Edited version of private ruling

Authorisation Number: 1011814966410

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Ruling

Subject: Residency status and foreign sourced income

Question and answers:

Are you a resident of Australia for income tax purposes?

No.

Are the salary and wages you derive while employed overseas assessable in Australia?

No.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

Your country of origin is Australia.

You do not have or require an overseas visa as you move from country to country legally before the three month limit expires.

You have an indefinite employment contract and have worked overseas for a number of years.

Your employer's head office is located overseas.

You are employed on a boat.

The boat cruises overseas destinations.

The boat is registered overseas.

You are paid in a foreign currency by your employer.

You pay a minimum retention tax.

Your income is paid into an overseas bank account which lists you as the account holder.

You are married and reside overseas with you spouse when you are not working.

You have no children.

You and your spouse purchased a house overseas in joint names.

The assets that you have in Australia consist of the following:

investment properties in Australia which are currently being rented out.

Australian shares.

Australian bank accounts.

You are not on the Australian electoral roll as you consider yourself to be a non resident.

You return to Australia for a short time (less than 183 days) every year to inspect and confer with your rental managers.

When you return to Australia you stay with family as you do not have a permanent place to live in Australia.

Your mother and father live in Australia.

You do not have any sporting or social connections in Australia.

You are a member of a local overseas club.

Neither you nor your spouse are employees of the Commonwealth Government of Australia.

You are currently applying to become an overseas permanent resident.

You have no plans to return to Australia in the immediate future to reside or work.

You are over sixteen years of age.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 995-1(1).

Income Tax Assessment Act 1936 Subsection 6(1).

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

Reasons for decision

An Australian resident for tax purposes is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (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, 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: Income Tax: Residency - Permanent Place of Abode Outside Australia.

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 satisfy 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'.

Taxation Ruling IT 2650 provides guidelines for determining whether individuals who leave Australia temporarily to live overseas, for example, on temporary overseas work assignments or on overseas study leave, cease to be Australian residents for income tax purposes during their overseas stay.

The principles and guidelines adopted in IT 2650 can also be used for individuals who intend to reside overseas indefinitely. Paragraph 19 of IT 2650 states:

The first question to be asked in considering the residency status of a person temporarily leaving Australia is whether he or she can be considered to reside in Australia. If the test of residence according to ordinary concepts is satisfied, there is no need to go any further. The person is a resident of Australia for income tax purposes.

You left Australia a number of years ago to live and work overseas and have no intention of returning to Australia to live permanently. You live in an overseas country with your spouse when you are not working. It is considered that you were residing in the overseas country during the income year. Accordingly, you were not a resident of Australia for taxation purposes 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.

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. A person's domicile of origin will not usually change, but can in some circumstances. For example, a person can acquire another domicile in another country by choice.

In order to acquire a new domicile by choice, a person must have and be able to prove, an intention to make their home indefinitely in a country outside their domicile of origin. Sufficient proof of such an intention is considered to exist in cases where a person is granted permanent residency, or becomes a citizen of a country outside of their domicile of origin.

In your case, we note that you are applying for permanent residency in an overseas country at the time of applying for this ruling, but at this stage it is still considered that your domicile is in Australia as this is your domicile of origin.

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 of forever. It does not mean an abode in which you intend to live for the rest of your life.

You:

have lived and worked overseas for a number of years;

and your spouse have purchased a permanent residence overseas;

have applied for permanent overseas residency;

have no intention of returning to Australia to reside permanently;

have no permanent residence in Australia;

have no social or sporting affiliations with any clubs in Australia;

have since moving to work and live overseas returned to Australia for short periods per year to inspect and confer with your rental managers;

have the following assets in Australia:

rental properties,

Australian shares

bank accounts

On balance and based on the above, the Commissioner is satisfied that you have a permanent place of abode outside of Australia and so considers that you are not a resident for taxation purposes under the domicile test.

The 183-day test

Where 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.

In your case, you are present in Australia for less than 183 days.

Accordingly, you are not a resident under the 183 day test.

The Superannuation test

An individual is considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Service Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person.  Only Commonwealth Government employees are eligible to contribute to the PSS or CSS.

This test does not apply as neither you, nor your wife, are Commonwealth of Australia employees and therefore are not eligible to contribute to these super funds. Further you are over the age of 16 years old.

Accordingly, you are not a resident under this test.

Your residency status

As you do not meet any of the tests of residency outlined in subsection 995-1(1) of the ITAA 1997 and subsection 6(1) of the ITAA 1936, you are not considered to be an Australian resident for taxation purposes.

Foreign sourced income

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

Salary and wages are usually derived from the location where the work was performed.

In your case, as you are a foreign resident for tax purposes and your employment income is derived from a foreign source, you are not required to declare this income in Australia as it is not assessable under section 6-5(3) of the ITAA 1997.