Edited version of your private ruling

Authorisation Number: 1012120995133

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Subject: Residency and foreign income

Questions and answers:

Are you a resident of Australia for tax purposes?

Yes

Is your foreign employment income exempt from tax under section 23AG of the Income Tax Assessment Act 1936?

No

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are an Australian citizen

Your country of origin in Australia

You left Australia

Your stay in the overseas country is covered by a work permit. Your stay is sponsored by your employer.

Your employer is a government organisation of the overseas country. Your employer is not Australian.

The purpose of your stay overseas is work.

Your stated intention to remain in the overseas country is to continue working, as your field of expertise is highly sought after there. You would move back to Australia if there was more permanent work there.

You have a renewable 3 year employment contract in the overseas location.

You have no immediate plans to return to Australia as you are gainfully employed overseas.

You return to Australia for about 2 weeks each year to visit your spouse and child.

Your spouse and child travel to visit you in the overseas destination when possible.

You have a house in Australia which your spouse and child live in.

You state that you have a permanent place to live overseas. Your accommodation is provided through your employer under a long-term lease.

Your assets in Australia are comprised of an investment property and bank accounts.

Your assets in the overseas location include your household furniture and a bank account.

You do not pay tax in the overseas country.

Your social connections in Australia are your spouse, child and their friends.

Your social connections in the overseas location stem from your workplace.

Your spouse and child have remained in Australia as your child is undertaking a course of study which is not available to them in the overseas country.

Neither you nor your spouse are, or were, Commonwealth of Australia Government employees.

Reasons for decision

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, and

· 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'.

Although the question of whether a person resides in a particular country is a question of fact, the courts have referred to and taken into account various factors considered to be relevant. These are:

· whether the person is physically present in that country at some time during the year of income

· the history of the person's residence and movements

· if the person is a visitor to the country, the frequency, regularity, duration and purpose of the visits

· if the person is outside the country for part of the relevant income year, the purpose of the absences

· the family and business ties which the person has with the particular country, and

· whether a place of abode is maintained by the person in the relevant country or is available for his or her use while there.

You are physically present in the overseas location for no less than 49 weeks in the year.

You return to Australia for 2-3 weeks each year to visit your family.

The purpose of your stay in the overseas location is to fulfil an employment contract.

Your family ties are strong with Australia as your spouse and child live there.

You have a place of abode in both Australia and the overseas country.

On the weight of your circumstances, you are not a resident of Australia under this test.

The domicile test

Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia, unless the Commissioner is satisfied that their permanent place of abode is outside of Australia.

Domicile

Domicile is a legal concept, determined according to the Domicile Act 1982 and common law rules established by private international law cases.

Generally speaking, Australian citizens leaving Australia temporarily would be considered to have maintained their Australian domicile unless it is established that they have acquired a different domicile of choice or by operation of law.

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 their home indefinitely in that country, for example, through having obtained a migration visa.

Your right to remain in the overseas location is supported by an employer sponsored work permit. This does not support an intention to remain indefinitely.

Your domicile is Australia because you are an Australian citizen who has not legally established a different domicile.

Permanent place of abode

It is clear from the case law that a person's permanent place of abode cannot be ascertained by the application of any hard and fast rules. It is a question of fact to be determined in the light of all the circumstances of each case.

The courts have considered a person's 'place of abode' is where they consider 'home'. In R v Hammond (1982) ER 1477, Lord Campbell CJ stated that "a man's residence, where he lives with his family and sleeps at night, is always his place of abode in the full sense of that expression."

A place of abode must exhibit the attributes of a place of residence or a place to live, as contrasted with the overnight, weekly or monthly accommodation of a traveller.

Paragraph 23 of IT 2650 sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode:

(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.

In relation to the weight to be given to each of the above factors, paragraph 24 of IT 2650 states:

The weight to be given to each factor will vary with the individual circumstances of each particular case and no single factor will be decisive… however… greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant.

You have remained in the overseas country since 2007 (5 years as of the issue date of this ruling).

Your family remain in Australia.

Your intention to remain in the overseas location is to pursue employment. You have signed on to 3 year employment contracts. You would like to return to Australia where circumstances permit, but you have no immediate intent to return.

You have established a fixed residence in the overseas location under a long-term lease arranged through your employer.

You have not abandoned your Australian residence as it is occupied by your family. It is the place you return to when you visit Australia.

You remain in the overseas location for 49 weeks in a year.

You have a durable association with Australia as your most substantial assets being your family home and investment property are located there and it is where your dependent is being educated.

You have left Australia for an indefinite period and whilst your stay in the overseas location can not be described as temporary or transitory, you circumstances do not clearly show that you have abandoned Australia as your place of abode. Your durability of association is stronger with Australia than the overseas location [Joachim, Shand, Case Q68, Case 11/94]. Your permanent place of abode is Australia.

Accordingly you are a resident of Australia for tax purposes under this test.

The 183 day test

Under the 183 day test, a person is a resident of Australia if they are actually physically present in Australia for more than 183 days in an income year unless the Commissioner is satisfied that their usual permanent of abode is outside of Australia and they have no intention of taking up residence here.

As you were not present in Australia for more than 183 days in the income year you are not a resident under this test.

The superannuation test

A person will be considered a resident under the Commonwealth superannuation fund test if they currently contribute to certain superannuation funds for Commonwealth government employees. The eligible funds are funds:

· established under the Superannuation Act 1976 (such as the Commonwealth Superannuation Scheme), or

· established under the Superannuation Act 1990 (such as the Public Sector Superannuation Scheme), or

· the spouse or child under 16 of a person covered by either of the above funds.

Neither you, nor your spouse, have ever been Commonwealth government employees and therefore you are not able to contribute to the abovementioned superannuation schemes.

Your residency status

As you meet the domicile test, you are a resident of Australia for tax purposes.

As you are a resident of Australia, according to section 6-5 of the ITAA 1997, your assessable income includes income gained from all sources, whether in or out of Australia.

Exemption of overseas employment income

Subsection 23AG(1) of the ITAA 1936 provides that where Australian resident individuals are engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from that foreign service are exempt from tax in Australia. However, new subsection 23AG(1AA) of the ITAA 1936, which took effect from 1 July 2009, provides that those foreign earnings will not be exempt under section 23AG of the ITAA 1936 unless the continuous period of foreign service is directly attributable to the following:

· delivery of Australian official development assistance by your employer.

· activities of your employer in operating a public fund declared by the Treasurer to be a developing country relief fund, or a public fund established and maintained to provide monetary relief to people in a developing foreign country that has experienced a disaster (a public disaster relief fund).

· activities of your employer as a prescribed charitable or religious institution exempt from Australian income tax because it is located outside Australia or the institution is pursuing objectives outside Australia.

· deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force.

Your employer is a government organisation of the overseas country. 23AG does not apply to your employment situation.

Accordingly, as an Australian resident for tax purposes the income from your employment in the overseas country is assessable in Australia.