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Ruling

Subject: Residency and assessability of foreign income

Questions and answers:

Will you be a resident of Australia for taxation purposes while undertaking research overseas?

No.

Is the financial support you receive while undertaking research overseas included in your assessable income in Australia?

No.

This ruling applies for the following period:

1 July 2012 to 30 June 2015.

The scheme commences on:

1 July 2012.

Relevant facts and circumstances:

You were born in Australia and are over the age of 16.

You are an Australian citizen and do not have citizenship of any other country.

You currently reside in Australia with your parents.

You have been awarded a Fellowship to undertake research in a foreign country.

The period of the Fellowship is two years.

You will return to Australia at the end of the Fellowship.

During the Fellowship you will receive financial support from an overseas organisation.

You will rent an apartment and live by yourself in the foreign country.

You will open a bank account in the foreign country.

You do not own property in Australia or anywhere else.

You have a bank account and a car in Australia.

You have no spouse or children and will travel to the foreign country alone.

While you are in the foreign country you will maintain social contact with your family and friends in Australia. You will also maintain social and professional contact with your Australian work colleagues.

You expect to develop social connections in the foreign country during the two years you will live there.

You have never been employed by the Commonwealth of Australia.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 995-1(1)

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

Assessability of income in Australia - general concept

In Australia, income is classified for taxation purposes either as ordinary or statutory income and will generally be assessable unless a provision of the tax law provides otherwise.

The general concept is that an individual who is a resident of Australia for taxation purposes is assessable in Australia on all the ordinary and statutory income they receive from all sources, in or out of Australia, during the financial year.

Conversely, an individual who is a non-resident of Australia for income tax purposes is only assessable in Australia on the ordinary and statutory income they receive from Australian sources.

Ordinary income includes receipts such as salary and wages and some allowances, as well as other similar payments that can be said to have a degree of regularity about them and upon which an individual may rely.

We consider the financial support you will be paid by the overseas organisation will constitute ordinary income for the purpose of Australian tax law.

This position is supported by Class Ruling CR 2003/26 Income tax: CSIRO funded Studentships and Scholarships which notes that relocation, maintenance and travelling allowances paid to recipients of CSIRO Studentships are forms of ordinary income.

Although the allowances you will be paid under the Fellowship will be ordinary income for the purposes of Australian tax law, whether or not those payments will be assessable in Australia depends on whether or not you will be a resident of Australia for taxation purposes during the period of the Fellowship.

Residency

Australian tax law 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.

If any one of these tests is met, an individual will be a resident of Australia for taxation purposes.

The primary test is the resides test. If residency is established under the resides test, the remaining three tests do not need to be considered. However, if residency is not established under the resides test, an individual will still be a resident of Australia for taxation purposes if they meet the conditions of any of the remaining three tests.

The resides test

The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'.

The Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01 defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

You will live in the foreign country for two years. During that time you will not be residing in Australia according to the ordinary meaning of the word 'reside'. Accordingly, you will not be a resident of Australia for taxation purposes under the resides test for that period.

The domicile test

Under this test, a person with an Australian domicile is considered to be a resident of Australia for taxation purposes, unless the Commissioner is satisfied the person's permanent place of abode is outside Australia.

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. A person's domicile of origin will not usually change, but can in some circumstances. For example, a person can acquire a domicile in another country by choice if they can prove they intend to make their home indefinitely in a country outside their domicile of origin.

Taxation Ruling IT 2650 - Income tax: residency - permanent place of abode outside Australia specifies that a person with an Australian domicile who is living outside Australia will retain their Australian domicile if they intend to return to Australia on a 'clearly foreseen and reasonably anticipated contingency' - at the end of a specific period of overseas employment for example.

Your domicile of origin is Australia and you will return to Australia at the end of the Fellowship. Accordingly, during the period of the Fellowship:

· you will retain your Australian domicile, and

· it is necessary for us to consider where your permanent place of abode will be to determine whether or not you will be a resident of Australia for taxation purposes under this test.

Taxation Ruling IT 2650 specifies that a 'permanent place of abode' does not have to be everlasting or forever and does not mean an abode in which a person intends to live for the rest of their lives. An intention to return to live in Australia in the foreseeable future does not prevent a taxpayer setting up a 'permanent place of abode' elsewhere in the meantime.

In essence, IT 2650, specifies that a person's place of abode is where they live and is a question of fact to be determined in the light of all the factors of a particular case.

Although you intend to return to Australia at the end of the Fellowship, we consider that you will establish a permanent place of abode in the foreign country while undertaking the Fellowship. We have formed this view because:

· The period of two years you will reside in the foreign country is a period that is generally considered sufficient to support the assertion that a taxpayer has established a permanent place of abode outside of Australia.

· You will not be maintaining a home in Australia during your absence.

· You have no spouse or children, you will travel alone, and you will live alone in rented accommodation in the foreign country. These facts add weight to the conclusion that you will establish a permanent place of abode in the foreign country during the period you are there.

Although the durability of your association with Australia can be said to be greater than it will be with the foreign country (predominantly because of the family, social and professional ties you will maintain in Australia), this is not sufficient to support a conclusion that you will not establish a permanent place of abode in the foreign country.

You will maintain your Australian domicile during the period you are in the foreign country for the Fellowship, but you will also establish a permanent place of abode in the foreign country during that time. Accordingly, you will not be a resident of Australia for taxation purposes under the domicile test whilst in the foreign country.

The 183-day test

Where a person is present in Australia for 183 days during an income year, the person will be a resident of Australia for taxation purposes unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

You will not be a resident of Australia for taxation purposes under this test for the two year period you are living in the foreign country.

The superannuation test

Under this test, a person will be considered to be a resident of Australia for taxation purposes if they are eligible to contribute to, or are a member of, one of the Commonwealth superannuation funds.

A person will also be considered to be a resident under this test if they have a spouse who is eligible to contribute to, or is a member of, one of the Commonwealth superannuation funds, or if they are a child under 16 of such a person.

You do not have a spouse, you are over the age of 16, and you have never been employed by the Commonwealth of Australia which means you cannot be eligible to contribute to, or be a member of, any of the Commonwealth superannuation funds.

Accordingly, you cannot be a resident of Australia under this test.

Conclusion

You will not satisfy any of the tests of residency while you are living in the foreign country and will not be a resident of Australia for taxation purposes during that period.

As you will be a non-resident of Australia for taxation purposes while you are living in the foreign country, the financial assistance you receive from the organisation in the foreign country (a source outside Australia) during that period will not be included in your assessable income in Australia.