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Ruling
Subject: Residency
Question 1
Are you an Australian resident for taxation purposes from the date you left Australia?
Answer
No
Question 2
Are the salary and wages you earn in Country X assessable in Australia?
Answer
No
This ruling applies for the following period
Year ending 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
The scheme commenced on
1 July 2010
Relevant facts and circumstances
You are an Australian citizen.
You left Australia in the 2010-11 income year to live and work in Country X.
You are a teacher and work on one year renewable contracts.
You have a three year visa, and intend to stay in Country X for the three years or longer.
You have bank accounts in Country X.
You lived in rental accommodation in Country X on a long-term lease.
You do not have a permanent residence in Australia.
You are not eligible to contribute to a Commonwealth government superannuation scheme such as the CSS or PSS.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 995(1)
Income Tax Assessment Act 1936 Subsection 6(1)
Income Tax Assessment Act 1997 Subsection 6-5(2)
Income Tax Assessment Act 1997 Subsection 6-5(3)
Reasons for decision
Subsection 995-1(1) of the Income Tax Assessment Act 1997 (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). A foreign resident is a person who is not a resident of Australia.
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 an Australian resident 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 an Australian resident for tax purposes if they meet the conditions of one of the other three tests.
As you intend living and working in Country X indefinitely, you are not considered to be residing in Australia under this test.
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.
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 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 have advised that it is your intention to make your home indefinitely in Country X.
You have a three year visa, and intend to stay in Country X for the three years or longer.
You have bank accounts in Country X. You lived in rental accommodation in Country X on a long-term lease. You do not have a permanent residence in Australia.
Based on these facts, it is considered that you have established a permanent place of abode in Country X.
The 183-day test
This test does not apply to you as it has been identified that your permanent place of abode is in Country X.
The superannuation test
An individual is still considered an Australian resident for tax purposes if that person is eligible to contribute to a Commonwealth superannuation scheme such as the PSS or the CSS, or that person is the spouse or child under 16 of such a person.
This test does not apply to you as you are not eligible to contribute to the PSS or the CSS.
Your residency status
In your case, you are not considered an Australian resident for tax purposes under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936.
Accordingly, you are deemed a foreign resident from the date of your departure from Australia.
Salary and wages - Country X
Subsection 6-5(2 of the ITAA 1997 provides that the assessable income of an Australian resident for taxation purposes includes all ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a foreign resident includes all ordinary income derived directly or indirectly from all Australian sources during the income year.
Salary and wages are regarded as ordinary income.
The source of income derived from employment is generally the place where the duties or services are performed (Federal Commissioner of Taxation v. French (1957) 98 CLR 398; (1957) 11 ATD 288; (1957) 7 AITR 76).
Your employment duties carried on in Country X are considered to be sourced out of Australia. Therefore the income derived in relation to such employment is not assessable in Australia under subsection 6-5(3) of the ITAA 1997 as you are a foreign resident.
Note:
From the date you become a foreign resident, any interest and dividend income you derive in Australia will be subject to foreign resident withholding tax.
Please advise the financial institutions of your residency status and provide them with your overseas address so that the correct rate of withholding tax can be applied to the income.
Income that is subject to foreign resident withholding tax is not included in an income tax return.