Edited version of your private ruling

Authorisation Number: 1012449021703

Ruling

Subject: Residency for tax purposes

Questions and answers

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

No.

2. Is your Australian employment income assessable in Australia?

Yes.

3. Are you entitled to a deduction for your travel expenses to and from your home in Country A and your place of work in Australia?

No.

This ruling applies for the following periods:

Year ending 30 June 2013

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

You are a citizen of Country X.

Your country of origin is Country X.

You live with your spouse and children in Country X

You are employed by an Australian based company.

You work in Australia on a fly in, fly out basis, returning to your home in Country X when you are not working.

You spend over 190 days in Australia each income year.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that 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 in subsection 6(1) of the Income Tax Assessment Act 1936 (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.

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. 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'.

Although the question of whether a person resides in a particular country is a question of fact, the courts have referred to and taken into account various factors considered to be relevant. These are:

· whether the person is physically present in that country at some time during the year of income

· the history of the person's residence and movements

· if the person is a visitor to the country, the frequency, regularity, duration and purpose of the visits

· if the person is outside the country for part of the relevant income year, the purpose of the absences

· the family and business ties which the person has with the particular country, and

· whether a place of abode is maintained by the person in the relevant country or is available for his or her use while there.

Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia 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 are in Australia for work purposes only.

· You have dual citizenship in both Country X and Australia.

· You work as a fly in/fly out employee.

· You return to Country X after each working period.

· Your family does not accompany you to Australia.

· You maintain your home in Country X.

· When in Australia, you stay in short term accommodation.

· Your accommodation is provided by your employer.

· You are in Australia solely for the purposes of your employment.

Your behaviour over the time spent in Australia does not reflect a degree of continuity, routine or habit that is consistent with residing in Australia, as you are in Australia for work purposes only.

You are not residing in Australia according to the ordinary meaning of the word.

Therefore, you are not a resident of Australia under this test.

The three statutory tests of residency must now be considered.

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 is a legal concept, determined according to the Domicile Act 1982 and common law rules established by private international law cases.

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

Your domicile is Country X as your country of origin is Country X. While you are a dual citizen of Country X and Australia, you have taken no action to establish a domicile in Australia. Therefore, you are not a resident of Australia under this test.

The 183 day test

Under the 183 day test, a person is a resident of Australia if they are actually physically present in Australia for more than 183 days in an income year unless the Commissioner is satisfied that their usual place of abode is outside of Australia and they have no intention of taking up residence here.

In your case, although you are in Australia for more than 183 days in an income year, the Commissioner is satisfied that your usual place of abode is outside of Australia and you have shown no intention of taking up residence here.

Therefore, you are not a resident of Australia under this test.

The superannuation test

A person will be considered a resident under the Commonwealth superannuation fund test if they currently contribute to certain superannuation funds for Commonwealth government employees. The eligible funds are funds:

· established under the Superannuation Act 1976 (such as the Commonwealth Superannuation Scheme), or

· established under the Superannuation Act 1990 (such as the Public Sector Superannuation Scheme), or

· the spouse or child under 16 of a person covered by either of the above funds.

As you have never been an Australian Commonwealth government employee and therefore you are not able to contribute to the abovementioned superannuation schemes and are not a resident of Australia under this test.

Your residency status

As you do not meet any of the above tests, you are not a resident of Australia for tax purposes.

As you are not a resident of Australia, according to section 6-5 of the ITAA 1997, your assessable income only includes income gained from sources in Australia.

Assessability of employment income

Salary and wages are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997. Allowances are statutory income assessable under paragraph 26(e) of the ITAA 1936.

In determining liability to tax on Australian sourced income received by a non resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the ITAA 1997 so that those Acts are read as one.

Schedule 4 to the Agreements Act contains the double tax agreement between Australia and Country X (the Country X Agreement). The Country X Agreement operates to avoid the double taxation of income received by Australian and Country X residents.

Article 15(1) of the Country X Agreement provides that salary and wages and other similar remuneration derived by an individual who is a resident of Country X in respect of employment will be taxable only in Country X unless the employment is exercised in Australia. If the employment is exercised in Australia, the remuneration may be taxed in Australia.

However, Article 15(2) of the Country X Agreement provides that remuneration derived by a Country X resident individual taxpayer in respect of an employment exercised in Australia will be taxable only in Country X if:

- the taxpayer is present in Australia for a period or periods not exceeding in the aggregate 183 days in any 12 month period commencing or ending in the year of income

- the remuneration is paid by, or on behalf of, an employer who is not a resident of Australia the remuneration is not deductible in determining the taxable profits of a permanent establishment or fixed base which the employer has in Australia, and

- the remuneration is, or upon application of Article 15 of the Country X Agreement will be, subject to tax in Country X.

In your case, your employment was exercised in Australia and you spend over 183 days in any year in Australia. Therefore your Australian employment income will be assessable in Australia. Article 15(2) of the Country X Agreement will not apply to limit taxation to Country X only as your remuneration is paid by an Australian resident employer.

Deductibility of travel expenses

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

Certain expenditure is incurred in order to be in a position to be able to earn assessable income, for example unless you arrive at work it is not possible to earn income. This does not mean that the expenditure is incurred in the course of gaining or producing assessable income. Rather, the expenses are incurred to enable you to commence income earning activities (Federal Commissioner of Taxation v. Lunney (1958) 100 CLR 478; (1958) 11 ATD 404).

A person who is travelling to commence employment duties at a new work location is not travelling on duty. The employment duties do not commence until the employee reports for work at the new location.

In your case you are not entitled to a deduction for the cost of the air fares to and from Country X as they are private in nature.

Therefore, you are not entitled to a deduction for your travel expenses to and from your home in Country X and your place of work in Australia.