Edited version of private ruling

Authorisation Number: 1011665274845

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Ruling

Subject: Residency - working overseas

Question 1

Are you an Australian resident for taxation purposes while working overseas?

Answer

Yes.

Question 2

Is the income you earned in country X exempt from tax in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No.

The 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 left Australia to work in country X for the period of not less than 91 days.

You do not intend to reside overseas permanently.

Your accommodation in country X is provided by your employer.

You have a bank account overseas.

You have returned to Australia on a very occasional basis during the school holiday.

You do not have a permanent place to live in Australia when you first return. However, you have now purchased a property in Australia.

You have no dependents. No family members accompanied you overseas.

You are not a member of the Public Service Superannuation (PSS) Scheme or the Commonwealth Superannuation Scheme (CSS).

The law of country X does not provide for the imposition of income tax on employment or similar income.

There is no tax treaty between Australia and the country X.

Relevant facts and circumstances

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1936 Subsection 23AG

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

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

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:

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 whether the individual resides in Australia according to the ordinary meaning of the word resides. If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established.

The resides test

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3rd 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 were residing outside of Australia, you are 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.

In your case, you are an Australian citizen working temporarily in country X. You moved to country X with a clear intention to return to Australia. There is no evidence of an intention to make your home indefinitely in any country. 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.

In your case, you have advised that it is not your intention to make your home indefinitely in country X. Since moving to country X you have returned to Australia on a few occasions during school holiday. While staying in country X your accommodation is provided by your employer.

Based on these facts, it is therefore considered that you have not established a permanent place of abode outside of Australia. As you have not satisfied the Commissioner that you have a permanent place of abode outside of Australia, you are considered to be a resident of Australia for tax purposes under this test.

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 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 while you work overseas 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.

Generally, section 23AG of the ITAA 1936 provides that the foreign earnings of an Australian resident derived during a continuous period of not less than 91 days employment in a foreign country will be exempt from tax in Australia.

However, new rules apply to foreign income earned from 1 July 2009. Subsection 23AG(1AA) of the ITAA 1936 provides that those foreign earnings will not be exempt under section 23AG of the ITAA 1936 unless the continuous period of foreign service is directly attributable to any of the following:

· the delivery of Australian official development assistance by the taxpayer's employer (generally provided by AusAID or the Department of Foreign Affairs and Trade);

· the activities of the taxpayer's employer in operating a public fund covered by the deductible gift recipient categories overseas aid fund and developed country disaster relief fund;

· the activities of the taxpayer's employer where they are a charitable institution or religious institution which is income tax exempt because they are a prescribed institution located outside Australia or pursuing objectives principally outside Australia;

· the taxpayer's deployment outside Australia as a member of a disciplined force of Australia (generally considered to be the Australian Defence Force or Australian Federal Police); or

· an activity of a kind specified in the regulations.

In your case, you are employed as a lecturer to work in country X by the University of Country X. Your employment does not fall into one of the exemption categories listed above.

As you do not satisfy any of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936. Therefore the income you earned at country X University is not exempt from tax in Australia under section 23AG of the ITAA 1936 and will be assessable under subsection 6-5(2) of the ITAA 1997.