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Ruling

Subject: Residency and source of income

Question 1

Are you a foreign resident from the date of your departure from Australia for income tax purposes?

Answer

Yes.

Question 2

Is the income derived from your employment in Country X deemed to be sourced in Australia?

Answer

No.

This ruling applies for the following periods:

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 an Australian citizen.

Your country of origin is Australia although you have lived outside Australia earlier in your career.

You left Australia and arrived in Country X on the same day.

You have a visa to stay in Country X. It may be extended depending on the requirements of your job.

You moved into an apartment as your lease was signed before you arrived in Country X.

Your apartment is a family accommodation. This accommodation was leased for one year with an option to extend for another year.

You have intentions to make Country X your home as you have arranged your family to come live with you, sold most of your personal assets in Australia, renovated your main residence in Australia for sale, established social connections, leased a property and treating it as a main residence.

Your wife and your children have joined you in Country X.

Your children will commence their schooling in Country X for 2012.

You have a main residence in Australia.

You intended to sell your main residence once the renovation is completed.

You and your family transported most of your personal assets to Country X. Some may be left in the storage or sold.

Company X is based in Country Y and you are currently employed by Company X.

Company X has many different branches in several countries in a specific region.

Your job requirement is to manage a business unit that is underperforming or have significant challenges in the region. Attending meetings is also part of your job requirement.

Currently, the region is facing a number of challenges.

As a result, your company directed you to relocate to Country X in order to effectively exercise your management function.

Previously when you were in Australia, your remuneration was paid by the Australian branch.

You ceased to become an employee of the Australian branch after you relocated to Country X.

You are an employee of Branch in Country X .

The branch in Country X pays your remuneration.

You don't have any written employment contract with Company X.

The estimated employment period in Country X will be until at least March 2013 and possible extension depending on the requirements of your job.

Your contract is expected to last for three year period and the contract confirms that your relocation to Country X is at the direction of Company X.

You continued to carry out the dual roles of Division X but you will not be directly involved in managing Australian or New Zealand business in the Pacific region.

During your employment period in Country X, you will be travelling from Country X to attend meetings held in various countries across the region - these meetings are on a 'fly in, fly out' basis.

It is possible that some of these meetings will be held in Australia but it is not anticipated that you will be travelling to Australia frequently.

Most of the cars you owned are sold. The remaining cars will be shipped to Country Y if you relocate to Country Y from Country X after your employment contract ends with the Branch X. Country X has a restrictive rules regarding importation of older model cars and if these rules were not in place, you would have arranged for all of your cars to be shipped to Country X while you live there.

You are a director and beneficiary of various operating trusts holding investment properties in Australia while you are in Country X.

You have various memberships of sporting and other clubs in Australia.

You intend to amend your membership status of these clubs to international to reflect your migration out of Australia.

Your corporal membership with a club in Australia is transferred to another employee of Company X.

You have established social and sporting connections in Country X by rejoining clubs.

You are a member of a Board for a university in Australia. You have approximately one remaining year on your membership term and you intend to serve out this term. As a result, you will attend Boards meetings on a "fly in, fly out" basis.

Once your membership term is expired, you do not intend to serve another term.

Apart from this reason and your job requirements, you believe there are no other reasons that would require you to visit Australia from Country X.

You and your spouse are not and never have been Commonwealth public servants.

You are a member of an Australian superannuation fund.

This superannuation fund is not a Commonwealth Superannuation Scheme (CSS) or a Public Superannuation Scheme (PSS).

There is a tax treaty between Australia and Country X.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Subsection 6-5(3)

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) advises that where you are an Australian resident for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a non-resident of Australia for taxation purposes, your assessable income includes only income from an Australian source.

Subsection 995-1(1) of the 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 first two tests are examined in detail in Taxation Ruling IT 2650.

Taxation Ruling IT 2650 focuses on the first two tests, being the tests most widely applicable to persons who ordinarily reside in Australia but who leave Australia temporarily and are not actually living in Australia during the year of income

Residence according to ordinary concepts (The resides 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 you do not reside in Australia according to ordinary concepts, you may still be considered to be a resident of Australia for tax purposes if you meet the conditions of one of the other three tests.

The ordinary meaning of the word "reside", according to the Shorter Oxford English Dictionary, 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.

In your case, you have relocated to Country X as part of your contract with Company X. You have leased a property and obtained a visa that lasts 2 years.

You will be residing in Country X for three years period and there is possible extension depending on the requirement of your job.

Therefore, you are not considered to be residing in Australia according to ordinary concepts and you are not an Australian resident for tax purposes under this test.

The domicile and permanent place of abode 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.

Permanent place of abode

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 as per paragraph 22 and 27 of Taxation Ruling IT 2650. It does not mean an abode in which a person intends to live for the rest of their 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 will be working in Country X for three years with a possibility of extending your stay.

Your spouse and children have relocated to Country X in early January 2012. Your children will commence their schooling for 2012.

You intend to make Country X your home. You have leased a family accommodation in Country X on one year lease with an option to extend the lease for another further year. You and your family will treat your accommodation as a main residence.

You have established social and sporting connections in Country X. You have rejoined clubs. You have amended your domestic memberships with clubs based in Australia to international status to reflect your migration out of Australia. You have transferred your corporate membership with a club to another employee of Company X.

The commissioner is satisfied that you have established a permanent place of abode outside Australia.

Therefore, you are not a resident under this test.

The 183 day test

When a person is present in Australia for 183 days during the year of income the person will be a resident, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

You do not intend to return to Australia for more than 183 days in any future financial years.

You are not a resident under this test.

The Commonwealth superannuation fund test

An individual is still considered to be an Australian resident if that person is a current Commonwealth government employee and is a member of 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.

This test does not apply to you as it has been identified that you or your spouse are not a Commonwealth public servant and are not a member of Public Superannuation Scheme or Commonwealth Superannuation Scheme.

Your residency status

You are a non-resident of Australia for taxation purposes.

You are still required to declare any income derived in Australia in your Australian tax return.

Source of income

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

The source of income is determined in the general principle set out in Nathan v Federal Commissioner of Taxation (1918) 25 CLR 183, where the High Court held that the determination of source of income is a practical, hard matter of fact.

The source of income for services performed will depend on the facts of each case.

However, the source of income is generally the place where services are performed as per Federal Commissioner of Taxation v. French (1957) 98 CLR 398; (1957) 11 ATD 288; (1957) 7 AITR 76).

The case indicated that for an ordinary employee, the most relevant factor when determining the source of income is generally the place where the services are performed.

You are carrying out your services in Country X. The nature of your job involves working with the broad regional businesses outside Australia.

None of your work is performed in Australia. Most of your work is performed in Country X as being your base of employment for three years.

In view of the above case law and the circumstances in your case, it is considered that the source of income is sourced in Country X.

You are not an Australian resident for income tax purposes and your income is not from an Australian source. Therefore it is not taxable in Australia.