Edited version of private ruling

Authorisation Number: 1011825004350

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Subject: Residency and foreign employment income

Classification:

Income/Residency

This ruling applies for the following periods:

Year ended 30 June 2008

The scheme commenced on:

30 June 2008

Question 1:

Were you required to pay Australian income tax on the payment of a specific monetary amount that you received prior to your arrival to take up employment in Australia?

Answer 1:

No.

Facts:

You are citizen of Country A with your usual place of residence in Country A.

You were contracted as an employee of Employer A to temporarily relocate to Australia to undertake employment in support of your employer in Australia.

You completed an employment contract with Employer A that commenced on an unspecified date during the financial year ending 30 June 2008.

Your contract did not have a specific end-date; however, after you departed Australia on a specific date during the financial year ending 30 June 2009 to return permanently to Country A, the contract effectively ceased.

The contract required that you temporarily relocate to Australia by a specific date during the financial year ending 30 June 2008, and in return provided for monetary compensation of:

· two specific percentage increases to your annual salary, the first payable immediately and the second on the date coinciding with the consummation of the agreement

· one-way economy class tickets for you and your immediate family members from Country A to Australia

· housing allowance of a specific monetary amount per month paid on the first of each month that you reside in Australia

· a single lump sum payment of a specific monetary amount to cover all relocation expenses beyond the first 30 days of temporary living, payable within 21 days of executing the agreement, with the stipulation that you are responsible for any taxes on this amount.

You arrived in Australia on a specific date during the financial year ending 30 June 2008 on a specific subclass of resident visa to fulfil the terms of your employment contract.

Your immediate family members accompanied you during your period of employment in Australia, and you resided together in leased accommodation.

You rented-out your home in Country A during your period of employment in Australia, and you and your immediate family's belongings were placed in storage until your return.

You and your immediate family departed Australia on a specific date during the financial year ending 30 June 2009 and returned to Country A permanently.

You state that your employment and the time spent living in Australia was transient in intention, fact and display; and, was undertaken with the strong understanding and intention on the part of both yourself and your employer that you would return to Country A in the foreseeable future.

During the financial year ended 30 June 2008, and prior to your arrival on a specific date during the financial year ending 30 June 2008, you made several trips to Australia for work-related purposes on a specific type of visa, spending a total of a specific number of days in this country.

You stated that these short periods of stay related to preliminary visits to investigate whether your employer's entry into the Australian market was viable.

You state that the single lump sum payment of a specific monetary amount provided for in your employment contract was received by you prior to your arrival in Australia and during a specific month that fell within the financial year ending 30 June 2008.

You state that as you were not an Australian resident for tax purposes at the time of receipt of your single lump sum payment, no tax should be payable in Australia.

You have requested that the Australian income tax that you have paid on the single lump sum payment be refunded to you.

There is a Tax Treaty between Australia and Country A.

Reasons for decision:

Residency Status

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 foreign resident, your assessable income includes only income derived from an Australian source.

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 resides test

· the domicile test

· the 183 day test

· the superannuation test

The resides test

The primary test for deciding the residency status of an individual for taxation purposes is whether the individual resides in Australia according to the ordinary meaning of the word. If the resides test is satisfied, residency for Australian taxation purposes is established and the remaining tests do not need to be considered.

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'.

Taxation ruling TR 98/17 specifies that the period of physical presence in Australia and an individual's behaviour while present in Australia are important factors for the purpose of the resides test and may reflect a degree of continuity, routine, or habit that is consistent with residing in Australia.

Whether a considerable time has elapsed to demonstrate that an individual's behaviour has the required continuity, routine or habit is a question of fact. The ATO view of the law is that six months is a considerable time when deciding whether an individual's behaviour is consistent with residing in Australia.

Where behaviour consistent with residing in Australia is demonstrated over a considerable time, an individual is regarded as a resident for taxation purposes from the time the behaviour commences.

In considering an individual's behaviour while in Australia, a number of factors are considered, including:

· intention or purpose of presence

· family and business/employment ties

· maintenance and location of assets

· social and living arrangements

In your case:

You came to Australia for the specific purpose of employment, which supports an intention to reside in Australia.

You were accompanied by your immediate family and resided with them in rented accommodation, continuing the normal routine of daily living, throughout your period of employment in Australia.

You remained employed in Australia for a period of a specific number of months, which is a considerable period. 

Based on these facts, your behaviour in Australia reflects a degree of continuity, routine or habit that is consistent with residing in Australia. Consequently, you are deemed to be an Australian resident for taxation purposes under the resides test outlined in subsection 6(1) of the ITAA 1936.

In addition, as you are determined to be an Australian resident for taxation purposes under the resides test, subsection 995-1(1) of the ITAA 1997 provides that you are an Australian resident from the date of your arrival in Australia, this being a specific date during the financial ended 30 June 2008.

Source of employment income

In the case of French v. FC of T (1957) 98 CLR 398 it was determined that the source of a taxpayer's income is generally the place where the duties or services are performed.

Lump sum payment for relocation expenses

The payment of a specific monetary amount that you received from Employer A in a specific month during the financial ended 30 June 2008 for the purposes of reimbursement and compensation for your expenses incurred in relocating to Australia was received by you prior to your arrival in Australia a specific date during the financial ended 30 June 2008.

As this payment was received by you before you commenced to be an Australian resident for tax purposes, it will not form part of your assessable income and will not be subject to Australian income tax.

Note:

As the payment of a specific monetary amount was received by you prior to the date that you became an Australian resident for tax purposes, you were not required to include this in your Australian income tax return for the financial year ended 30 June 2008.

If this amount has already been included in your taxable income, you will need to recalculate your gross income and request an amendment for the financial year ending 30 June 2008.

Rulings and determinations

Taxation Ruling TR 96/15 (ATO View)
Taxation Ruling TR 98/17 (ATO View)
Taxation Ruling IT 2441 (ATO View)

Taxation Ruling IT 2015 (ATO View)

Keywords

Residence

Exempt income

Foreign income

Foreign salary and wages

ATOID References (ATO View)

ATO ID 2001/68

ATO ID 2010/3

ATO ID 2010/117

ATO ID 2010/79

ATO ID 2010/78

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5,
Income Tax Assessment Act 1997 subsection 6-5(2),
Income Tax Assessment Act 1997 subsection 6-15(2),
Income Tax Assessment Act 1997 section 11-15,
Income Tax Assessment Act 1997 subsection 995-1(1),
Income Tax Assessment Act 1997 section 768-910