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Edited version of your private ruling
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Ruling
Subject: Residency
Questions and Answers:
1. Are you a resident of Australia for taxation purposes?
Yes.
2. Are you required to declare your income derived overseas in your Australian tax return?
Yes.
This ruling applies for the following periods:
Year ended 30 June 2013
Year ended 30 June 2012
Year ended 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
You are a citizen of and were born in Australia.
You left for a working holiday overseas on 20 March 2011.
You left on a working visa.
You intend to return to Australia at the end of the working holiday.
You have a job overseas.
Your employer provides your accommodation which is similar to a hostel.
You intend to visit other countries.
You have some investments in Australia.
You are not currently and have never been an employee of the Commonwealth government.
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 995-1(1).
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
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:
1. the resides test
2. the domicile test
3. the 183 day test
4. the superannuation test
The first two tests are examined in detail in Taxation Ruling IT 2650: Residency - Permanent Place of Abode outside Australia.
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 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'.
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.
In your case you have been left Australia on a working holiday for a while. You are therefore not residing in Australia according to ordinary concepts and you are not a resident of Australia for tax purposes according to this test.
The domicile test
If a person has 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.
Domicile
There are essentially 3 types of domicile that an individual can have:
§ the domicile of origin;
§ the domicile of choice; and
§ The domicile of dependency.
Basically, the domicile of origin of an individual is where the individual was born. 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. In relation to domicile of dependency, such a domicile will normally only exist in relation to minors or individuals who are of unsound mind.
In your case, you were born in Australia and are a citizen of Australia.
Therefore, your domicile of origin is Australia. You do not have permanent residency or citizenship of any other country. Therefore, you have not proven an intention to make another country your home indefinitely and your domicile remains Australia.
As your domicile is Australia, you will be a resident of Australia for tax purposes unless the Commissioner is satisfied that you 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'. 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 left Australia on a working holiday
§ You live in accommodation provided to you under your work contract
§ You intend to return to Australia at the end of your working holiday
The commissioner is not satisfied that you have established a permanent place of abode outside Australia therefore you are a resident under this test.
Your residency status
As you meet the domicile test of residency, you are a resident of Australia for taxation purposes.
You are required to declare all your income derived both in and out of Australia in your Australian tax return.