Edited version of private ruling

Authorisation Number: 1011693981324

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Ruling

Subject: Residency and Foreign Employment Income

What this ruling is about:

Question 1

Are you a resident of Australia for income tax purposes?

Answer

No.

Question 2

Are you required to lodge a tax return?

Answer

Yes.

This ruling applies for the following period:

Income year ending 30 June 2010

The scheme commences on:

1 July 2009

The scheme that is the subject of the ruling:

You are a citizen of Country X.

You were sponsored by an Australian company and worked under temporary resident visas (SC 417 and SC 457) from a previous date until you were made redundant.

As a result of your redundancy your temporary visa was also no longer valid.

You returned to Australia recently on a tourist visa to settle rental and personal arrangements. Your tourist visa was due to expire some time later at which time you intended to return to Country X.

You commenced a limited term contract with an overseas based company, and were based in Country V and Country X. During this contract, you lodged a joint application with your girlfriend for permanent residency in Australia.

You returned to Australia on another tourist visa at the completion of the contract and spent time in Australia. You were offered, and subsequently accepted, another limited term contract with the same overseas based company to work in the Country Y and Country Z.

During the period of the short term contract you and your girlfriend were granted Australian Permanent Residency. You returned to Australia subsequently as a permanent resident and commenced your search for employment.

You were unable to obtain employment in Australia and instead accepted an offer of a contract with the same overseas based company to work in Country Z. After an initial stay in a company apartment you have since rented an apartment in your own name and have been granted residency within Country Z.

You maintain Country X bank accounts, Australian bank accounts and also have Country Z bank accounts. Remuneration during the income year was primarily in Country X currency deposited into your bank account in that country, however since a recent date you have been remunerated in Country Z currency being deposited into your bank account in that country.

In the income year you spent a total of 129 days in Australia, the majority of which was neither as a temporary resident nor permanent resident of Australia.

Relevant legislative provisions

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

Explanation: (This does not form part of the notice of private ruling)

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 reside 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'.

As you have been living and working outside Australia since June 2009, you are not considered to be residing in Australia under this test.

The Domicile Test

Under the domicile test, a person will be considered an Australian resident if they are considered to have their domicile in Australia, unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

Generally, persons leaving Australia temporarily would be considered to have maintained their Australian domicile unless it is established 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 their 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 persons dwelling place or the physical surroundings in which a person lives.

Taxation Ruling IT 2650 also explains that a permanent place of abode does not have to be everlasting or forever, where it does not have to be where 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 and your girlfriend's joint application for, and subsequent granting of Australian Permanent Residency recently, indicated an intention to maintain your domicile in Australia for an indefinite period.

However, for some time you have been largely based outside of Australia for work, predominantly and most recently in Country Z where you intend to reside for the foreseeable future. You have been granted residency within Country Z, have rented an apartment there in your name and your girlfriend will join you there shortly.

Although you maintain an association with Australia through your permanent residency status and Australian bank accounts, your associations outside Australia, predominantly in Country Z, are more significant as you have been residing and working outside Australia for almost two thirds of the income year.

Based on these facts, it is considered that you have established a permanent place of abode in Country Z.

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 Z.

The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the PSS or the CSS, 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 the PSS or the CSS.

Conclusion

You are not considered to be an Australian resident for tax purposes under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936.

Australian bank interest and non-residents

Australian bank interest income

Interest income earned in Australia by a non-resident for taxation purposes is subject to withholding tax.

From the date you became a non-resident for taxation purposes, income from your Australian sourced investments (for example bank interest, unfranked dividends) will be subject to withholding tax. Therefore, you should provide your financial institution with your overseas address.

Where non-residents for tax purposes have not advised their financial institution of their residency status and withholding tax has not been withheld from the interest or unfranked dividends, the foreign resident must lodge income tax returns including relevant income, for the years they have earned the income.

Page 117 of TaxPack 2010 provides a further explanation as follows:

Non-resident Withholding Tax - Gross interest

If you were a non-resident include at item 10 any interest that you received in 2009-10 while you were a resident of Australia.

Do not include at item 10 any interest paid or credited to you when you were a non- resident if withholding tax was deducted.

If withholding tax was not deducted, on a separate piece of paper:

n print SCHEDULE OF ADDITIONAL INFORMATION - ITEM 10

n print your name, address and tax file number

n provide details of amounts of interest you received while you were a non-resident if withholding tax was not deducted.

Sign the schedule and attach it to page 3 of your tax return. Print X in the YES box at Taxpayer's declaration question 2a on page 12 of your tax return.

We will advise you of the amount of withholding tax you have to pay on this interest.

In your case, you are deemed to be a non-resident for the entire income year. As a non-resident for tax purposes you will need to pay tax on the interest earned in your Australian bank accounts. No withholding tax has been deducted from your interest income for the income year, therefore you will need to lodge a tax return for the income year including the relevant information as specified above.