Edited version of private ruling

Authorisation Number: 1011637524525

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Ruling

Subject: Residency - Foreign Resident - Foreign Income

1. Are you an Australian resident for income tax purposes?

No.

2. Is the employment income you derive from working in Country A assessable income in Australia?

No.

This ruling applies for the following period/s:

Year ended 30 June 2010

Year ending 30 June 2011

Year ending 30 June 2012

The scheme commenced on:

1 July 2009.

Relevant facts and circumstances

You are an Australian citizen and you were born in Australia.

You are single with no children.

You are currently living and working in Country A.

You left Australia some time in the 2009-10 income year. You have a specific three year visa which has the potential to be extended.

You were initially employed on a one year contract, however, this has been renewed for another year ending some time in the 2011-12 income year. There will also be potential to renew this for another two more subsequent years.

At this stage you intend on living in Country A for another two to three years, after which you will return to Australia.

You have not returned to Australia since arriving in Country A. You will make a short trip home to Australia this Christmas time for a holiday to see family.

In Country A, you live in an apartment which is partially subsidised by your employer. You have a bank account in which your net salary is deposited into each month. You pay expenses relating to rent, utilities, phone and internet.

In Country A, you also own a mobile phone and car. You are also a member of the social security system and have additional health insurance as well as unemployment insurance.

In Australia, you were living in an apartment that you purchased and are paying off a mortgage. The apartment has since been rented out and producing rental income for you.

In Country A, you also pay income tax.

In Australia, you also have other bank accounts in addition to your home loan. You also have an Australian share portfolio that generates dividend income.

In Country A, you socialise and have made friends with other foreigners. You also participate in a yearly charity event.

You are not, and have never been a Commonwealth Government of Australia Employee.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Subsection 6-5(3)

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

Residency

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 resides test

· the domicile test

· the 183 day test

· 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 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'.

You were residing in Country A since some time in the 2009-10 income year as evidence by renting an apartment and working there.

Therefore, you were not considered to be residing in Australia.

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 to prove an intention to make his or her home indefinitely in that country.

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.

In your case,

· in Country A, you own a car, pay taxes, pay rent and utilities

· you only maintained an association with Australia through some family and investments

· you still are, and have been residing and working in Country A since some time in the 2009-10 income year

· you had created social ties in Country A with other foreigners; you also participate in a yearly charity event.

Therefore, you are not considered to have maintained your Australian domicile.

Based on these facts, the Commissioner is satisfied that you have established a permanent place of abode in Country A.

The 183-day test

This test does not apply to you as it has been identified that your permanent place of abode is in Country A.

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. 

You will not be treated as a resident under this test as you are not a member of the PSS or the CSS, a spouse of such a person, or a child under 16 of such a person.

Your residency status

As you are not considered to be a resident of Australia under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936, you are not considered to be an Australian resident under subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) from the date of your departure from Australia some time in the 2009-10 income year.

Note:

During the period you were a foreign resident, any interest income and/or dividend income derived by you from sources in Australia will be subject to foreign resident withholding tax.

Employment income derived

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a foreign resident of Australia includes all the ordinary income derived directly or indirectly from all Australian sources during the income year.

A foreign resident is a person who is not a resident of Australia.

Salary and wages are regarded as ordinary income.

The source of income derived from employment is generally the place where the duties or services are performed (Federal Commissioner of Taxation v. French (1957) 98 CLR 398; (1957) 11 ATD 288; (1957) 7 AITR 76).

Your employment duties carried on outside of Australia are considered to be sourced out of Australia. Therefore the income derived in relation to such employment is not assessable in Australia under subsection 6-5(3) of the ITAA 1997 as you are a foreign resident.