Edited version of private ruling

Authorisation Number: 1011631546563

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Ruling

Subject: Residency - working overseas

1. Are you an Australian resident for taxation purposes?

Yes.

2. Is your employment income from working as an employee of an Australian company in country X assessable in Australia?

Yes.

This ruling applies for the following periods:

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You are an Australian citizen.

You are currently employed by an Australian company to work in country X.

You intend to depart Australia to commence an assignment at the country X office of your current employer.

You intend to return to Australia at the end of the assignment period.

You intend to visit Australia at quarterly intervals during your assignment for both business and private purposes and to visit your dependent children that will remain in Australia.

You will be accompanied by your spouse and a dependent child for the duration of the assignment. Your other dependent children will remain in Australia for the purposes of attending school and work purposes.

As part of the assignment contract, you will be provided with a fully furnished house in country X.

You own a house in Australia. This property will not be rented out whilst you are working overseas but continue to be available as accommodation to you and your dependent family.

You have bank account, investments in shares and property in Australia.

You and your spouse are not employee of the Commonwealth Government at any time.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

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

International Tax Agreements Act 1953

Reasons for decision

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 reside 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 an individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for 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. 3^rd 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'.

As you are residing outside of Australia, you are not considered to be residing in Australia under 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.

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 or by operation of law.

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.

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

In your case, you will be accompanied by your spouse and one of your dependent children for the duration of the assignment. Your other dependent children will remain in Australia for the purposes of attending university and work purposes. You have advised that it is not your intention to make your home indefinitely in country X. You intend to visit Australia at quarterly intervals during your assignment for both business and private purposes and to visit your dependent children that will remain in Australia. Your family home in Australia will not be rented out whilst you are working overseas but continue to be available as accommodation to you and your dependent family. Therefore, you are considered to have maintained your Australian domicile.

Whilst the duration of your time in country X is significant, your permanent place of abode is also considered to be within Australia for the following reasons:

· you have maintained your family home in Australia

· your dependent children will continue to live in the family home

· your spouse and sole accompanying dependent child will also live at the property during return to visit to Australia

· you will visit your family regularly, and

· you continue to have strong ties with Australia (both financial and personal),

The 183-day test

The 183 day test is not relevant to your circumstances. It is used to ensure that individuals who are enjoying an extended holiday in Australia are not treated as residents. For example, a foreign backpacker who travels around Australia for 12 months will not be a resident because the usual place of abode is outside of Australia and the individual is not intending to take up residence in Australia.

The test does not provide that where an individual is residing according to ordinary concepts, being outside of Australia for more than 183 days will make that individual a non-resident of Australia.

The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to certain superannuation schemes for Commonwealth Government employees, or that person is the spouse or child under 16 of such a person.

This test does not apply to you as you and your spouse are not eligible to contribute to such superannuation schemes.

Your residency status

In view of the above information you are deemed to be a resident of Australia for taxation purposes for the period you will be working in country X under the domicile test of residency outlined in subsection 6(1) of the ITAA 1936.

Foreign income

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident includes all the ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Salary and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

In determining liability to Australian tax on foreign sourced income, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (the Agreements Act).

Australia has a tax treaty with country X (the country X Agreement) which operates to avoid the double taxation of income received by Australian and country X residents.

Schedule Y to the Agreements Act contains the tax treaty between Australia and country X (the country X Agreement).

A Paragraph of an article of the country X Agreement provides that the salary and wages income of an Australian resident will be taxable only in Australia unless the employment is exercised in country X. If the employment is exercised in country X then country X may tax the income.

Although another paragraph of that article of the country X Agreement provides an exception to this rule in respect of certain short periods of work for an employer who is not a resident of country X, you will not be affected by the exception as your duties are performed in country X and you will have been present in country X for more than 183 days in a consecutive period of 12 months. The country X Agreement therefore does not exempt you from tax in country X.

Taxation Ruling TR 2001/13 discusses the Commissioners views about interpreting tax treaties. Paragraph 23 states that the phrase 'may be taxed' normally means that the source country has a non-exclusive entitlement to tax the income. However, under normal international tax principles, the other country may also continue to tax its residents on income, wherever sourced, provided it is permissible under domestic law, and the tax treaty does not explicitly prevent it from doing so.

The country X Agreement does not explicitly prevent Australia from taxing you on this income. As you are a resident of Australia, your foreign income from working in country X is not exempt from income tax in Australia and will be assessable under subsection 6-5(2) of the ITAA 1997.

Note

Where foreign earnings that are not exempt and are subject to Australian income tax, taxpayers will be eligible to claim a non-refundable foreign income tax offset (FITO) for foreign income tax paid on that income. This will relieve double taxation for those individuals.