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Ruling

Subject: Residency

Question

1. Are you a resident of Australia for tax purposes?

Yes.

2. Is your income paid by your employer taxable in country A?

Yes.

This ruling applies for the following periods

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commenced on

1 July 2011

Relevant facts

You became an Australian citizen in 2007.

You have lived in Australia less than 10 years.

You own a residence in Australia.

You are employed by an Australian employer.

You were awarded a research fellowship in 2010.

You will be conducting research at a university in country A for a period exceeding 183 days.

You will be located at the university in country A on a full time basis.

It is anticipated that you will travel during this time (as well as travel returning to Australia).

You intend renting on-campus accommodation.

You be paid by your Australian employer for the work you do in country A

You will still have your property in Australia while you are overseas.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1936 subsection 6(1)

International Tax Agreements Act 1953 schedule 5

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:

o the resides test

o the domicile test

o the 183 day test

o 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. 3^rd 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 will be residing in country A as evidenced by:

o living in on-campus rental accommodation

o working full time

o your intention is to work in country A until the end of your fellowship, and

o you will not return to Australia until the end of your fellowship.

Therefore, you were 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 own a residence in Australia,

· You intend living in on-campus accommodation,

· you will maintain a residence in Australia while you are away, and

· You intend returning to Australia at the end of your fellowship.

· Therefore you have maintained your Australian domicile.

· The Commissioner is not satisfied that you have a permanent place of abode outside Australia.

· You are a resident of Australia under the Domicile test.

The 183-day test

This test does not apply to as you were not in Australia for over 183 days in any year during your absence.

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 

You are a resident of Australia under the domicile test.

Taxation of income

Under section 6-5 of the ITAA 1997, residents of Australia can be taxed on their income from all sources both in and out of Australia. However, Australia is also bound by the provisions of the International Tax Agreements Act 1953 (ITAA 1953), which takes precedence over the ITAA 1997 where there are inconsistent provisions.

An agreement between Australia and Country A exits and covers the taxing rights of certain income. The Country A agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The relevant article of the agreement deals with the taxing rights of income from personal services. Paragraph 1 states:

'Subject to this Article and to

(other) Articles… remuneration or other income derived by an individual who is a resident of one of the Contracting States in respect of personal (including professional) services shall be subject to tax only in that Contracting State unless the services are performed and exercised in the other Contracting State. If the services are so performed or exercised such remuneration or other income as is derived there from shall be deemed to have a source in, and may be taxed in, that other Contracting State.'

Under the relevant Article of the agreement, you are considered to be a resident of Australia for the purposes of the agreement.

Applying the relevant Article therefore to your circumstances, the income from the services you perform while you are an Australian resident is taxable only in Australia unless you perform services in country A. When you travel to country A to perform services there, that portion of the income attributed to that service is taken to have a source in country A and may also be taxed there.

The relevant Article of the agreement provides an exemption from tax in country A for temporary visits in certain circumstances, paragraph 1 states:

'Remuneration or other income derived by an individual who is a resident of one of the Contracting States in respect of personal (including professional) services performed or exercised in the other Contracting State shall be exempt from tax in the other Contracting State if -

(a) the recipient is present in the other Contracting State for a period or periods not exceeding in the aggregate 183 days in the year of income or in the basis period for the year of assessment as the case may be of that other Contracting State;

(b) the services are performed or exercised for or on behalf of a person who is a resident of the first-mentioned Contracting State; and

(c) the remuneration or other income is not deductible in determining the profits for tax purposes in the other Contracting State of a permanent establishment in that other Contracting State of that person.'

As you will be employed by a an Australian employer for a period of time exceeding 183 days part (a) of the above article is not satisfied. Your income from services performed in country A is therefore not exempt from tax in that country.

A paragraph of the relevant Article of the agreement deals with relief from double taxation and provides that income tax paid in country A by a resident of Australia on income from sources in Country A will be allowed a credit against Australian tax payable in respect of that income.

In conclusion therefore, all your income received from your employer, from the time you became a resident of Australia, is taxable in Australia. That part of your income that is attributable to service in country A may also be taxable in country A, however a foreign tax credit will be allowed against your Australian tax for any country A tax paid on that part of your income. You will need to keep accurate records of the income earned whilst in country A and tax paid thereon.

As a result of receiving this advice you may wish to clarify your tax obligations on your continuing remuneration payments with the taxation authorities in country A.