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Ruling

Subject: residency and income

Question 1

Are you an Australian resident for taxation purposes after June 2011?

Answer

No.

Question 2

Is your employment income assessable in Australia?

Answer

Yes.

This ruling applies for the following periods

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

The scheme commenced on

1 June 2011

Relevant facts

In June 2011 you moved overseas after being offered an employment position.

You moved overseas for the purposes of your employment.

You are completing government services and will be paid by the Australian government.

You previously worked in the private sector.

You are not a member of the Commonwealth Service Superannuation (CSS) Scheme or the Public Sector Superannuation (PSS) scheme.

You are an Australian citizen.

You earn salary and wages from your employment.

You are currently renting a flat in a house share arrangement overseas.

You do not own property in Australia.

You have an Australian driver's licence and two savings accounts in Australia.

You have one overseas savings account.

You intend staying for at least two years.

After that you will probably return to Australia.

You are not a national of the overseas country.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 6(1).

International Tax Agreements Act 1953

Reasons for decision

Summary

You are not considered to be a resident of Australia for taxation purposes while living overseas. The income derived is assessable in Australia.

Detailed reasoning

Residency

Residency status is a question of fact. Your residency status is relevant in determining your liability to Australian income tax.

The term Australian resident is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to mean a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

Subsection 6(1) of the ITAA 1936 provides four tests to determine whether a person 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 Commonwealth superannuation fund 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 satisfy the conditions of one of the other three tests.

The resides test

The Macquarie Dictionary defines 'reside' as to dwell permanently or for a considerable time, have one's abode for a time.

The Shorter Oxford English Dictionary defines 'reside' as to dwell permanently, or for a considerable time, to have one's settled or usual abode, to live in or at a particular place.

The period of physical presence in Australia is not by itself decisive when determining whether an individual resides here. All the facts and circumstances that describe an individual's behaviour in Australia are relevant in determining the residency status. No single factor is necessarily decisive. The following factors are useful when determining whether a person is residing in Australia:

· intention or purpose of presence

· family and/or employment ties

· maintenance and location of assets and

· social and living arrangements.

In your case, you are living and working overseas for two years.

You are staying in rented accommodation overseas.

Based on the factors listed above, we consider that you were not residing in Australia from June 2011. Consequently you do not satisfy the 'resides test' and therefore it is necessary to consider the other three tests.

The domicile test and permanent place of abode

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 prove an intention to make his or her home indefinitely in that country, for example, through having obtained a migration visa.

Although you are living and working overseas for at least two years and your visa allows you to live and work there, we do not consider that your domicile is overseas.

A permanent place of abode does not have the meaning of everlasting or forever. It does not mean an abode in which a person intends to live for the rest of his or her life. Rather, it is used in the sense of being contrasted with a temporary or transitory place of abode outside Australia. The nature and quality of use which a taxpayer makes of a particular place of abode overseas is important (F.C. of T. v. Applegate 79 ATC 4307; (1979) 9 ATR 899).

The expression 'place of abode' refers to a person's residence, where one lives with one's family and sleeps 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.

Taxation Ruling IT 2650 examines the factors to be taken into account in determining whether a person who leaves Australia temporarily to live overseas ceases to be an Australian resident during the absence.

IT 2650 provides that the following factors are considered in determining a taxpayer's permanent place of abode:

· the intended and actual length of stay in the overseas country

· any intention to stay in the overseas country only temporarily and then either to return to Australia at some definite point in time or to travel to another country

· the establishment of a home outside Australia

· the abandonment of any residence or place of abode in Australia

· the duration and continuity of presence in the overseas country, and

· the durability of association with a particular place in Australia.

Applying the facts of your situation to the above criteria, it is considered that your permanent place of abode is overseas from June 2011. This is because you intend to live and work overseas for at least two years and possibly longer. You have no assets in Australia and as you are working overseas, your financial ties are predominantly overseas. Although you have bank accounts in Australia, you do not have a home here. Your rented accommodation overseas is your place of abode and is not merely temporary or transitory. Rather, it is intended to be your home for a period. These circumstances support the view that your permanent place of abode is currently outside Australia. 

As a result, you would not be considered a resident of Australia for income tax purposes under the domicile test. 

The 183-day test

You have not actually been in Australia since June 2011. You will not be a resident of Australia under this test for the 2011-12 and 2012-13 financial years. However, you have been in Australia for more than 183 days in the 2010-11 financial year and are therefore a resident of Australia for that financial year up to June 2011.

The superannuation test

This test covers Commonwealth government employees - members of the Commonwealth superannuation funds (as well as their spouses and children under 16 years of age).

A person is a resident under this test if they are:

· a member of the superannuation scheme established by deed under the Superannuation Act 1990; or

· an eligible employee for the purposes of the Superannuation Act 1976; or

· the spouse, or a child under 16, of a person covered by either of the above.

You are not a member of the CSS or PSS and you do not meet any of the other requirements of this test. Consequently, you are not a resident under the superannuation test.

Summary

You do not satisfy any of the tests for Australian residency from June 2011. Therefore you are not considered a resident of Australia for taxation purposes. A person who is not a resident of Australia is a foreign resident.

Australian tax liability

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a foreign resident includes all the ordinary income derived directly or indirectly from all Australian sources during the income year.

Salary and wages are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

In determining your Australian tax liability on your foreign sourced income, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act).

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

A schedule to the Agreements Act contains the double tax agreement between Australia and the overseas country (the Convention). The Convention operates to avoid the double taxation of income received by Australian and foreign residents.

An Article of the Convention provides that salaries, wages and other similar remuneration paid by Australia to an individual in respect of services rendered in the discharge of governmental functions shall be taxable only in Australia. However, such salaries, wages and other similar remuneration shall be taxable only in the other country if the services are rendered in that country and the recipient is a resident of that country who:

(a) is a national of that country, or

(b) did not become a resident of that country solely for the purpose of rendering the services.

Taxation Ruling TR 2005/8 outlines the established view on the interpretation of Government Services Articles under Australia's various tax treaties.

Paragraph 69 of TR 2005/8 states that:

the term 'services rendered in the discharge of government functions', …, means those services rendered by an employee or office-holder in the completion or performance of any functions undertaken by government.

Applying paragraph 69 of TR 2005/8 to your specific circumstances, it is considered that your work involves 'services rendered by an employee in the completion or performance of any functions undertaken by government'.

Accordingly, to the extent the other elements of the relevant article of the Convention are satisfied, your salary and wages from being employed is dealt with by this article.

In your case you are not a national of the overseas country and became a resident of this country for the purposes of carrying out your employment. Therefore paragraphs (1)(a) and (b) of the relevant article in the Convention do not apply in your situation.

As a result, Australia has an exclusive taxing right in respect of the remuneration paid to you. That remuneration will have an Australian source by operation of the Convention and be included in your assessable income under subsection 6-5(3) of the ITAA 1997 as Australian sourced income of a foreign resident.