Edited version of private ruling

Authorisation Number: 1011680039868

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Ruling

Subject: Overseas income - salary & wages - residency

Is your overseas employment income assessable in Australia?

No.

This ruling applies for the following periods:

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commences on:

1 July 2007

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 and your spouse will be in an overseas country for a number of years working for an International company.

You will rent an apartment during your stay in the overseas country.

You have children living in Australia and overseas.

You own a house in Australia which will be rented.

You own investment properties in Australia.

You have shares and property and equity trusts in Australia.

You intend to spend approximately 50% of your annual holidays in Australia.

You will open bank accounts with your spouse overseas.

You and your spouse are not employees of the Commonwealth Government of Australia.

Your present intention is to return to Australia. However, you may remain overseas after your contract expires.

Relevant legislative provisions

Section 6-5 of the Income Tax Assessment Act 1997

Section 995-1 of the Income Tax Assessment Act 1997

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

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

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.

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia 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 derived from an Australian source.

However, we need to consider your residency status for Australian income tax purposes in order to determine whether your overseas employment income will be assessable in Australia.

Residency status

An Australian resident is defined in section 995-1 of the ITAA 1997 to be a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

The terms 'resident' and 'resident of Australia', in regard to an individual, are defined in subsection 6(1) of the 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; and

· 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 Shorter Oxford English Dictionary, 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 have obtained full time employment with an overseas company for a number of years and you will be renting an apartment overseas with your spouse, 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.

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 or by operation of law.

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, your present intention is to return to Australia when your contract expires, however you may remain overseas. There is no evidence of an intention to make your home indefinitely overseas. You have also rented out your family home in Australia. 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.

Although you maintain an association with Australia through your investments, your associations with the overseas country are more significant as you will:

· be renting a home in which you live with your spouse

· have a fully furnished home

· obtained employment for a number of years

· purchase some shares

· have many friends and associates in the area, and

· open bank accounts with your spouse overseas.

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

The 183-day test

Where 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 do not satisfy this test as you have established a permanent place of abode outside of Australia.

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

Your resident status

As you are not deemed to be a resident of Australia under any of the tests of residency outlined in paragraph 6(1)(a) of the ITAA 1936, you are not considered to be a resident of Australia for tax purposes from the date of your departure from Australia.

Overseas employment income

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).

As your employment duties are carried on outside of Australia, they 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.