Edited version of private ruling

Authorisation Number: 1011855333822

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Ruling

Subject: Residency status and foreign sourced income

Questions and answers:

Are you a resident of Australia for income tax purposes?

No.

Are the salary and wages that you derive for services provided in country Z assessable in Australia?

No.

This ruling applies for the following period

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commenced on

1 July 2009

Relevant facts

You were born in Australia and are an Australian citizen. You are more than 16 years of age.

You do not have a spouse or any dependants in Australia.

You are employed in country Z for a considerable period.

You have an Entry / Exit Permit in country Z. This is issued under an agreement between the Government of country Z and the Government of Australia. This allows for unlimited entry and exit to and from country Z whilst employed as a contractor and no visa fees apply.

Due to an agreement between your employer and the Commonwealth of Australia you are only able to be offered contracts of a limited duration.

Your contract of employment has recently been extended. You anticipate this to be extended further as has been the case in the past.

You receive a small number of weeks annual leave (less than 26 weeks) which you spend visiting family and friends, attending to the administration of your investment properties or attending work related training activities in Australia for brief periods. You expect this pattern to continue for the duration of your employment in country Z.

When you return to Australia you stay with friends, family and in hotels.

Prior to leaving Australia you lived in your parents' house.

Since moving to country Z you have lived in the same apartment that you share with your partner.

You have purchased items to furnish the apartment.

You have moved the majority of your personal belongings, including a collection of artwork, photographs, clothing and electrical equipment to country Z.

You own the following investments and property in Australia:

· investment properties in Australia

· a car; and

· a small amount of whitegoods.

The car and whitegoods are stored at your parents' place.

All of the properties are currently being rented on a commercial basis.

You are not a member of any sporting, social or community club in Australia.

You maintain contact with your friends in Australia via the internet.

You have established a number of personal relationships with a number of country Z nationals and are involved in country Z community projects.

You also have established personal relationships with fellow Australian expatriates living in country Z.

You are a member of sporting and social groups in country Z.

You are not a contributing member of any superannuation fund for Commonwealth government officers and do not have a spouse who is such a contributing member.

You have no intention of returning to Australia in the foreseeable future.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

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

Income Tax Assessment Act 1936 Subsection 6(1).

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: 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.

In your case, you left Australia in a few years ago to live in country Z and you have no intention of returning in the foreseeable future. As you are living and working in country Z, it is considered that your place of abode is in country Z. Accordingly, you are not considered to be residing in Australia and so are not a resident for taxation purposes under the resides 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'. In order to show that an individual's domicile of choice has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country.  In your case, as you are still a citizen of Australia, it is considered your domicile is unchanged.

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 you intend to live for the rest your life.  An intention to return to Australia in the foreseeable future to live does not prevent you in the meantime setting up a permanent place of abode elsewhere.

Some of the factors which have been considered relevant by the Courts, Boards of Review and Administrative Appeals Tribunal and which are used by the ATO in reaching a state of satisfaction as to a taxpayer's permanent place of abode include:

· the intended and actual length of the taxpayer's stay in the overseas country;

· 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;

· 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;

· whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;

· the duration and continuity of the taxpayer's presence in the overseas country; and

· the durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

In your case you:

· have not lived in Australia for a considerable period of time;

· have lived in country Z since you left Australia and have no intention of returning to Australia in the foreseeable future;

· live with your partner in rental accommodation in country Z;

· have moved the majority of your personal belongings, including a collection of artwork, photographs, clothing and electrical equipment to country Z;

· do not own have a residence in Australia, and stay with family, friends and in hotels when you return to Australia;

· have no dependants;

· return to Australia for a small number of weeks a year to visit family, friends and to attend to the administration of your properties, and for training purposes; and

· are not a member of any sporting, social or community clubs in Australia.

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.

You were not in Australia for more than 183 days for the years included in this ruling and you expect this pattern to continue throughout the period of employment in country Z. Therefore this test does not apply to you.

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.  Generally only Commonwealth Government employees are eligible to contribute to the PSS or CSS.

This test is not applicable to your circumstances as you are over the age of 16 years and have not, or have you ever been a member of the CSS or PSS. Further you do not have a spouse who is or has been a member of these funds.

Accordingly, you are not a resident under this test.

Your residency status

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

Foreign source income

Section 6-5 of the ITAA 1997 provides that where you are a resident of Australia for taxation purposes, your assessable income includes income from all sources, whether in or out of Australia.  However, when you are a foreign resident, your assessable income includes only income derived from Australian sources. 

Ordinarily, the source of salaries and wages income derived by an employee is the place at which the services are performed (Federal Commissioner of Taxation v. French (1957) 98 CLR 398).

In your case, the salary and wages you received from your employment are for duties performed in country Z. Therefore consistent with the decision in Federal Commissioner of Taxation v. French, this income is considered to be derived from sources outside of Australia.

Accordingly, as you are a foreign resident of Australia for taxation purposes and the salary and wages you received are considered to be foreign source income, the income is not assessable in Australia under section 6-5 of the ITAA 1997.