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Ruling
Subject: Residency and work related expenses
Questions and answers
Are you a resident of Australia for tax purposes?
Yes.
Are you entitled to a deduction for the expense incurred in paying a third party to help you complete your work for your employer?
Yes.
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
You are a citizen of Australia and Australia is your country of origin.
In mid 2011 you travelled to country A on a settlement visa with your partner who is a dual citizen.
You intend travelling around the world for two to three years primarily through country A staying mostly with your partner's family and friends
Your intention in regard to residency is to return to Australia if house sitting opportunities do not arise.
Since mid 2011 you have been living with different members of your partner's family and friends, house sitting, travelling around country A, have returned to Australia for approximately one month and are now living and working in country B.
You will return to Australia occasionally to visit family and friends.
You have a permanent place to live in Australia which is owned by your parents.
You do not own any property in Australia.
You have been employed by your employer in Australia since 200X and will remain employed by them on a casual basis while you are travelling overseas.
Your employment with your employer allows you to work remotely online.
All of your financial ties are in Australia.
You are a member of a trade union in Australia, have been admitted as a member of the Supreme Court, are heavily involved in the local community, and have close friends and family in Australia.
You and your partner do not hold a position with the Commonwealth Government of Australia.
You are over 16 years of age.
Occasionally you pay third parties to complete work that you are not able to complete on your own by a particular deadline.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 subsection 995-1(1)
Income Tax Assessment Act 1936 subsection 6(1)
International Tax Agreements Act 1953 schedule 5
Income Tax Assessment Act 1997 section 8-1
Reasons for decision
Residency
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) and section 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). 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. 3rd 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'.
We consider you are residing overseas as evidenced by:
· living with different members of your partners family in country A, house sitting in country A house sitting in country B
· you do not intend returning to Australia permanently until house sitting opportunities and your employment no longer allow you to live overseas; and
· your partner has accompanied you.
Therefore, as you are residing overseas 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.
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 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.
You are an Australian citizen. Your financial ties will remain here and you have strong social, academic, and family connections here, therefore, we consider your domicile is unchanged.
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 you have moved to country A with the intention of travelling around country A. You have lived with different members of your partner's family and friends there, and are now living in country B where you are house sitting. You intend returning to Australia to live in your rented apartment when house sitting opportunities or employment no longer allow you to do so. So the Commissioner is not satisfied that you have a permanent place of abode outside of Australia there.
In your case the Commissioner is not satisfied that you had a permanent place of abode outside Australia. So you are a resident under this test.
The 183-day test
Under the 183 day test you are considered a resident of Australia if you are present in Australia for a total period of more than half of the year of income, that is 183 days, 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.
This test does not apply to as you will not be in Australia for over 183 days in any year during your absence.
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
You are a resident of Australia under the domicile test.
Work related expense
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for losses and outgoings which are incurred in the course of gaining or producing assessable income, unless the losses or outgoings are capital, or are of a capital, private or domestic nature.
In your case, you pay third parties to complete work that you are not able to complete on your own by a particular deadline. You are not reimbursed for this expense by your employer.
You incur the expense in the gaining of your assessable income. Therefore, you are entitled to a deduction under section 8-1 of the ITAA 1997.