Edited version of your private ruling

Authorisation Number: 1012573652161

Ruling

Subjects: Residency for tax purposes and an employment termination payment

Questions and answers

Were you a resident of Australia for taxation purposes for the period?

No.

Does section 83-235 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to an employment termination payment made to you in consequence of the termination of your employment overseas?

Yes

This ruling applies for the following periods:

Year ended 30 June 1998

Year ended 30 June 1999

Year ended 30 June 2000

Year ended 30 June 2001

Year ended 30 June 2002

Year ended 30 June 2003

Year ended 30 June 2004

Year ended 30 June 2005

Year ended 30 June 2006

Year ended 30 June 2007

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commenced on:

1 July 1997

Relevant facts and circumstances

You were born in Australia.

You have dual citizenship with Australia and Country Y.

You went to Country Y a number of years ago.

You went to Country Y to live and work. You did not have anywhere in Australia to live when you were living in Country Y (other than your parents' home).

You held a work permit and a working visa for the years you were living outside Australia.

You formed the intention to reside indefinitely in Country Y. You applied for and held indefinite leave to remain in Country Y and then later Country Y citizenship.

You held a number of jobs in Country Y.

You rented a number of apartments in Country Y.

You established a company of which were the sole director and shareholder.

You did work for this company in Country Z.

You travelled from Country Y to Country Z to carry out this work.

During the time you were in Country Z you stayed in short term accommodation. You terminated your lease in Country Y during this time.

While living and working in Country Y you returned to Australia annually for visits and made some short business trips to Australia.

During the time you were in Country Y you did not spend more than 183 days in any financial year in Australia.

You had a bank account, shares acquired under an employee share scheme and super fund in Country Y.

You had a small super fund in Australia along with a bank account.

You decided to return to Australia to live and work recently.

You have never been a Commonwealth Government employee.

You are over the age of 16.

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)

Income Tax Assessment Act 1997 Section 83-235

Income Tax Assessment Act 1997 Paragraph 83-235(a)

Income Tax Assessment Act 1997 Paragraph 83-235(b)

Income Tax Assessment Act 1997 Paragraph 83-235(c)

Income Tax Assessment Act 1997 Paragraph 83-235(d)

Reasons for decision

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

· 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 a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.

The resides (ordinary concepts) test

The outcomes of several Administrative Appeals Tribunal (AAT) cases have determined that the word 'resides' should be given the widest meaning and there have been a number of factors identified which can assist in determining if a particular taxpayer is a resident of Australia under this test.

Recent case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the 'resides' test:

(i) Physical presence in Australia

(ii) Nationality

(iii) History of residence and movements

(iv) Habits and "mode of life"

(v) Frequency, regularity and duration of visits to Australia

(vi) Purpose of visits to or absences from Australia

(vii) Family and business ties to different countries

(viii) Maintenance of Place of abode.

These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals Taxation Ruling IT 2650 Income tax: residency - permanent place of abode outside Australia and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.

It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances.

i) You left Australia to live and work in Country Y. After a while, you decided to remain indefinitely in Country Y.

ii) You were born in Australia and are a citizen of Australia. You became a Country Y citizen.

iii) You went to Country Y to live and work. You came back to Australia to live.

iv) You worked in Country Y for a couple of employers in the period prior to you returning to live in Australia. You rented accommodation in Country Y.

v) During the time you were in Country Y, you did not exceed 183 days in Australia in any one financial year. You came back to Australia to visit family and friends and for a couple of short business trips.

vi) As per v)

vii) Your parents remained in Australia. You had employers in Country Y.

viii) You had no place to live in Australia (other than your parents' place)

You were not residing in Australia according to ordinary concepts.

The domicile test

If a person has their domicile in Australia they will be an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

Your domicile of origin is generally your country of birth. In order to show that a new domicile of choice in a country outside of the country of birth has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country.

Your domicile of origin is Australia. From the date of your Country Y citizenship, your domicile of choice was Country Y. Prior to that date, your citizenship had not changed and you had not applied for permanent residency in another country, so it is considered that your domicile of origin remained unchanged (that is, your domicile was Australia).

As you still had an Australian domicile prior to that date, it is necessary to consider whether you had a permanent place of abode outside Australia for this period.

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.

The Commissioner is satisfied that you set up a permanent place of abode outside Australia for the period prior to obtaining Country Y citizenship for the following reasons:

· you went to Country Y to live and work

· you lived in rented apartments in Country Y

· you were employed in Country Y almost continuously.

You are not a resident under this test.

The 183-day test

Where a person is present in Australia for 183 days or more 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.

You did not exceed 183 days in Australia in any financial year during the period you were in Country Y.

You are not a resident under this test.

The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the PSS or the CSS, or that person is the spouse or child under 16 of such a person. To be eligible to contribute to those schemes, you must be or have been a Commonwealth Government employee.

You have never been a Commonwealth Government employee and you are over the age of 16.

You are not a resident under this test.

Your residency status

You were not a resident of Australia for taxation purposes for the period you were living and working in Country Y.

Employment termination payment

Foreign termination payments are governed by Subdivision 83-D of the Income Tax Assessment Act 1997 (ITAA 1997). There are two types of foreign termination payments covered by Subdivision 83-D:

· Termination payments relating to a period when the taxpayer was not an Australian resident, and

· Termination payments relating to a period when the taxpayer was an Australian resident.

Termination payment foreign resident period

Section 83-235 of the ITAA 1997 is the operative provision in respect of termination payments relating to a period when the taxpayer was not an Australian resident. It states:

A payment received by you is not assessable income and is not exempt income if:

(a) it was received in consequence of the termination of your employment in a foreign country; and

(b) it is not a superannuation benefit; and

(c) it is not a payment of a pension or an annuity (whether or not the payment is a superannuation benefit); and

(d) It relates only to a period of employment when you were not an Australian resident.

In your case, you received an employment termination payment in relation to your employment in Country Y. You were not a resident of Australia for tax purposes from xxx to xxx. Therefore, the payment relates solely to a period of employment when you were not an Australian resident.

Further, the payment is not a superannuation benefit or payment of a pension or annuity.

Consequently, the payment you received is a foreign termination payment under section 83-235 of the ITAA 1997 and is not assessable income and is not exempt income.