Edited version of private ruling

Authorisation Number: 1011766406774

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Ruling

Subject: Residency and foreign income

Questions and answers

Are you a resident of Australia for taxation purposes?

No.

Is PAYG withholding required to be taken out of payments made to a non resident from Australia?

No

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

The scheme that is the subject of the ruling

You are a citizen of country A.

You hold a country A. passport

You are a permanent resident of Australia

You will take up employment in country A. this income year.

You do not intend to return to Australia for at least five years.

You are undecided whether you will return to Australia during this period for any purpose.

You have purchased a house in country A.

You have a bank account in country A.

You will pay tax on your salary and wages income in Country A.

You have a motor vehicle which you will be selling prior to your departure.

You will have a contract for 12 months renewable annually.

You do not have any social sporting connections with Australia.

You will be a member of a club in country A.

Your family members are currently residing in country A.

You nor your spouse are Commonwealth government employees.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1).
Income tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 Subsection 995-1(1).
Taxation Administration Act 1953 Section12-35
Taxation Administration Act 1953 Section 12-1(1A)

Explanation (this does not form part of the ruling)

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 for taxation purposes, your assessable income includes only income derived from an Australian source.

Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident as a person who is a resident of Australia for the purpose 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

· 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 an Australian resident for tax purposes if they satisfy the conditions of one of the three other tests.

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'.

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.

In your case, you will leave Australia this income year to live in country A and it is your intention to live and work in Malaysia for at least five years. As you will not be living in Australia, you are not residing in Australia according to ordinary concepts.

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 prove an intention to make his or her 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 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 will have established a permanent place of abode in Malaysia based on the following information:

· You have a work contract which is renewable each year

· You own and will be living in the house in Country A

· Your immediate family live in Country A

· You have significant assets in Country A

On these facts, you have established a permanent place of abode outside Australia. Consequently, you would not satisfy the domicile test.

183 day test

When 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.

This test does not apply to you as you will not be present in Australia for more than 183 days in the year.

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 Commonwealth Government employee. Accordingly you are not a resident under this test.

Your residency status

You are a non-resident of Australia for income tax purposes until you return to Australia.

Salary and wages

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

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). Therefore, the salary and wages received by you from employment in country A have a foreign source.

As the source of the income is outside Australia and you are a non resident for tax purposes it is not assessable in Australia

PAYG Withholding

Section 12-35 of schedule of the Taxation Administration Act 1953 (TAA) says that an entity must withhold an amount from salary and wages it pays to an individual as an employee.

However section 12-1(1A) of schedule 1 of the TAA allows an entity not to withhold an amount under section 12-35 from a payment if the whole of the payment is not exempt income and not assessable income of the entity receiving the payment.