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Ruling
Subject: Foreign Income - Foreign Resident
Question 1:
Are you an Australian resident for taxation purposes?
Answer 1:
No
Question 2:
Is the foreign employment income you derive as a foreign resident for income tax purposes in Australia assessable in Australia?
Answer 2:
No
This ruling applies for the following periods:
Year ended 30 June 2010
Year ended 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
The scheme commences on:
1 July 2011
Relevant facts and circumstances
You are a citizen of Australia.
Australia is your country of origin.
You left Australia on day/month/year to live in Country A permanently.
You have been living in Country A for over two years and throughout this time, and for the foreseeable future, you have remained an employee of an Australian company for whom you continue to do regular work for via email.
You are required to pay tax in Country A.
You only intend to return to Australia for short holidays to see your family.
You sold your flat in Australia before moving to Country A.
You do not have a permanent place to live in Australia.
You do not hold any assets in Australia.
You have purchased a house in Country A a year after arriving and renting in Country A and it is your permanent place of resident.
Your spouse and children live with you in Country A.
You and your spouse were not Commonwealth Government of Australia Employees.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5,
Income Tax Assessment Act 1936 subsection 6(1),
Income Tax Assessment Act 1997 subsection 6-5(3),
Income Tax Assessment Act 1997 subsection 6-10(5) and
Income Tax Assessment Act 1997 subsection 995-1(1).
Reasons for decision
Residency
Section 6-5 of the Income Tax Assessment Act 1997 (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.
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 test
· the 183 day test
· the superannuation test.
The first two tests are examined in detail in Taxation Ruling IT 2650.
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 Macquarie Dictionary, 2001, rev. 3rd 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'.
You, your spouse and your children are currently residing in Country A as evidence by:
· living in a house in Country A
· residing with your spouse and children
· your intention is to work in Country A indefinitely
Therefore, you are not considered to be residing in Australia.
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 have advised that it is your intention to make your home indefinitely in Country A, and
· you are residing in Country A with your spouse and your children.
Therefore, you are not considered to have maintained your Australian domicile.
Based on these facts, the Commissioner is satisfied that you have established a permanent place of abode in Country A.
The 183-day test
This test does not apply to you as it has been identified that your permanent place of abode is in Country A.
The superannuation test
An individual is still considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person.
You will not be treated as a resident under this test as you are not a member of the PSS or the CSS, a spouse of such a person, or a child under 16 of such a person.
Your residency status
As you are not considered to be a resident of Australia under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936, you are not considered to be an Australian resident from the date of your departure from Australia under subsection 995-1(1) of the ITAA 1997.
Foreign income as a foreign resident
Subsection 6-5(3) of the ITAA 1997 provides that ordinary income derived by a foreign resident directly or indirectly from Australian sources, as well as ordinary income included by a provision on a basis other than having an Australian source is assessable.
Statutory income from all Australian sources is also included in a foreign resident's assessable income under subsection 6-10(5) of the ITAA 1997.
The source of income derived from employment is generally the place where the duties or services are performed (Federal Commissioner of Taxation v. French (1957) 98 CLR 398; (1957) 11 ATD 288; (1957) 7 AITR 76).
In your case, you are a foreign resident who derives employment income from Country A. Therefore, it will not be assessable income in Australia under subsection
6-5(3) of the ITAA 1997.