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Ruling

Subject: Residency and double tax agreements

Questions and answers:

1. Are you a resident of Australia for income tax purposes?

No.

2. Is the employment income received after leaving Australia assessable in Australia?

No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You are a country T citizen.

You were a resident of Australia for tax purposes.

You departed Australia to join your spouse in country Y.

You intend to reside in country Y with your family for the foreseeable future.

You and your husband have a permanent place to live in country Y.

You have bank accounts in country Y.

You have a bank account in Australia.

After departing Australia you were a resident of country Y for country Y tax purposes.

You do not have any sporting ties in Australia and your only social ties are those with your distant relatives.

You do not have any sporting ties in country Y and your only social ties your spouse's relatives.

You and your spouse have never been Commonwealth Government of Australia employees.

Relevant legislative provisions

Income Tax Assessment Act 1997, Subsection 995-1(1)

Income Tax Assessment Act 1936, Subsection 6(1)

Reasons for decision

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

· 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.

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 satisfy 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'.

Taxation Ruling IT 2650: Residency - Permanent Place of Abode Outside Australia, provides guidelines for determining whether individuals who leave Australia temporarily to live overseas, for example, on temporary overseas work assignments or on overseas study leave, cease to be Australian residents for income tax purposes during their overseas stay.

The principles and guidelines adopted in IT 2650 can also be used for individuals who intend to reside overseas indefinitely. Paragraph 19 of IT 2650 states:

The first question to be asked in considering the residency status of a person temporarily leaving Australia is whether he or she can be considered to reside in Australia. If the test of residence according to ordinary concepts is satisfied, there is no need to go any further. The person is a resident of Australia for income tax purposes.

In your case, you left Australia to live in country Y for an indefinite period. As you are living in country Y, you are not residing in Australia and so are not a resident for taxation purposes under the 'resides test'.

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'. In order to show that an individual's domicile of choice has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country.  From the information that you have provided, you have not demonstrated an intention to become a citizen of country Y. Your country of origin was country T and there is not enough information in your application to determine if you made Australia your domicile of choice.

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 you intend to live for the rest your life.  An intention to return to Australia in the foreseeable future to live does not prevent you in the meantime setting up a permanent place of abode elsewhere.

You have stated that you have a permanent place to live in country Y, therefore you have a permanent place of abode outside Australia.

Accordingly, even if you have an Australian domicile, as you have a permanent place of abode outside Australia you are not a resident for taxation purposes under the domicile test.

The 183-day test

Where a person is present in Australia for more than183 days during the year of income the person will be a resident, 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.

This test does not apply for the period after you left Australia.

The Superannuation test

An individual is considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Service Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person.  Generally Commonwealth Government employees are eligible to contribute to the PSS or CSS.

As you are over the age of 16 years and have not, or have you ever been a member of a CSS or PSS you are not considered to be a resident of Australia under this test.

Accordingly, you are not a resident of Australia under 'The Superannuation Test'.

Your residency status

As you are not a resident of Australia under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, you are not an Australian resident for income tax purposes.

Employment income

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The country Y Agreement is listed in section 5 of the Agreements Act.

The country Y agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The country Y agreement operates to avoid the double taxation of income received by residents of Australia and country Y.

Article 15 of the country Y agreement advises that salaries, wages and other similar remuneration derived by a resident of country Y shall be taxable only in country Y unless the employment is exercised in Australia. If the employment is exercised in Australia then the income may also be taxed in Australia.

As you are a resident of country Y and you performed the work outside Australia, the employment income derived after you departed is not assessable in Australia.