Edited version of private ruling

Authorisation Number: 1011708467360

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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 for the income years 2005-06 to 2009-10?

Answer:

No

Question 2

Are you a resident of Australia for Income tax purposes for the income years 2010-11 to 2012-13?

Answer:

Yes

Question 3

Is the employment income that you earned from the Australian embassy in Country X assessable in Australia?

Answer:

Yes.

This ruling applies for the following period:

Income years ended June 2013

The scheme commences on:

1 July 2005

The scheme that is the subject of the ruling:

You are an Australian citizen.

You stated that you have not worked in Australia for some time and the last Australian tax return was lodged for the financial year around that time.

For the last few years, you worked in overseas countries and have not returned or stayed in Australia for some time.

You stated that the online resident taxation status test confirmed that you are a non resident for tax purposes due to the social and economical ties you have in Country X.

Your parent passed away last year and you have been financially supporting your unemployed mother in Country X.

You advised that you have moved back to Country X after living in Country Y and you are currently working at the Australian embassy in Country X.

You stated that you hope to apply for permanent residency in Country X.

You stated according to IT 2650, individuals who leave Australia temporarily to live overseas, on a temporary overseas work assignments or on study leave, cease to be Australian residents for Income tax purposes.

You stated the following facts based on your understanding of the law for Permanent Place of Abode and Domicile:

· You have been living in Country X and Country Y for some time, and have not returned to Australia since then.

· You have no intention of returning to Australia as your family and social commitments are tied to Country X.

· You have not established a home in Australia. You are living with your mother Country X since you arrived back from Country Y.

· You have stated that you have no residence or place of abode exists in Australia.

· You stated you have no durability of association with Australia; you have cancelled your student bank account with national Australia Bank and do not hold any property/residence in Australia.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1936 Subsection 6-5(2)

Income Tax Assessment Act 1936 Subsection 6-5(3)

Superannuation Act 1990 Subsection 6(1)

Superannuation Act 1976

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 fund 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.

Where one or more of the above tests is satisfied, a taxpayer will be deemed to be an Australian resident for tax purposes.

The Superannuation test is relevant to Australian residents and citizens working in Australian embassies and or consulates in foreign countries. You are currently working at the Australian embassy in Country X. You are deemed to be a member of the superannuation scheme as explained below.

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 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 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 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 abode elsewhere.

You have been living in Country X and Country Y permanently and you have been paying tax in both countries and have not returned or stayed in Australia for some time.

You have established a home outside Australia and you have no intention of returning to Australia as your family and social commitments are tied to Country X.

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

Therefore, you are considered to be an Australian non- resident for tax purposes under the Domicile test outlined in subsection 6(1) of the ITAA 1936 for the periods.

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. 

A person is a 'resident' under this test if they are:

· a member of the superannuation scheme established by deed under the Superannuation Act 1990 (SA 1990), or

· an eligible employee for the purposes of the Superannuation Act 1976, or

· the spouse or a child under 16, of a person covered by either of the above.

The SA 1990 established the PSS, and the Superannuation Act 1976 established a scheme called the Commonwealth Superannuation Scheme (CSS).

To determine whether you are a resident under the Commonwealth superannuation fund test, for the period you are deriving income overseas, it is necessary to determine whether you are a member of the superannuation scheme (PSS) for the purposes of the SA 1990 for that period.

A member of the superannuation scheme is defined in section 6(1) of the SA 1990 to mean a person who is a permanent employee.

It should be noted that a person may still be a 'member' even though they are not actually making contributions to the superannuation scheme established by deed under the Superannuation Act 1990 (PSS). This is because the term 'member' is not defined in terms of whether a person is contributing to the superannuation scheme (PSS) or not. Therefore, the act of contributing is not determinative in deciding a person's residency status.

In your case, you have advised that you are not a member of the PSS. You have stated that you have been contributing towards a Superannuation superfund overseas and paying foreign tax during the relevant period.

Even though you are not a contributing member of an Australian government superannuation scheme such as the CSS or PSS, this does not affect your residency status under the superannuation test as you are still eligible to contribute to the PSS when your are working for the Australian embassy in Country X.

Therefore, you will be considered to be an Australian resident for tax purposes while are working for the Australian embassy in Singapore as you satisfy the Superannuation test.

Conclusion

You are considered to be an Australian resident for tax purposes under the superannuation test outlined in subsection 6(1) of the ITAA 1936.

Double Tax Agreement between Australia and Country X

A Schedule of the International Agreement Act 1953 contains the agreement between Australia and Country X for the avoidance of double taxation.

An Article of the Double Tax Agreement provides that remuneration paid in respect of labour or personal services performed as an employee of a government (including a State or local government) of Australia in the discharge of governmental functions to a citizen of Australia will be taxable only in Australia. The remuneration is exempt from tax in Country X.

This means that if you are a resident of Australia and are employed in Country X by the Australian government, then Australia has the sole taxing right to your remuneration (salary/wages). Country X does not have a taxing right.

In your case, you are an Australian resident for taxation purposes and an Australian citizen, performing duties in the discharge of Australian governmental functions. Your salary/wages earned from your employment at the Australian embassy in Country X as a Locally Engaged Staff (LES) member is not exempt from tax in Australia as this earning is exempt from tax in Country X under a particular Article of the Country X. As such, these earnings are subject to tax in Australia and need to be included as assessable foreign salary and wage income in your Australian Tax Return.

Source of Income

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

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non resident taxpayer includes ordinary income derived directly or indirectly from Australian sources.

For the years , you are considered to be an Australian non- resident for tax purposes under the Domicile test outlined in subsection 6(1) of the ITAA 1936 during the period you resided in Country X and Country Y. Therefore, you do not need to include your income derived from these overseas countries in your Australian tax returns.

However, you are considered to be an Australian resident for tax purposes under the superannuation test during the relevant income years, therefore you should include your income derived from your employment with the Australian embassy in your Australian tax returns for the relevant income years.