Edited version of private ruling

Authorisation Number: 1011752193428

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Ruling

Subject: Residency and Foreign Source Income

Question 1

Are you a resident of Australia for tax purposes from the date you left Australia for Country X?

Answer:

No

Question 2

Is the income you derive from Country X subject to tax in Australia?

Answer:

No

This Ruling applies for the following periods

Income year ending 30 June 2011

Income year ending 30 June 2012

The scheme commences on

During 2011

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 left Australia in 2011 on an ongoing contract with a registered business company in Country X which can be extended indefinitely. The initial requirement is for you to sign on to a one year contract (your employer to get this to get a minimum commitment) which can be extended indefinitely.

Your family departed with you in 2011 and you have already secured a permanent place of abode in Country X.

You have begun making arrangements to have your child enrolled in school in Country X.

You have a property in Australia which you will be renting upon your departure as you have not made any long term decisions as to whether to keep it or sell it.

You have a mortgage offset bank account in Australia.

You and your family will be entering Country X on a permanent residency visa and all three of you are Australian citizens.

Your spouse is also in the process of securing permanent employment in Country X.

You stated that you will become a non- resident for tax purposes once you leave Australia and therefore no longer required to pay tax in Australia.

You stated that you have reviewed the ruling on non- resident and you believe that you meet the requirements. However, any rental income you receive from your property will be taxable and you will be required to submit a tax return each year to declare this income. 

You are not an eligible member of the Commonwealth superannuation scheme (CSS) or a member of the Public Service superannuation scheme (PSS).

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

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

Income Tax Assessment Act 1936 Subsection 6-15 (2)

Income Tax Assessment Act 1936 Section 23AG (1)

Income Tax Assessment Act 1936 Section 23AG (2)

Reasons for decision

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.

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 are in Country X, you are not considered to be residing in Australia under this test.

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 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 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 their 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.

Taxation Ruling IT 2650 provides assistance in determining a person's permanent place of abode. It is a question of fact which must be determined in the light of the circumstances of each case. 

Some of the factors considered to be relevant in determining a person's place of abode include:

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

(b) whether the individual intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time;

(c) the establishment of a home (in the sense of a dwelling place; a house or other shelter that is the fixed residence of a person, a family or a household) 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:

(f) the durability of association that the individual has with a particular place in Australia, eg., maintaining bank accounts in Australia, informing government departments that he or she is leaving permanently, place of education of his or her children, family ties, etc.

In your case, you left Australia for Country X in 2011 on an ongoing contract with a registered business company in Country X, which can be extended indefinitely. You have secured a permanent place of abode in Country X with your family and no intention of leaving Country X at this stage. You intend to reside in Country X and renew your contract with your employer.

Therefore, you would be considered to have established a permanent or long-term abode outside of Australia. In view of the above, it has been concluded that you will not be a resident of Australia for tax purposes from the date you left Australia.

The 183-day test

This test does not apply to you as it has been identified that your permanent place of abode is in the Country X.

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 and your spouse 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 the domicile test outlined in subsection 6(1) of the ITAA 1936. Therefore, you will be treated as a foreign resident from the date you left Australia for Country X.

Source of Income  

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

In determining liability to Australian tax on foreign sourced income, it is necessary to consider not only the income tax laws but also any applicable double tax agreements contained in the International Tax Agreements Act 1953 (the Agreement Act).

There is no double tax agreement between Australia and Country X. However, the laws of Country X provide for the imposition of income tax and do not generally exempt employment income from income tax.

Your employment duties that are carried outside of Australia 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. Therefore, you will be considered a foreign resident from the date you left Australia.

Other Relevant Comment

You will need to inform your Australian financial institutions that you are not an Australian resident for tax purposes.