Edited version of private ruling

Authorisation Number: 1011722620947

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Residency

Question

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

Answer:

Yes.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You are an Australian citizen.

You left Australia a number of years ago to work overseas and have stated that you have never worked in Australia since then.

You have stated that you "intend to work overseas permanently and have no intentions to return at this stage".

You are currently employed as a vice-principal in Country A on a working visa.

You have stated that your employment contract in Country A is for two years and "it can be extended to an open/continuous contract, which is highly likely".

You have stated that if your contract is not extended, you intend to continue employment overseas in the same education industry.

You have returned to Australia for short holidays to visit family for usually one or two weeks Christmas time and/or during the June-July mid-year holidays.

You live in a rented apartment in Country A.

You and your spouse own a house in Australia, in which your spouse and children are living. You have stated that you are still paying the mortgage on this property.

You have stated that you separated from your spouse and later reconciled. You have stated that reconciliation led to your spouse and your children, joining you overseas for the year.

You have stated that your spouse and children returned to Australia later "because they were unhappy and the situation was educationally detrimental and they refused to stay".

You or your spouse are not members of the Public Sector Superannuation Scheme or eligible employees for the purposes of the Commonwealth Superannuation Scheme.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1) and

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 (residence according to ordinary concepts)

2. The domicile and permanent place of abode 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.

Taxation Ruling IT 2650 provides guidelines for determining whether individuals who leave Australia to live overseas cease to be Australian residents for income tax purposes during their overseas stay.

1. 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 are residing outside of Australia, you are not considered to be residing in Australia for the purposes of the resides test.

2. The domicile and permanent place of abode 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.

IT 2650 in paragraph 8 states that a person retains the domicile of origin unless and until he or she acquires a domicile of choice in another country or until he or she acquires another domicile by operation of law.

IT 2650 in paragraph 21 states that "in order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country e.g. through having obtained a migration visa. A working visa, even for a substantial period of time such as 2 years, would not be sufficient evidence of an intention to acquire a new domicile of choice."

You are an Australian citizen. You have stated that you have a working visa in Country A for the relevant periods in question. Applying IT 2650 to your circumstances, your working visa is not sufficient evidence of an intention to acquire a new domicile of choice in Country A. 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.

IT 2650 states in paragraph 14 that 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.

IT 2650 states in paragraph 23 that a person's permanent place of abode is a question of fact to be determined in the light of all the circumstances of each case. Some of these factors which have been considered relevant include:

a) the intended and actual length of the individual's stay in the overseas country;

b) any intention either to return to Australia at some definite point in time or to travel to another country;

c) the establishment a home outside Australia;

d) the abandonment of any residence or place of abode the individual may have had in Australia;

e) the duration and continuity of the individual's presence in the overseas country; and

f) the durability of association that the individual has with a particular place in Australia.

IT 2650 states in paragraph 24 that the weight of each factor will vary with the individual circumstances and no single factor is decisive. However, "greater weight should be given to factors c) the establishment a home outside Australia, e) the duration and continuity of the individual's presence in the overseas country and f) the durability of association that the individual has with a particular place in Australia than to the remaining factors".

In relation to factor a) the intended and actual length of the individual's stay in the overseas country, IT 2650 states in paragraph 25 that "a period of about 2 years or more would generally be regarded by [the ATO] as a substantial period…however…[this] is not conclusive and needs to be considered with all of the factors in paragraph 23 above."

Applying IT 2650 to your circumstances, it follows that the intended and actual length of your stay in Country A is substantial because your employment contract in Country A is for two years and "it can be extended to an open/continuous contract, which is highly likely".

However, you continue to have a strong durable association with a particular place in Australia because you have returned to Australia for short holidays to visit your family for usually one or two weeks at Christmas time and/or during the June-July mid-year holidays. Also, you and your spouse own a house in Australia, in which your spouse and children are living. You have stated that you are still paying the mortgage on this property. Weighing all the factors above in light of your individual circumstances, it is considered that the durability of your association with a particular place in Australia outweighs your intended and actual stay in Country A. Therefore, you have not established a permanent place of abode outside of Australia.

As you have maintained your Australian domicile and 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.

Your residency status

As you are deemed to be a resident of Australia under the domicile test of residency outlined in subsection 6(1) of the ITAA 1936 there is no need to examine the remaining tests.

Therefore, you are a resident of Australia for income tax purposes for the relevant periods in question.

Assessability of foreign source 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. Salary and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

Therefore, as a resident of Australia for income tax purposes, your foreign sourced income is assessable in Australia.