Edited version of private ruling

Authorisation Number: 1011773687192

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 and assessability of income

Questions and answers:

1. Are you a resident of Australia for tax purposes for the term of your research fellowship in country A?

Yes.

2. Are your research training fellowship income and allowances assessable in Australia while you conduct fellowship research in country A?

Yes.

3. Are your research training fellowship income and allowances assessable in Australia while you conduct fellowship research in Australia?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
The scheme commenced on:

1 July 2010

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

You are a citizen of country B.

Your country of origin is country C.

You moved with your parents to Australia when you were a child.

You are married to an Australian resident.

You have a passport that allows you to enter, live in and work in country A.

You have been awarded an overseas based clinical research training fellowship for a period of 4 years.

This fellowship supports your research training.

The fellowship will be administered by a University in Australia as a stipend, cost of living allowance and accommodation allowance.

The University in Australia will contribute to a superannuation fund on your behalf. The superannuation fund is not a Commonwealth Government fund.

The first 2 years of the fellowship will be spent at a University in country A.

You depart for country A during the 2010-11 income year.

You will be in country A for at least 2 years (possibly 3) and have no intention of returning to Australia during this time.

You intend to return permanently to Australia at the conclusion of the first 2 or 3 years of the fellowship.

The latter part of the fellowship will be spent in Australia, most likely at a University in Australia.

You have a share in a residential property in Australia with your spouse.

This property will be tenanted on a long term lease while you are overseas.

You will be renting a residence in country A for at least two years.

Your spouse and child will be accompanying you for the duration of your stay overseas.

You will not be earning any other substantive income in Australia during the time that you spend in country A.

You do not own any assets in country A.

Neither you nor your spouse are current or past employees of the Commonwealth Government of Australia.
Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)
Income Tax Assessment Act 1936 Section 23AG
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-15
Income Tax Assessment Act 1997 Section 11-15
Income Tax Assessment Act 1997 Section 995-1(1)
International Tax Agreements Act 1953 Section 4
International Tax Agreements Act 1953 Sch1-Art14
Reasons for decision

Assessable income

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

Alternatively, the assessable income of non-residents includes ordinary income derived directly or indirectly from all Australian sources during the income year.

Residency
An Australian resident for taxation purposes is defined in subsection 995-1(1) of the ITAA 1997 to be a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

The terms 'resident' and 'resident of Australia' are defined in subsection 6(1) of the ITAA 1936. The definition gives us a series of tests which assist in determining whether a person is a resident of Australia. These tests are:

· the residence according to ordinary concepts test;

· the domicile and permanent place of abode test;

· the 183 day test; and

· the Commonwealth 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 you do not reside in Australia according to ordinary concepts, you may still be considered to be a resident of Australia for tax purposes if you meet the conditions of any one of the other three tests.

1. Residence according to ordinary concepts

The ordinary meaning of the word reside, according to the dictionary definition, 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 and you do not have any plans to return to Australia during your 2 years at the University in country A you will not be residing in Australia and you are not a resident of Australia under this test.

2. The domicile and permanent place of abode test

If a person has their domicile in Australia they will be an Australian resident unless the Commissioner is satisfied they have established a permanent place of abode outside of Australia.

Domicile
Domicile is a legal concept and is established according to the Domicile Act 1982 and to the common law rules which the courts have developed in the field of private international law.

The primary common law rule is that a person acquires at birth a domicile of origin, being the country of his or her father's permanent home. A person retains their 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.

Generally speaking, persons leaving Australia temporarily would maintain their Australian domicile and in order to show that a new domicile of choice in a country outside of Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country.
You were born in country C and your parents came to Australia when you were a child. You have been in Australia ever since. Under these circumstances you have chosen to make Australia your permanent home and you therefore have established a new domicile of choice.

You will be staying in country A for 2 years to undertake the first part of your training fellowship and you will then return to Australia permanently to continue with the fellowship here in Australia. As you have stated that you will return to Australia and that you have no intention of making your home indefinitely in country A you 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.

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.

Taxation Ruling IT 2650 identifies the factors to be taken into account when determining whether or not an individual has established a permanent place of abode outside Australia:

(a) The intended and actual length of the taxpayer's stay in the overseas country.


IT 2650 points out that a period of about 2 years or more would generally be regarded by this Office as a substantial period for the purposes of a taxpayer's stay in another country. You have advised that you will be staying in country A for 2 years with the possibility of extending to a third year.

(b) Whether the taxpayer 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.

You will definitely be returning to Australia after 2 or 3 years of your research training.

(c) Whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia.

IT 2650 states the fact that an individual has established a home in an overseas country would tend to show that the place of abode in the overseas country is permanent. On the other hand, individuals or a family group who "make do" in temporary accommodation with limited resources and facilities such as in barracks, singles' quarters, aboard ships, oil rigs, or mining towns, will be less likely to be considered to have established a permanent place of abode overseas.

You, your spouse and your child will be living in a rented residence in country A for at least 2 years.

(d) Whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence.

You continue to own your family home in Australia which has been tenanted on a long term lease.

(e) The duration and continuity of the taxpayer's presence in the overseas country.

You will not be returning to Australia at any time during the 2 or 3 years of your research training.

(f) The durability of association that the person has with a particular place in Australia.

IT 2650 talks about the relevance of bank accounts maintained in Australia and if a taxpayer closes all their accounts and transfers all funds to accounts in the overseas country, this would indicate less durability of association with a place in Australia than if all accounts in Australia were maintained. On the other hand, even if an individual closes all accounts for everyday use (such as cheque and savings accounts) and maintains a long term investment account, it is still possible to establish that, on the basis of other factors, the individual has a permanent place of abode in the overseas country.
You are maintaining an association with Australia through your home, your mortgage, your bank account and family.

Although you will be living with your family in country A for a period of 2 or possibly 3 years, your associations with Australia are more significant:

· you are retaining your house in Australia;

· you are only living in rental accommodation in country A;

· apart from your research training activities, you do not have any long term associations with country A; and

· you intend to return permanently to Australia after 2 or 3 years.

Based on these facts you will not establish a permanent place of abode in country A and you will continue to be a resident of Australia for tax purposes under the domicile test.

Residency status
As you are an Australian resident under the domicile and permanent place of abode test of residency outlined in subsection 6(1) of the ITAA 1936 for the period you will be in country A there is no need to examine the remaining tests.

Income

As discussed above, subsection 6-5(2) of the ITAA 1997 advises that the assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during an income year.

Research fellowship award payments are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

Subsection 6-15(2) of the ITAA 1997 advises that if an amount is exempt income it is not included in assessable income.

Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is 23AG of the ITAA 1936 which deals with income earned while undertaking foreign service.

Section 23AG of the ITAA 1936 has been amended from 1 July 2009 so that income earned from foreign service derived by Australian residents will only be exempt in certain circumstances.

Subsection 23AG(1AA) of the ITAA 1936 advises that foreign earnings are not exempt from tax unless the continuous period of foreign service is directly attributable to any of the following:

· the delivery of Australian official development assistance by the taxpayer's employer (generally provided by AusAID or the Department of Foreign Affairs and Trade);

· the activities of the taxpayer's employer in operating a public fund covered by the deductible gift recipient categories overseas aid fund and developed country disaster relief fund;

· the activities of the taxpayer's employer whether they are a charitable institution or religious institution which is income tax exempt because they are a prescribed institution located outside Australia or pursuing objectives principally outside Australia;

· the taxpayer's deployment outside Australia as a member of a disciplined force of Australia (generally considered to be the Australian Defence Force or Australian Federal Police); or

· an activity of a kind specified in the regulations (currently there are no specified activities listed in the regulations).

Broadly, the foreign service must be directly attributable to Australia's overseas aid program, a relief fund, an exempt institution or a disciplined force.

As your research training fellowship does not satisfy any of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936, the income is not exempt from tax under subsection 23AG(1) of the ITAA 1936.

International tax agreements

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements contained in the International Tax Agreements Act 1953 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

The Agreements Act contains the agreement between Australia and Country A (the agreement). The agreement operates to avoid the double taxation of income received by residents of Australia and country A.

A particular article of the agreement outlines the treatment of income from employment and other similar remuneration and advises that salaries, wages and other similar remuneration derived by a resident of Australia shall be taxable only in Australia unless the employment is exercised in country A. If the employment is exercised in country A then the income may also be taxed in country A.

As you will be carrying out your research training while residing in country A for the first 2 or three years of your fellowship, your income may be taxed in country A for this period.

Assessability of your fellowship income when you return to Australia.
When you return to Australia to complete your fellowship research, your income will continue to be assessable under section 6-5(2) of the ITAA 1997.
Disclaimer

You cannot rely on the rulings in the Register of private binding rulings in your tax affairs. You can only rely on a private ruling that we have given to you (or to someone acting on your behalf).

The Register of private binding rulings is a public record of private rulings issued by the Tax Office. The Register is an historical record of rulings, and we do not update it to reflect changes in the law or our policies.

The rulings in the Register have been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict Tax Office policy or decisions.