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Ruling
Subject: Foreign Resident - Australian Income
Foreign Resident - Australian Income
Question 1:
Are you an Australian resident for income tax purposes in the 2011-12 income year?
Answer 1:
No.
Question 2:
Will the income you derive from working in Australia in the 2011-12 income year be assessable income in Australia?
Answer 2:
Yes.
This ruling applies for the following period:
Year ending 2011-12
The scheme commenced on:
1 July 2011.
Relevant facts
You are a citizen, and your country of origin is also Country A.
You arrived in Australia some time in the 2011-12 income year on a specific visa.
You are employed by Company A who is based in Country A.
Company A require you to be a temporary (less than one year) representative in Australia for a project they are working on here.
Your employer pays your salary into a bank account in Country A.
You have no intention to reside in Australia permanently - you are only here to monitor a particular phase of a project for the company you work for.
You do not have any assets in Australia.
In Country A, you live in your own house. Your spouse and children are living in this while you are in Australia for work. They did not accompany you to Australia.
You don't pay tax in any other country on the income you derive from working in Australia.
You don't have any social or sporting connections with Australia.
Relevant legislative provisions
Income Tax Assessment Act 1936 Subsection 6(1)
Income Tax Assessment Act 1997 Subsection 6-5(3)
Income Tax Assessment Act 1997 Section 995-1
Reasons for decision
Residency
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 satisfy 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'.
As you have been residing in Australia since some time in the 2011-12 income year, you will not be considered to be residing in Country A.
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 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've been away from Country A since some time in the 2011-12 income year. However, you will be considered to have maintained your domicile in Country A as your associations with Country A will be considered to be more significant as:
§ you maintained your home in Country A which was your principle place of residence. Your spouse and children continue to reside there.
§ you only left Country A on a on a specific visa and plan on returning to Country A.
§ you have a bank account in Country A where your pay gets deposited into.
Based on these facts, it is considered that you will not establish a permanent place of abode in Australia. Therefore, you will be considered to be a foreign resident for income tax purposes under the domicile test.
Your residency status
As you will be deemed to be a foreign resident under the domicile test of residency outlined in subsection 6(1) of the ITAA 1936 there is no need to examine the remaining tests. Therefore, you will be considered to be a foreign resident for income tax purposes for the period you spend in Australia.
Australian Income derived whilst being a foreign resident
Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a foreign resident includes all ordinary income derived directly or indirectly from all Australian sources, and other ordinary income that a provision includes on some basis other than having an Australian source.
Section 995-1 of the ITAA 1997 defines Australian source income as ordinary income or statutory income derived from a source in Australia. As such the source of the income is where the services are performed. In other words, the income has an Australian source if the employment is carried out in Australia.
Therefore, the income you derive from working in Australia as a foreign resident is assessable income in Australia under section Subsection 6-5(3) of the (ITAA 1997).