| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012522233510
Ruling
Subject: Residency
Questions and answers:
1. Will you be a resident of Australia for taxation purposes when you take up an employment contract with an employer in country X?
Yes
2. Will the employment income you derive in country X be taxable in Australia?
No.
3. Will you be entitled to a foreign income tax offset for foreign tax paid on the employment income you derive in country X?
No.
This ruling applies for the following periods
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commenced on
1 July 2013
Relevant facts and circumstances
You country of origin is Australia and you are an Australian citizen.
You are looking to take up an employment contract with an employer in country X.
The employer is a resident of country X.
You will have country X tax deducted from your salary.
You will have a working visa to allow you to work in country X.
You will have a work cycle of four weeks on and two weeks off.
During the work cycle you will be based in country X and your work will also take you to other countries including Australia.
During the work cycle your employer will provide you with hotel accommodation.
During the off cycle you will generally be living in your house in Australia.
You consider that you will be living in Australia during your employment contract.
You have never been employed by the Australian commonwealth government.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1936 Subsection 6(1)
International Tax Agreements Act 1953
Reasons for decision
Residency
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. 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 your situation, you are looking to take up an employment contract in country X and will have a work cycle of four weeks on and two weeks off. During the work cycle you will either be working or staying in transitory hotel accommodation. During the off cycle you will generally live in your house in Australia.
Based on the information provided, you will be residing in Australia according to the ordinary meaning of the word while you are working in country X.
Therefore, you will be a resident of Australia for taxation purposes under the resides test of residency.
As you are a resident under this test, it is not necessary to determine whether you meet the requirements of the other three tests of residency.
As you are a resident of Australia, according to section 6-5 of the ITAA 1997, your assessable income includes income gained from all sources, whether in or out of Australia.
Assessability of country X 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 Agreement with country X is listed in section 5 of the Agreements Act.
The country X Agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The Agreement operates to avoid the double taxation of income received by residents of Australia and country X.
An Article of the country X Agreement specifies that salaries, wages and similar remuneration derived by an individual who is a resident of Australia in respect of employment carried out in country X may be taxed in country X.
Further, remuneration derived in respect of employment exercised in international traffic for an enterprise of either country X or Australia, will be taxable only in the country of which the enterprise is a resident.
In your case, you are an Australian resident who will carry out employment in country X. Your employment will also be exercised in international traffic by an enterprise of country X which is a resident of country X.
Therefore, your country X employment income will be taxable only in country X and will not be assessable income for Australian income tax purposes.
Foreign income tax offset
Where you have paid both Australian tax and foreign tax in another country, you may be entitled to an Australian foreign income tax offset (FITO), which provides relief from double taxation.
To entitled to a FITO:
· you must have actually paid or be deemed to have paid an amount of foreign income tax, and
· the income that the foreign tax was paid on must be included in your assessable income for Australian income tax purposes.
As stated above, your country X employment income will be taxable only in country X and will not be included in your assessable income for Australian income tax purposes.
Therefore, you will not be entitled to a FITO as your income will only be taxed in country X and will not be subject to double taxation.
Summary
You will be a resident of Australia for taxation purposes; however, your country X employment income will only be taxed in country X and will not have to be included in your Australian income tax return. You will not need to claim a FITO as your employment income will not be subject to double taxation.