Edited version of private ruling

Authorisation Number: 1011890357573

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Ruling

Subject: Residency

Questions and answers:

1) Were you a resident of Australia for taxation purposes for the relevant period?

No.

2) Was the salary paid to you by your employer assessable in Australia during the relevant period?

Yes.

This ruling applies for the following period:

1 July 2010 to 30 June 2012.

The scheme commenced on:

1 July 2010.

Relevant facts and circumstances:

You are single, have never been married and do not have any children.

You were born in Australia and are an Australian citizen.

You lived and worked in another country between certain dates in 2009 and 2011.

Your visa did not entitle you to permanent residency status in the other country.

You rented an apartment in the other country.

Your employer in the other country sent you work in Australia for a short period of time.

While you were working in Australia for your overseas employer your salary remained unchanged and was paid from overseas into your overseas account.

You returned overseas and continued working for your overseas employer.

You received an offer of permanent employment in Australia.

You ceased employment with your overseas employer and returned to Australia

Prior to receiving this offer of permanent employment in Australia you were intending to live permanently in the other country.

During the period you were living and working overseas:

· You had no permanent place to live in Australia.

· You owned all of the contents of the apartment you were renting in the other country, including the furniture.

· You had a bank account in the other country, and bank accounts in Australia.

· You were a member of sporting club in the other country.

You are not a member of the Public Sector Superannuation Scheme or an eligible employee for the purposes of the Commonwealth Superannuation Scheme.

You are over the age of 16 years.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 995-1(1).
Income Tax Assessment Act 1936 Subsection 6(1).

Reasons for decision

Assessable income - general

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that:

· If you are an Australian resident for taxation purposes, your assessable income includes the ordinary income you derive from all sources (in or out of Australia) during an income year.

· If you are a foreign resident (non-resident of Australia) for taxation purposes, your assessable income includes the ordinary income you derive from all Australian sources during an income year.

Salary and wages are examples of ordinary income.

In determining the liability of an individual to pay tax in Australia it is necessary to consider the application of the general Australian income tax laws, as well as the application of any relevant double tax agreement (DTA) given the force of law by section 5 of the International Tax Agreements Act 1953.

There is no DTA in place between Australia and the other country. Accordingly, we only have to consider the application of section 6-5 of the ITAA 1997 to determine whether or not the salary you received while on the secondment was assessable in Australia. To do this we must determine the 'source' of your salary during the secondment. However, first, we will deal with the question of your residency status.

Residency for taxation purposes

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 and permanent place of abode test,

· the 183 day test, and

· the superannuation test.

If any one of these tests is met, an individual will be a resident of Australia for taxation purposes.

Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia specifies that the primary test for determining the residency status of an individual for taxation purposes is the resides test. If residency is established under the resides test, the remaining three tests do not need to be considered.

The resides test

The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'.

The Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01 defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

Prior to coming to Australia for the secondment you had been living and working in another country and you were intending to remain there permanently. Consequently, it can be said you had been dwelling permanently and for a considerable time in the other country before the secondment.

In contrast, short period of the secondment, it cannot be said that you were residing in Australia either permanently, or for a considerable time.

Although you were physically located in Australia during the secondment, you were not residing here according to the ordinary meaning of the word 'reside'. Accordingly, you were not an Australian resident for taxation purposes under the resides test during the period of the secondment.

The domicile and permanent place of abode test

Under this test, a person whose domicile is in Australia will be considered a resident of Australia for taxation purposes, unless the Commissioner is satisfied the person's permanent place of abode is outside 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 a domicile in another country by choice.

Taxation Ruling IT 2650 Income tax: residency - permanent place of abode outside Australia notes that:

· in order to acquire a domicile of 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, and

· a working visa, even for a substantial period of time such as two years, is not sufficient evidence of an intention to acquire a new domicile of choice.

You are an Australian citizen and your domicile of origin is Australia.

Although you lived and worked in the other country (with the exception of the period your overseas employer sent you to Australia) your visa did not entitle you to permanent residency status in the other country

Therefore, you retained your Australian domicile while you were overseas and it is necessary to determine where your permanent place of abode was during that time for the purposes of determining your residency status under this test.

Taxation Ruling IT 2650 specifies that a permanent place of abode does not have to be everlasting or forever and does not mean an abode in which a person intends to live for the rest of their lives.

In essence IT 2650 specifies that a person's place of abode is where they live and is a question of fact to be determined in the light of all the factors in a particular case:

In your case, we consider that you had established a permanent place of abode in the other country because:

· With the exception of the period your overseas employer sent you to Australia, you lived and worked in the other country for the whole of that time.

· You had various assets in the other country, and up until you received an offer to return permanently to Australia, you were intending to remain in the other country permanently.

· You established a home in the other country by renting accommodation and you furnished that home.

· You had a bank account in the other country.

· You were a member of sporting club in the other country

Although you retained your Australian domicile when you were living and working in the other country, you also established a permanent place of abode overseas during that time. As a result, you were not a resident of Australia for taxation purposes under this test during the period your overseas employer sent you to work in Australia.

The 183-day test

Taxation Ruling TR 98/17 notes this test was introduced to prevent individuals who are enjoying an extended holiday in Australia from being treated as residents of Australia for taxation purposes. The test considers an individual's usual place of abode and intention with regard to taking up residence in Australia.

Under this test, a person who is in Australia for 183 days during an income year may be considered a resident of Australia for taxation purposes, unless the Commissioner is satisfied 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 a resident of Australia for taxation purposes under this test because the secondment was for less than 183 days.

The superannuation test

Under this test, an individual will be considered a resident of Australia for taxation purposes if:

· they are a member of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990,

· they are an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS) which was established under the Superannuation Act 1976, or

· they are the spouse or a child under 16 of a person who is a member of the PSS or an eligible employee in respect of the CSS.

You do not have a spouse, you are over the age of 16 and you are not a member of the PSS, or an eligible employee in respect of the CSS. Accordingly, you are not a resident of Australia under this test.

Determining the 'source' of income

Generally, Australian courts have held that the source of employment income is where the employee performs their duties (C of T (NSW) v. Cam and Sons Ltd (1936) 36 SR (NSW) 544; 4 ATD 32 and FC of T v. French (1957) 98 CLR 398; (1957) 7 AITR 76; 11 ATD 288).

Thus, employment income earned while carrying out duties in Australia is considered to be sourced in Australia.

Accordingly, the salary paid to you by your employer during the secondment will be included in your assessable income in Australia for the 2010-11 income tax year.

Conclusion

During the period your overseas employer sent you to work in Australia you did not satisfy any of the tests of residency outlined in subsection 6(1) of the ITAA 1936. Accordingly, you were not a resident of Australia for taxation purposes during that period.

As your salary during the secondment was from an Australian source, it will be included in your assessable income in Australia for the 2010-11 income tax year.