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Ruling

Subject: Residency

Question and answer

Will you be a resident of Australia for taxation purposes for the duration of your stay overseas?

Yes.

This ruling applies for the following periods:

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

You are currently a resident of Australia for taxation purposes.

You are a citizen of Australia.

You were born in an overseas country.

You intend to go overseas to work.

You will have a work contract which can be extended.

You intend to be overseas for X months of each year and return to your spouse for Y months of each year.

You intend to rent a property overseas.

Your spouse will remain in your family home in Australia.

Your spouse does not work.

Relevant legislative provisions:

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Section 6-5

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

Reasons for decision

Generally where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source.

The terms 'resident' and 'resident of Australia', in regard to an individual, are defined within the tax provisions and there are four tests to ascertain the residency status.

These tests are:

· the resides test

· the domicile test

· the 183 day test

· the superannuation test

Relevant to your situation are the first two tests which are examined in detail in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia. In examining these tests, IT 2650 provides a number of factors which assist in assessing a taxpayer's situation against the tests. A copy of this ruling is available from www.ato.gov.au.

Taxation Ruling IT 2650 emphasises the intended and actual length of the individual's stay in an overseas country, any intention to return to Australia or travel elsewhere, the establishment or abandonment of any residence, and the durability of association that the individual maintains with a particular place in Australia as the main factors to be considered when determining the residency status of individuals leaving Australia.

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. However, where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be an Australian resident for tax purposes if they satisfy the conditions of one of the three other 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'.

In the recent case of Iyengar v FCT 2011 ATC 10-222, the Administrative Appeals Tribunal held that the taxpayer was a resident of Australia, even though he was working overseas. The taxpayer's family ties, his intention (to complete his contract) and motive (to pay off his mortgage), and his maintaining an Australian place of abode while working overseas, were all indicative that he was an Australian resident during the relevant period.

In your case you intend to go overseas to work. The work contract is for a number of years and can be extended.

Your spouse will remain in Australia in your family home. Your spouse does not work.

You are residing in Australia according to ordinary concepts and you are choosing to work outside Australia rather than within Australia.

You are a resident under this test.

The domicile test

There are essentially 3 types of domicile that an individual can have:

· the domicile of origin;

· the domicile of choice; and

· The domicile of dependency.

Basically, the domicile of origin of an individual is where the individual was born. 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. In relation to domicile of dependency, such a domicile will normally only exist in relation to minors or individuals who are of unsound mind.

You were born overseas and you are a citizen of Australia.

Your domicile of choice is therefore Australia.

As your domicile is Australia, you will be a resident of Australia for tax purposes unless the Commissioner is satisfied that you have 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.

In your case the Commissioner is not satisfied that you have a permanent place of abode outside of Australia because:

· Your spouse will be in Australia

· You will maintain your home in Australia

· You will rent accommodation overseas

Your ties with Australia will be stronger than those of the overseas country.

Although you will be working overseas for X months of the year and returning to Australia for Y months a year your personal ties are closer to Australia because your spouse is remaining in Australia and you will maintain your home in Australia.

Therefore, you are a resident of Australia under this test.

As you are a resident of Australia for taxation purposes under the resides and domicile test there is no need to look at the 183 day and superannuation tests.

Your residency status

You are a resident of Australia for taxation purposes for the period you are working overseas.

As a resident of Australia for taxation purposes you are required to declare all your income both in and out of Australia in your Australian tax return.

Foreign income tax offset

If you have assessable income from overseas, you must declare it in your Australian income tax return. If you have paid foreign tax in another country, you may be entitled to an Australian foreign income tax offset (FITO), which provides relief from double taxation.

The FITO rules apply for income years that start on or after 1 July 2008. Different rules apply for income periods up to 30 June 2008.

To qualify for a FITO you must meet all of the following criteria:

· you must have paid the foreign tax on the foreign income,

· the foreign tax must be a tax which you were personally liable for, and

· the income or gain that the foreign tax was paid must be included in your assessable income for Australian income tax purposes.

The FITO is a non-refundable tax offset. The FITO is applied to your income tax liability including the Medicare levy and the Medicare levy surcharge where applicable. Any excess is not refunded to you.

If you are claiming an offset of $1,000 or less, you only need to record the actual amount of foreign income tax paid on your assessable income (up to $1,000).

If you are claiming a FITO of more than $1,000, you will first need to work out your FITO limit. The FITO that can be claimed is limited to the lesser of foreign income tax paid and the FITO limit.

The limit is the amount of Australian income tax payable on that foreign income. The Medicare levy and the Medicare levy surcharge are included in calculating the FITO.

The difference between the foreign income tax paid and the FITO limit cannot be refunded or carried over to a future income year.