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Ruling

Subject: Foreign employment income

Question 1

Are you an Australian resident for taxation purposes?

Answer 1

No.

Question 2

Is the foreign employment income you derive as a foreign resident for income tax purposes in Australia assessable in Australia?

Answer 2

No.

This ruling applies for the following periods:

Year ended 30 June 2011

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 2010

Relevant facts

You are a citizen of Australia.

You departed Australia in the 2010-11 income year to work in Country X.

You came back to Australia for a few weeks since first leaving Australia and the purpose of the visit was holiday.

You stated that you intend to stay and work overseas through AusAid Funded Programs for years to come and you intend to reside overseas permanently for work purposes.

You stated that you do not plan to return to Australia in the near future as you will be working overseas.

You have a permanent place to live overseas in Country X.

You are leasing a property in Country X.

You have a bank account overseas.

You own a house in Australia, however, you do not rent it out as your separated spouse and your child are currently living in the house.

You do not have a permanent place to live in Australia.

You have a bank account in Australia.

You have been working for based in Country X since 1 July 2010.

Your family has not accompanied you overseas as you have separated with your spouse and for work-related reasons.

You do not have any social and sporting connections with Australia.

You have the following social and sporting connections with Country X - Professional network and Sporting clubs in Country X.

You and your spouse were not Commonwealth Government of Australia Employees.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1936 subsection 6(1)

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

Income Tax Assessment Act 1997 subsection 6-10(5)

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) 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:

· 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 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 are currently residing in Country X as evidence by:

· leasing a property in Country X

· having social and sporting connections with Country X

Therefore, you are 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,

1. you have advised that it is your intention to work overseas through AusAid Funded Programs for years to come and you intend to reside overseas permanently for work purposes,

2. you do not plan to return to Australia in the near future as you will be working overseas,

3. you have a permanent place to live overseas, and

4. you are separated from your spouse who lives in your house you own in Australia.

Therefore, you are not considered to have maintained your Australian domicile.

Based on these facts, the Commissioner is satisfied 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 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

As you are not considered to be a resident of Australia under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936, you are not considered to be an Australian resident from the date of your departure from Australia under subsection 995-1(1) of the ITAA 1997.

Foreign income as a foreign resident

Subsection 6-5(3) of the ITAA 1997 provides that ordinary income derived by a foreign resident directly or indirectly from Australian sources, as well as ordinary income included by a provision on a basis other than having an Australian source is assessable.

Statutory income from all Australian sources is also included in a foreign resident's assessable income under subsection 6-10(5) of the ITAA 1997.

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).

In your case, you are a foreign resident who derives employment income from Country X. Therefore, it will not be assessable income in Australia under subsection

6-5(3) of the ITAA 1997.

Note

1) Under section 12-1 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) an employer need not withhold an amount from payment of salary, wages, commissions, bonuses or allowances it pays to an individual as an employee where the whole of the payment is exempt income of the employee.

As your Country X salary and wage income paid by your employer is exempt income in Australia, your employer need not withhold an amount from these payments.

You should provide a copy of this ruling to your employer.

2) Foreign residents are only required to lodge an Australian tax return if they earn Australian-sourced income such as rental income or salary and wages from employment in Australia. 

Australian interest and dividend income paid to foreign residents is generally subject to withholding tax. Withholding tax represents the final tax liability for those payments.