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Ruling

Subject: Residency status and assessability of payment

Questions and Answers:

1. Are you an Australian resident for tax purposes from the date you returned to Australia on date A in the 2009-10 income year?

Yes

2. Is the payment you received as a consultancy fee assessable in Australia in the 2010-11 income year?

Yes

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You are an Australian citizen born in Australia.

You moved to live and work in Country X for many years. You did not require a visa in Country X as you had a permanent ID card.

In the 2008-09 income year you moved to Country Y with your de facto spouse (spouse) of some years. You had an employment visa when you were in Country Y.

Your spouse was born in Australia and is an Australian citizen. Your spouse's parents live in Australia.

You and your spouse returned to Australia on date A in the 2009-10 income year for the birth of your baby.

You spent several months from date A until date B staying with your spouse and your spouse's parents.

Between date A and date B you were unsure whether you were going to stay in Australia. You were looking for career opportunities both in Australia and overseas.

Your spouse found a job in a city in Australia around date B and worked there for many months. You and your spouse stayed with your relative.

Since date C you and your spouse have been renting a dwelling in Australia.

During the second half of the 2010-11 income year you were seriously considering moving overseas. During that time period, you and your spouse visited Country X and another country seeking employment.

Towards the end of the 2010-11 income year you both decided to settle in Australia.

Since date A, you and your spouse have not had a permanent place of abode overseas.

You do not possess any assets overseas. Your assets in Australia consist of a car and a property which you recently purchased in joint name with your spouse.

Prior to date A, during the time you were in Country X and Country Y, you worked for some years and then started to engage in various business activities with your family members. You set up a business overseas. You also worked for a company in Country X involved in various business activities including consultancy.

On date D in the 2009-10 income year, you engaged in a one-off consultancy service. An Australian company was looking for investors. A person from the company suggested you contact a person in Country X with whom you used to work, to see if they would be interested in investing in the Company's project. You were offered a commission for undertaking this and agreed to find an investor for the project.

The person you approached agreed to invest in the project. You received personal remuneration of a significant sum during the 2010-11 income year.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1).

Income Tax Assessment Act 1997 Section 995-1.

Income Tax Assessment Act 1997 Section 6-5.

Reasons for decision

Residency status

Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident as a person who is a resident of Australia for the purpose 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 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 an Australian resident for tax purposes if they satisfy the conditions of one of the three other tests.

The resides test

The ordinary meaning of the word reside, according to the dictionary meaning, 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 TR 98/17 considers the residency status of individuals entering Australia and states that the period of physical presence or length of time in Australia is not, by itself, decisive when determining whether an individual resides here. However, an individuals behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here.

You and your spouse arrived in Australia in on date A in the 2009-10 income year for the birth of your baby. At that time you were unsure whether you were going to stay in Australia. You both were looking for career opportunities both in Australia and overseas. From date A until date C you and your spouse were living with family. Your spouse found a job in a city in Australia around date B and worked there for many months. During the second half of the 2010-11 income year you were seriously considering moving overseas. During that time period, you and your spouse visited Country X and another country seeking employment.

Based on this information, you are not an Australian resident for tax purposes under the resides test as your behaviour in Australia does not reflect a degree of continuity, routine or habit that is consistent with residing here.

The domicile test

The first part of this test requires a person to have a domicile in Australia. As you were born in Australia, your domicile of origin is Australia.

If a person is considered to have their domicile in Australia they will be 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.

Therefore, although you maintain associations with Country X with your family and friends through social and business connections, your associations with Australia are more significant since you returned to Australia on date A in the 2009-10 income year as: 

· you and your spouse were both born in Australia and are Australian citizens

· it is your intention to reside in Australia permanently

· you spend significantly more time in Australia than in Country X or Country Y

· your spouse accompanied you to Australia on date A for the birth of your baby

· you and your spouse have family members in Australia, including your spouse's parents and your relative

· your assets in Australia include a car and a property which you recently purchased in joint name

· you do not possess any assets overseas

· your spouse found a job in Australia and worked there for several months.

· since date A, you and your spouse have not had a permanent place of abode overseas.

As you did not have a permanent place of abode outside Australia from the time you returned to Australia on date A in the 2009-10 income year, you are a resident of Australia for tax purposes under the domicile test.

Your Resident Status

As you are a resident of Australia under the domicile test of residency outlined in paragraph 6(1)(a) of the ITAA 1936 there is no need to examine the remaining tests. Therefore, you are considered to be a resident of Australia for tax purposes from the date of your arrival in Australia on date A.

Assessability of payment

Subsection 6-5(1) of the ITAA 1997 provides that an amount is included in assessable income if it is income according to ordinary concepts (ordinary income). However, as there is no definition of 'ordinary income' in the income tax legislation it is necessary to apply principles developed by the courts to the facts of a particular case.

An Australian resident is assessable on ordinary income derived directly or indirectly from all sources. As mentioned above you are an Australian resident as of date A in the 2009-10 income year and thus you received the payment for the consultancy service as an Australian resident.

Income according to ordinary concepts is generally considered to include:

· amounts received in return for personal services (whether received in the capacity of an employee or otherwise), investment or the operation of a business, and

· amounts received periodically or regularly and which the recipient relies on for the maintenance of themselves and /or their dependants. 

All remuneration or rewards for personal services, whether received in the capacity of employment or for personal services are income according to ordinary concepts.

Assessable earnings for personal services include salary, wages, consultants' fees and commissions.

As a result of case law, two factors are considered as relevant in determining whether an amount is a product of a person's services (that is, paid in consideration of the performance of services):

· whether there is an expectation to receive the amount by the taxpayer, and

· the motive of the payer in paying the amount.

Thus, if the taxpayer had an expectation to receive the amount in return for providing the services and the motive of the payer is to give the taxpayer a reward or encouragement for providing the services, then the amount is a product of the taxpayer's services and is ordinary income.

In your case, you engaged in a one-off consultancy service. An Australian company was looking for investors. A person from the company suggested you contact a person in Country X with whom you used to work, to see if they would be interested in investing in the Company's project. You were offered a commission for undertaking this service.

The person you approached agreed to invest in the project. You received personal remuneration of a significant sum during the 2010-11 income year.

The agreement which you entered into with the Australian company can be properly characterised as one whereby you agreed to provide your consultancy services for a fee. Accordingly, the amount which you received is ordinary income and is assessable in the 2010-11 income year.