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Authorisation Number: 1012115770284

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Ruling

Subject: Residency

Questions and answers:

1. Are you a resident of Australia from when you leave to work in a foreign country for an initial period of 2 years?

No.

2. Will the income you earn working in the foreign country be assessable in Australia?

No.

This ruling applies for the following periods:

Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014

The scheme commenced on:

1 July 2011

Relevant facts and circumstances

You are an Australian citizen and your country of origin is Australia.

You are moving to a foreign country on a Visa that will allow you to work in that country for 2 years.

This Visa will expire after a period of 2 years.

You have no set plans to return to Australia at this stage. You intend to stay in the foreign country indefinitely if you are permitted to do so.

You will be ceasing your current employment before the end of the 2011-12 financial year.

You will be departing Australia before the end of the 2011-12 financial year.

You will not be returning to Australia for any period for the duration of your 2 year visa.

You will only be earning an income in the foreign country and not in Australia.

You do not have employment in the foreign country at this stage but you will be seeking temporary office administration work based in the capital city when you arrive.

You have arranged accommodation in the capital city for the first 2 weeks of arriving and you will be seeking to share an apartment in the capital city for the remainder of your time there.

You are currently sharing a rental property in Australia and you will be relinquishing this rental property when you leave to go to the foreign country.

You have minimal personal belongings to take with you and you will be acquiring new belongings in the foreign country once you have established your living arrangements.

You have a basic bank account in Australia which earns minimal interest. You have advised the bank of your intention to move overseas and you will advise them of your overseas address.

You are single with no children and none of your family will be accompanying you overseas.

You have never been employed by the Commonwealth Government of Australia.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 6(1)
Income Tax Assessment Act 1936 Subsection 128B(2)
Income Tax Assessment Act 1936 Section 128D

Income Tax Assessment Act 1997 Section 6-5

Reasons for decision

Assessable income

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) advises that the assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during an income year.

Alternatively, subsection 6-5(3) of the ITAA 1997 says that the assessable income of individuals who are not residents of Australia includes ordinary income derived directly or indirectly from all Australian sources during the income year.

Residency

The terms 'resident' and 'resident of Australia' are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition provides a series of tests to assist in ascertaining whether a person is a resident of Australia. These tests are:

The 'resides test' where the individual resides in Australia and is a resident under ordinary concepts.

· The 'domicile test' where the individual has a domicile in Australia unless the Commissioner is satisfied that the person's permanent place of abode is outside Australia.

· The '183-day test' where the individual has been in Australia for more than one-half of the year of income, unless the Commissioner is satisfied that their usual place of abode is outside Australia and that they do not intend to take up residence in Australia.

· The 'Commonwealth Superannuation test' where the individual is a member of certain Commonwealth Government superannuation schemes.

Resides test

The Commissioner's view on the 'resides test' is contained in Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia. As a broad principle, where an individual has a settled routine for 6 months or more (for example, the person has stayed in one place or has been with one employer for 6 months at the same location) then they will satisfy the resides test unless they can establish they are not a resident.

You will be ceasing your current employment and leaving Australia for the foreign country before the end of the 2011-12 financial year. It is your intention to establish a place to live in the capital city of the foreign country and find employment in that area. Your visa allows you to work for one employer for the duration of your 2 years there.

You do not intend to return to Australia for any period during the 2 years of your visa and you do not have any set plans to return to Australia. You may stay longer if it is allowable.

Results of the resides test

You will not be a resident of Australia for taxation purposes after you depart Australia.

Domicile/permanent place of abode test

Domicile

If a person has their domicile in Australia they will be an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside Australia.

There are essentially 3 types of domicile that an individual can have:

o the domicile of origin;

o the domicile of choice; and

o the domicile of dependency.

Basically your domicile of origin is where you were born, being the country of your father's permanent home. As you were born in Australia, it is therefore your domicile of origin.

In order to show that you have a new domicile of choice, you must be able prove an intention to make your home indefinitely in another country. As you are an Australian citizen and you have not indicated an intention to apply for citizenship in the foreign country, you do not have a new domicile of choice.

In relation to domicile of dependency, such a domicile will normally only exist in relation to minors or individuals who are of unsound mind.

As you have retained your domicile in Australia, we need to consider if your "permanent place of abode" is outside 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.

Some of the factors which have been considered relevant by the Courts and Boards of Review/Administrative Appeals Tribunal and which we use to determine whether or not a taxpayer's permanent place of abode is outside Australia include:

(a)   the intended and actual length of the taxpayer's stay in the overseas country;

(b)   whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time;

(c)   whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia;

(d)   whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;

(e)   the duration and continuity of the taxpayer's presence in the overseas country; and

(f)   the durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

When we apply these factors to your circumstances:

(a) You will be in the foreign country for an initial period of 2 years. You hope to be able extend your stay in the foreign country at the expiration of your current visa which expires after 2 years.

(b) You will be staying in the capital city of the foreign country for the entire 2 year period and have no set plans for returning to Australia at this stage.

(c) You have arranged accommodation for the first 2 weeks of arriving in the foreign country and you intend to organise a shared apartment for the duration of your stay in the foreign country.

(d) You are currently sharing rental accommodation in Australia which you will be relinquishing when you depart.

(e) You will be seeking temporary office administration work in the capital city once you arrive in the foreign country.

(f) You have a basic bank account in Australia which earns minimal interest. You will be advising the bank of your move overseas before you leave.

Results of the domicile/permanent place of abode test

From the information you have provided, you will establish a permanent place of abode outside Australia. You will not be a resident of Australia under this test.

183 day/usual place of abode test

Under the 183-day test you will be a resident of Australia if you are present in Australia for 183 days during the year of income unless the Commissioner is satisfied that your usual place of abode is outside Australia and you do not intend to take up residence in Australia.

You will be leaving Australia before the end of the 2011-12 financial year. Therefore you will be in Australia for more than 183 days of the 2011-12 financial year. However, as you do not intend to return to Australia for any period for the duration of your current 2 year visa, you will not be in Australia for more than 183 days for the 2012-13 or the 2013-14 financial years.

Results of the 183 day/usual place of abode test

You will not be a resident of Australia under this test for the 2012-13 and 2013-14 financial years.

The superannuation test

Under the superannuation test you will be a resident of Australia if you are eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or you are the spouse or child under 16 of such a person.

Results of the superannuation test

You are not a member of the PSS or the CSS, nor are you the spouse or child under 16 of such a person. Therefore, you are not a resident of Australia under this test.

Conclusion

According to the facts provided, you will not be a resident of Australia from when you leave as you do not satisfy any of the four residency tests listed in subsection 6(1) of the ITAA 1936.

As you will not be a resident of Australia for taxation purposes, section 6-5(3) of the ITAA 1997 advises that you are only required to declare any Australian sourced income in an Australian tax return.

Australian sourced interest income

Once a non resident has notified all their Australian sourced interest companies of their non-resident address, any income derived after ceasing to be an Australian resident will be subject to withholding tax as a final tax and will not need to be included in their tax return.

Alternatively, if a non resident has not had withholding tax deducted from interest earned, then they would be required to include this interest income and lodge a tax return in Australia.

Changing from resident to non-resident during an income year

If your status changes from resident to non-resident before the end of an income year you should answer 'yes' to the question 'Are you an Australian resident?' on your tax return for that year. This ensures you are taxed at resident rates for that part of the tax year you were resident in Australia.

Your non-residency for part of the year will be taken into account by a reduction in your tax-free threshold for that year. You will be entitled to a pro-rata tax-free threshold for the number of months you were an Australian resident during the income year. To do this, you will need to complete question A2 on your tax return 'Part-year tax-free threshold'

Non-residents of Australia do not have to pay the Medicare levy, so you can also claim the number of days that you were not an Australian resident during a tax year in your return as exempt days.