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Ruling

Subject: Residency

Questions and answers:

Are you an Australian resident for taxation purposes from the date you departed Australia in 2012?

Yes.

Are you required to declare your overseas income on your Australian tax return?

Yes.

If you pay tax in Country X on the income assessable in Australia are you eligible for foreign income tax offset in Australia?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2012.

Year ended 30 June 2013.

The scheme commenced on:

1 July 2011.

Relevant facts:

You are an Australian citizen who has worked x months in 2011 in Australia (paying tax).

You have worked in Australia for all of your working life up until the end of 2011.

You moved overseas to live with your spouse, while they were working overseas.

You have been working full time whilst overseas.

You intend to move back to Australia after working overseas, and x months of travel overseas.

You commenced work overseas at the start of 2012.

You will be working overseas until near the end of 2012. You have an employment contract. It is for the entire calendar year in 2012.

You did have the option to extend it but have chosen not to.

You will be returning to Australia to work approximately mid 2013.

You where not required to apply for a visa overseas.

You visited Australia once for a short visit, since you have been living overseas, this was to visit family.

You have been living in a rental property with your spouse overseas.

You have bank account but no other assets overseas.

You lived in your family home before you left Australia.

Your family still live in Australia.

If you return home to Australia you will be finding a new place to rent away from the family home.

You have a bank account and no other assets in Australia.

You do not have any children.

All your friends and family are still in Australia.

You have several sporting teams that you normally play for when you are in Australia.

You only have work colleagues overseas and no sporting connections.

You are not a Commonwealth Government of Australia employee.

Relevant legislative provisions:

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

Income Tax Assessment Act 1936 subsection 6(1).

Convention Between Australia And Country X For The Avoidance Of Double Taxation, Article 4 & 23.

Reasons for decision

Section 995-1 of the Income tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

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 a resident of Australia for income tax purposes. These tests are:

· the resides test,

· the domicile and permanent place of abode 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 resides test is the primary test for determining the residency status of an individual. If residency is established under the resides test, the remaining three tests do not need to be considered.

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 one of the other 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'.

Taxation Ruling IT 2650 (which contains the Australian Taxation Office (ATO) view on whether an individual who temporarily leaves Australia ceases to be Australian resident for income tax purposes) specifies that a person's place of abode is where they live.

You commenced work overseas at the start of 2012. You will be working overseas until the end of 2012. You are working fulltime and where offered an extension to your employment contract which you declined, your family and social/sporting connections are located in Australia and as you intend to return to Australia after your overseas holiday and further travel overseas is complete.

You have no intentions to remain overseas and have plans to live and work in Australia in 2013. As you have only left Australia temporarily, we do not consider that you have a established a place of abode overseas. You are a resident of Australia under the resides test.

The domicile and permanent place of abode test

Under this test, a person whose domicile is in Australia will be considered 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.

In order to acquire a domicile by choice outside of their domicile of origin, a person must have and be able to prove an intention to make their home indefinitely in a country outside their domicile of origin. Sufficient proof of such an intention is considered to exist in cases where a person becomes a citizen of a country outside of their domicile of origin.

Taxation Ruling IT 2650 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 time for example.

In your case, you are an Australian citizen and your domicile of origin is Australia.

We consider that you have retained your Australian domicile while you have been living and working overseas because you have not become an overseas citizen.

As a result, you will be a resident of Australia for taxation purposes under the domicile and permanent place of abode test unless the Commissioner is satisfied your permanent place of abode is outside Australia.

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.

IT 2650 also specifies that a period of two or more years is generally considered sufficient to support the establishment of a permanent place of abode outside of Australia and that an intention to return to live in Australia permanently does not prevent a taxpayer setting up a permanent place of abode elsewhere in the meantime.

In your case, we consider you have not established a permanent place of abode overseas because:

· You have been living and working overseas with your spouse from the start of 2012.

· Your only social and or sporting connections overseas are your work colleagues.

· Your only assets overseas are a bank account, you do not own any property and currently have rented accommodation with your spouse.

· Your family has not accompanied you overseas.

· You have not renewed your employment contract.

· You intend to return to Australia in 2013.

· You have retained your Australian domicile since leaving Australia and have not established a permanent place of abode overseas.

Therefore you are also a resident under the Domicile test.

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.

In your case, you have not established an abode outside of Australia but you have been living and working overseas since the start of 2012. Until you return to Australia in July 2013 you will not be in Australia for 183 days during a financial year.

Based on this, you will not be resident of Australia for taxation purposes under this test from the time you left Australia.

The superannuation test

Under this test, an individual will be considered a resident of Australia for taxation purposes if:

· they are a member of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990,

· they are an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS) which was established under the Superannuation Act 1976, or

· they are the spouse or a child under 16 of a person who is a member of the PSS or an eligible employee in respect of the CSS.

Neither you or your spouse are a member of the PSS or an eligible employee for the purposes of the CSS.

Accordingly, you are not a resident of Australia for taxation purposes under this test.

Your residency status

You are a resident of Australia for taxation purposes from the start of 2012 until your intended return to Australia in 2013 as you are a resident under both the resides and domicile tests.

Foreign income tax offset (FITO)

Under Australia's tax laws, resident taxpayers may be assessed on both their foreign and domestic sourced income. To prevent the double taxation of foreign sourced income that has been taxed in another country, resident taxpayers are entitled to a non-refundable tax offset for foreign income tax paid on an amount included in their assessable income.

In your case Under Article 23 of the Convention between Australia and Country X for the Avoidance of Double Taxation, where you are required to pay taxation Country X you will be entitled to a credit against taxation paid in Australia.

For your information:

Where overseas taxation authorities consider you a resident

It is advisable to check the local taxation laws to determine your local residency.

Where Australian authorities and local authorities determine an individual a resident of both places for taxation, consideration of the tie breaker tests are required to determine residency.

Article 4 of the Convention between Australia and Country X for the Avoidance of Double Taxation states;

"2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then their status shall be determined as follows:

a) the individual shall be deemed to be a resident only of the State in which a permanent home is available to that individual; but if a permanent home is available in both States, or in neither of them, that individual shall be deemed to be a resident only of the State with which the individual's personal and economic relations are closer (centre of vital interests);

b) if the State in which the centre of vital interests is situated cannot be determined, the individual shall be deemed to be a resident only of the State in which that individual has an habitual abode;

c) if the individual has an habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which that individual is a national."