 includes income consisting of earnings, salary, wages, commission, bonuses or allowances as a result of foreign service. Foreign service means service in a foreign country as a holder of an office in the capacity of an employee.

In your case, your employment in Country A was not directly attributable to the exemption categories mentioned in subsection 23AG(1AA) of the ITAA 1936.

Accordingly, the income you earned while working in Country A is not exempt from tax under subsection 23AG(1) of the ITAA 1936.

Note

Foreign employment income derived by an Australian resident that is not exempt from income tax is assessable under subsection 6-5(2) of the ITAA 1997.

A Foreign Income Tax Offset (FITO) is available to a taxpayer for foreign income tax paid on an amount that is included in assessable income. Entitlement to the tax offset arises only to the extent that the foreign income tax has been paid on an amount included in assessable income.

A FITO will effectively reduce the Australian tax that would be payable on foreign income which has been subjected to foreign income tax by an amount equal to the foreign income tax paid.