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Ruling

Subject: Residency for tax purposes

Question and answer

Are you a resident of Australia for taxation purposes for the period you are working in overseas?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commenced on:

1 July 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You were born in Australia and are a citizen of Australia.

You have a X year work contract overseas.

You will return to Australia at the end of your work contract.

Your spouse and children joined you overseas.

Your spouse and children will return to Australia prior to the end of your contract.

You have no assets overseas.

You have a house and bank accounts in Australia.

You live in employer provided accommodation overseas.

Your house is being rented out for the duration of your stay overseas.

Your family has social and sporting connections where you are living.

Neither you nor your spouse are currently or have ever been Commonwealth Government employees.

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'.

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.

In your case you have only gone overseas for work purposes.

You do not intend to live overseas on a permanent basis.

Your family has accompanied you overseas.

Your work contract is for X years.

You are renting your home out while overseas and your employer is providing accommodation for you overseas.

You are not residing in Australia according to ordinary concepts and therefore are not 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 in Australia and you are a citizen of Australia.

Your domicile of origin is therefore Australia.

You have not proven an intention for your domicile to be anywhere else other than 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:

· You intend to return to Australia at the end of your contract.

· You have only gone overseas for work

· You live in employer provided accommodation overseas

· You have no assets overseas

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

As you are a resident of Australia for taxation purposes under the 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.

ATO view documents

Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia

Keywords

Residency

Working overseas