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Ruling

Subject: residency status

Question 1

Are you an Australian resident for taxation purposes?

Answer

Yes.

Question 2

Is your overseas employment income assessable in Australia at resident rates?

Answer

Yes.

This ruling applies for the following period

Year ending 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You are employed by an Australian company on an overseas project.

During the 2009-10 financial year you worked overseas for approximately six months. For the remainder of the year you holidayed in a different overseas country. You did not return to Australia.

You were in Australia for less than 183 days in the 2009-10 financial year.

You have a property in Australia and intend to resume residence in Australia upon cessation of your overseas employment.

While overseas, you rent out your residence.

You have no dependents.

Your employer withholds PAYG tax and contributes 9% of your salary to an Australian Superannuation Fund.

You paid foreign tax on your overseas employment income.

Your employer arranges for any visa requirements for your overseas assignments.

Your employer assists you to find accommodation while working overseas.

You have no bank account or investments overseas.

Your rent and salary are deposited into your Australian bank account.

You are not a member of the Public Sector Superannuation or the Commonwealth Superannuation Scheme.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 6(1).

Income Tax Assessment Act 1997 Section 6-5.

Reasons for decision

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 ones abode for a time.

The Shorter Oxford English Dictionary defines reside as to dwell permanently, or for a considerable time, to have ones 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 lived and worked overseas for much of the 2009-10 financial year. Although you own property in Australia, you were not physically present here. We consider that you were not residing in Australia for the 2009-10 financial year. Consequently you do not satisfy the 'resides test' and therefore it is necessary to consider the other residency 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.

You worked overseas for approximately six months and do not intend to make your home indefinitely in Indonesia. You have been living in Australia for several years and it is considered that your domicile is here.

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. 

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 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.

IT 2650 states that as a general proposition, an overseas stay for a duration of less than two years would be considered as being of a transitory nature. 

In your case your contract of employment overseas was temporary only. Your overseas accommodation was for a relatively short period.

Although your house in Australia was rented while you were overseas, you have not established a home outside Australia.

As you have not established a permanent place of abode outside Australia during the 2009-10 financial year, and your domicile remains in Australia, you are considered to be a resident of Australia for income tax purposes under the domicile test. 

As you satisfy the domicile test, there is no need to consider the other two tests.

Australian tax liability

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Salary and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

As you are an Australian resident for taxation purposes, you assessable income includes your salary and wages derived from both Australian and overseas sources.

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

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one. Subsection 4(2) of the Agreements Act provides that the Agreements Act overrides the ITAA 1997 where there are inconsistent provisions (apart from Australia's general anti-avoidance rules and certain provisions dealing with limitations of tax credits).

Under the relevant article of the international agreement, your employment income is taxable in Australia, however the overseas country may also tax the income.

As you are a resident of Australia, the Agreement provides that subject to the law of Australia, a credit against Australian tax will be allowed for tax paid overseas.

From 1 July 2008 the foreign tax credit system was replaced by the foreign income tax offset system.

A foreign income tax offset is a non-refundable tax offset, that will reduce the Australian tax that would be payable on foreign income which has been subjected to foreign income tax.

Under section 770-10 of the ITAA 1997, to qualify for an offset, you must have paid foreign income tax on an amount that is included in your Australian assessable income for that year.

As your overseas employment is assessable to you in Australia, the foreign tax you paid on this income is used in calculating your allowable foreign income tax offset in Australia.  

The offset is based on the total foreign income tax paid, however, it is limited to the amount of Australian income tax that would have been payable on the relevant income (sections 770-70 and 770-75 of the ITAA 1997).

For further information in relation to this, please refer to the Guide to foreign income tax offset rules 2009-10 on the Australian Taxation Office website www.ato.gov.au.