Edited version of private ruling

Authorisation Number: 1011839905953

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Ruling

Subject: Residency - working overseas

Question 1

Are you an Australian resident for income tax purposes?

Answer

Yes

Question 2

Is your foreign employment income assessable in Australia?

Answer

Yes

This ruling applies for the following period

Year ending 30 June 2011

The scheme commenced on

24 August 2010

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 are an Australian citizen.

You left Australia to work in country X.

You are employed by a government organisation in country X.

You derive salary from your employment in country X and paid tax there.

You hold a working visa in country X.

You are currently on a one year contract. You intend to extend to second year contract, but if the contract is not extended you will return to Australia.

You do not intend to reside in country X permanently.

You are living in a rented accommodation in country X.

You were living with your parents whilst you were in Australia.

You have bank accounts both in country X and in Australia.

You own cars both in country X and Australia.

You are single and you are not a member of the CSS or PSS.

Relevant legislative provisions

Section 995-1 of the Income Tax Assessment Act 1997

Subsection 6(1) of the Income Tax Assessment Act 1936

Subsection 6-5(2) of the Income Tax Assessment Act 1997

Schedule of the International Tax Agreements Act 1953

Article 14(1) Schedule of the International Tax Agreements Act 1953

Article 14(2) Schedule of the International Tax Agreements Act 1953

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

An Australian resident is defined in section 995-1 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 Income Tax Assessment Act 1936 (ITAA 1936). The definition provides four tests to ascertain whether a taxpayer is a resident of Australia. These tests are:

· the resides test

· the domicile test

· the 183 day test

· the superannuation 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 dictionary definition, is to dwell permanently, or for a considerable time, to have ones settled or usual abode, to live in or at a particular place.

As you are physically present 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 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 are an Australian citizen, and there is no evidence of an intention to make your home indefinitely in country X. Therefore, you are considered to have maintained your Australian domicile.

In addition, although you are living in country X, your associations with Australia are considered to be more significant as you are an Australian citizen, your employment contract in country X is only for one year, your parents are in Australia, you have bank accounts in Australia, you own a car in Australia, and you intend to return to Australia after your employment contract in country X expires.

Based on these facts, it is therefore considered that you have not established a permanent place of abode in country X. You are therefore considered to be a resident of Australia for tax purposes under the domicile test.

Your residency status

As you are deemed to be a resident of Australia under the domicile test of residency outlined in subsection 6(1) of the ITAA 1936 there is no need to examine the remaining tests. Therefore, you are considered to be an Australian resident for income tax purposes for the period you are in country X.

Foreign employment income

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident includes all the ordinary income derived directly or indirectly from all sources, whether in or out of Australia, 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 tax treaties contained in the International Tax Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and ITAA 1997 so that those Acts are read as one.

A Schedule to the Agreements Act contains the tax treaty between Australia and country X (the Convention between Australia and country X). The Convention between Australia and country X operates to avoid the double taxation of income received by Australian and country X residents.

Article 14(1) of the Convention between Australia and country X provides that salary and wages income of an Australian resident shall be taxable in Australia unless the employment is exercised in country X. If the employment is exercised in country X, then the income may be taxed in country X.

However, Article 14(2) of the Convention between Australia and country X provides that remuneration derived by an Australian resident in respect of an employment exercised in country X will be taxable only in Australia if:

· the recipient is present in country X for a period or periods not exceeding in the aggregate 183 days in any 12 month period commencing or ending in the taxable year of country X,

· the remuneration is paid by, or on behalf of, an employer who is not a resident of country X, and

· the remuneration is not borne by a permanent establishment which the employer has in country X.

In your case, you will be present in country X for less than 183 days of their financial year during the 2010-11 income year, but it is considered that your employer is a resident of country X. Therefore, your salary is subject to tax in country X under Article 14(1) Convention between Australia and country X.

Taxation Ruling TR 2001/13 provides interpretation of Australia's tax treaties in particular paragraphs 22 to 26 provide an interpretation on the words used to allocate taxing rights.

Paragraph 23 of TR 2001/13 provides that the phrase 'may be taxed' normally means that the source country has a non-exclusive entitlement to tax the income. Under normal international tax principles, the residence country may also continue to tax its residents (where its normal domestic law so provided) on the income, wherever sourced, unless the tax treaty explicitly prevents it from doing so. 

Accordingly, the salary derived by you as an Australian resident from employment exercised in country X is also assessable in Australia under subsection 6-5(2) of the ITAA 1997.

Entitlement to foreign tax credits

Foreign income derived by an Australian resident that is not exempt from income tax is assessable under subsection 6-5(2) of the ITAA 1997.

A foreign income tax credit or foreign tax offset is available to a taxpayer for foreign income tax paid on an amount that is included in assessable income. Entitlement to the foreign tax credit or foreign tax offset arises only to the extent that the foreign income tax has been paid on an amount included in assessable income (section 770-10 of the ITAA 1997).

More information on the calculation of the foreign income tax offset is available in the Guide to foreign income tax offset rules 2010-11 NAT 72923.2011 on the Tax Office website www.ato.gov.au .

Note:

In view of the above, you are required to lodge a tax return in Australia for the year ending 30 June 2011.