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Ruling

Subject: Residency

Question 1 and answer

Are you a resident of Australia for tax purposes from the time you left to travel overseas?

Yes

Question 2 and answer

Is your foreign income assessable in Australia?

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 commences on:

1 July 2011

Relevant facts and circumstances

We provided you with a private ruling on these questions in 2012. However, you have now provided additional facts relating to your circumstances and have requested that we provide a new ruling that takes these into account.

Your country of origin is country Y and you have been an Australian citizen since you were a child.

You left Australia in early/mid 2011 to travel overseas and to study languages in country Z. You also left to be closer to your partner who lives in country X.

You found a job in country X and you worked for a country X company for one year. You were a project manager and your employment was not attributable to the limited categories of foreign earnings exemption categories.

Your employer sponsored you on a country X work visa and you rented a residence in country X while you worked there.

While you were working in country X you became a resident and paid taxes in country X on your employment income.

You returned to Australia in mid 20XX

You have returned to country X to be closer to your partner. You will also use country X as a base for your travels and to continue your language studies. You are currently looking for work in country X and wish to become a resident again.

You have taken out a lease on another residence in country X.

You have maintained your membership of a club and have a phone contract in country X.

You intend to stay near your partner in country X for a total of up to Y years before returning to Australia.

You currently hold a long term tourist visa for country X.

You recently visited another country and returned to country X.

You stay with friends and at hotels while you are travelling overseas, apart from when you are in country X.

You consider your travel overseas is for a working-cultural experience and that you travel as a tourist/student.

Your assets in Australia include bank accounts, an apartment and investments.

Friends stay in your residence in Australia and pay you board.

You stay with your family when you return to Australia.

The only asset you have overseas is a bank account.

You have never held a position with the Commonwealth Government of Australia.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 995

Income Tax Assessment Act 1936 Section 23AG

Reasons for decision

Residency

An Australian resident for tax purposes is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to be 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 test,

· the 183 day test, and

· the superannuation test.

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. If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established.

Where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be an Australian resident if they meet the conditions of one of the other 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'.

You have been travelling and living overseas for over a year and accordingly you are not residing in Australia.

As you do not meet 'the resides test', we will need to consider whether you meet any of the other three tests of residency.

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 the place that is considered by law to be your permanent home. It is usually something more than a place of residence.

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.

Your domicile is Australia because you are an Australian citizen, you are travelling overseas with a tourist visa and you intend to return to Australia after your time away overseas.

Therefore, you will be a resident of Australia unless the Commissioner considers you have established a permanent place of abode outside of 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.

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.

Paragraph 23 of Taxation Ruling IT 2650 Residency - Permanent place of abode outside Australia 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.

The Commissioner is not satisfied that you have a permanent place of abode outside Australia because:

· since you left Australia you have spent most of your time in country X, however you have also travelled to other places and returned to Australia for a visit;

· you worked in country X for Y months ending in a recent year and you are now looking for another job. You have had no continuity of employment;

· although you have rented another residence in country X after your first lease, you may continue travelling which means the residence may be more of a base than a permanent place of abode;

· your financial ties to Australia are stronger than those with country X as evidenced by your residence, investments and bank accounts;

· you have friends living in your residence in Australia on an informal basis which means you may be able to move back in whenever you wish. There is no formal lease arrangement in place and you can not be said to have abandoned your residence in Australia; and

· although you may spend some years overseas, the other factors above outweigh this aspect.

As the Commissioner is not satisfied that you have established a permanent place of abode outside Australia you are a resident of Australia under the domicile test.

Your residency status

As the Commissioner is satisfied that you are a resident of Australia under the domicile test of residency there is no need to examine the remaining tests.

As you are domiciled in Australia, and the Commissioner is satisfied that you do not have a permanent place of abode outside Australia, you are a resident of Australia for income tax purposes.

Foreign income

Australian residents are taxed on their world wide income, that is, the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

You are required to declare your income both in and out of Australia in your Australian tax return.

Section 23AG of the Income Tax Assessment Act 1936 exempts certain foreign salary and wage income from tax in Australia. The income must be from specified types of employment.

Subsection 23AG(1AA) of the ITAA 1936 provides that foreign earnings are not exempt from tax unless the continuous period of foreign service is directly attributable to any of the following:

· the delivery of Australian official development assistance by the taxpayer's employer (generally provided by AusAID or the Department of Foreign Affairs and Trade);

· the activities of the taxpayer's employer in operating a public fund covered by the deductible gift recipient categories overseas aid fund and developed country disaster relief fund;

· the activities of the taxpayer's employer whether they are a charitable institution or religious institution which is income tax exempt because they are a prescribed institution located outside Australia or pursuing objectives principally outside Australia;

· the taxpayer's deployment outside Australia as a member of a disciplined force of Australia (generally considered to be the Australian Defence Force or Australian Federal Police); or

· an activity of a kind specified in the regulations.

You advised that your foreign employment did not fall within any of the above categories listed above.

Therefore, your foreign income is assessable in Australia and you are required to lodge a tax return in Australia. You may, however, be entitled to a foreign income tax offset for the foreign tax you paid overseas.

For further information regarding residency and working overseas as a resident of Australia please refer to a range of information on our website www.ato.gov.au