Edited version of private ruling

Authorisation Number: 1011883527783

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Ruling

Subject: Residency status and foreign sourced income

Questions and answers:

1. Are you a resident of Australia for income tax purposes for period 1?

No.

2. Are you a resident of Australia for income tax purposes for period 2?

No.

3. Are the salary and wages that you derive for services provided overseas assessable in Australia?

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You were born overseas and are an overseas citizen.

You arrived in Australia just after your birth where you have resided permanently.

You are single with no dependants.

You moved to overseas to fulfil a working contract.

Your employer organised a standard working/limited stay visa for you to work overseas.

After the completion of your contract you returned to Australia.

You did not return to Australia for the duration of your contract.

While working in overseas you lived in shared accommodation provided by your employer.

You believe that your employer paid tax on your behalf but you have no paperwork to support this.

You do not own any assets in Australia or overseas.

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

You have never worked for the Commonwealth Government of Australia.

You are over 16 years of age.

Your intention was always to return to Australia once you had completed your contract.

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.

Period 1

In your case, you left Australia to live and work in overseas on working contract. As you were living and working overseas, it is considered that your place of abode is overseas. Accordingly, you are not considered to be residing in Australia and so are not a resident for taxation purposes under the 'resides test'.

Period 2

As you were living in Australia for the period you are considered to be a resident under the resides test outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, and so are considered to be an Australian resident for taxation purposes for this period.

As we have determined you are a resident under the resides test, it is not necessary to consider the other tests of residency for this period.

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, you moved to Australia shortly after your birth where you have resided permanently. Due to an agreement between the Governments of Australia and your country of origin you have remained a citizen of your country of origin. Therefore it is considered that your domicile has remained 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:

· lived and worked overseas during the duration of your contract;

· intended to return to Australia after the completion of your contract;

· were provided with shared accommodation in the overseas country;

· did not return to Australia at any time during your contract;

· do not own any assets in Australia or overseas;

· have no dependants;

· do not have any social or sporting ties to either Australia or overseas.

On balance you are not considered to be a resident of Australia for period 1 under 'the domicile' test as it is considered you have established a permanent place of abode outside of Australia.

The 183-day test

Where a person is present in Australia for more than 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.

As you did not return to Australia at any time during the period you were living overseas, you were not in Australia for more than 183 days during the income year. 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.  Only Commonwealth Government employees are eligible to contribute to the PSS or CSS.

This test is not applicable to your circumstances as you are single and over the age of 16 years and have not worked for the Commonwealth Government of Australia.

Your residency status

Period 1

As you are not a resident of Australia for the period that you worked overseas 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 for the period.

Period 2

As you are considered a resident of Australia for the period that you returned to Australia under the resides test outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, you are considered to be an Australian resident for taxation purposes for this period.

Foreign sourced 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 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. 

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 overseas. Therefore consistent with the decision in Federal Commissioner of Taxation v. French, this income is considered to be derived from sources outside Australia.

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