Edited version of your private ruling

Authorisation Number: 1012585037483

Ruling

Subject: Residency - reside overseas for a period of 12 months

Question:

Are you an Australian resident for taxation purposes for the period that you are overseas?

Answer:

Yes.

This ruling applies for the following period(s)

Year ending 30 June 2015

The scheme commences on

1 July 2014

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.

This year you are taking your family to reside in an overseas country for a period of 12 months to take advantage of the cheaper property rental rates.

You will be applying for a business 12 month visa which allows you to stay longer than a tourist visa allows.

You do not have any employment as yet but you will endeavour to find some part-time work to help pay the bills.

You and your family's main source of income whilst in the overseas country will be from the rent you receive from renting out your main residence and income from your part ownership interest in an investment property.

Your children will be attending an Australian School via distance education.

You and your family will be returning to Australia no later than early February 2015.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Division 770

International Tax Agreements Act 1953 Schedule 38

International Tax Agreement Act 1953 Schedule 38, Article 15(1)

International Tax Agreement Act 1953 Schedule 38, Article 15(2)

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

The definition of a resident of Australia in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides four tests to ascertain whether a taxpayer is an Australian resident. These tests are the:

(1) residence according to ordinary concepts test

(2) domicile and permanent place of abode test

(3) 183 day test, and

(4) Commonwealth superannuation fund 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. If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established.

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'.

As you are residing outside of Australia, you are not considered to be residing in Australia.

Taxation Ruling IT 2650 considers the domicile and permanent place of abode test.

Domicile

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

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

In your case, you are going to an overseas country for a period of 12 months on a 12 month business visa. You have no intention to make your home indefinitely in the overseas country. Therefore, you are considered to have maintained your Australian domicile.

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, you and your family will reside in the overseas country for a period of 12 months in rented accommodation and your children will be attending an Australian school via distance education.

Based on the above facts, it is therefore considered that you will not be establishing a permanent place of abode outside of Australia.  As you are maintaining your Australian domicile and you have not satisfied the Commissioner that you have a permanent place of abode outside of Australia, you are considered to be a resident of Australia for tax purposes under this test.

Your residency status

As you are deemed to be a resident of Australia under the domicile test of residency there is no need to examine the remaining tests.

Therefore, you will continue to be a resident of Australia for tax purposes during the period that you are in the overseas country.

Assessability of foreign source income

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Salary and wages are ordinary income.

Therefore, as a resident of Australia for taxation purposes your foreign sourced income is assessable in Australia.

International Tax Agreement - the foreign country agreement

Schedule 38 of the International Tax Agreements Act 1953 (Agreements Act) contains the double tax agreement between Australia and the relevant foreign country. Schedule 38A of the Agreements Act contains the exchange of notes amending the foreign country agreement (Exchange of Notes). The foreign country agreement and the Exchange of Notes operate to avoid the double taxation of income received by Australian and the foreign country residents.  

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

Temporary visits are dealt with in Article 15(2) of the foreign country agreement which provides that remuneration derived by a resident of Australia in respect of employment exercised in the foreign country shall be taxable only in Australia if:  

• the taxpayer is present in the foreign country for a period or periods not exceeding in the aggregate 183 days in the foreign country's year of income;

• the remuneration is paid by, or on behalf of, an employer who is not a resident of the foreign country;

• the remuneration is not deductible in determining the taxable profits of a permanent establishment or fixed base that the employer has in the foreign country; and

• the remuneration is, or upon the application of the Article, will be subject to tax in Australia

Foreign Tax Credits

If you receive foreign income that is taxable in Australia and you paid foreign tax for which you were personally liable in respect of that income, you may be entitled to a foreign tax credit.

Division 770 of the ITAA 1997 provides for the allowances of foreign tax credits where certain conditions are met. The credit allowable is the lesser of: 

• the foreign tax paid, or

• the Australian tax payable in respect of the foreign income. 

Further information on foreign tax credits is available on our website at www.ato.gov.au.