Edited version of your private ruling

Authorisation Number: 1012605039961

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for taxation purposes for the period you are in Country Y?

Answer

Yes

Question 2

Are you entitled to a foreign tax offset for income tax paid in Country Y?

Answer

Yes.

Question 3
Are you entitled to a foreign income tax offset for social security tax, health insurance, employment insurance, residence tax and pension contributions paid in Country Y?

Answer

No.

This ruling applies for the following periods

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commences on

1 July 2011

Relevant facts and circumstances

You were born overseas.

You are a citizen of an overseas country.

You are a permanent resident of Australia.

You went to Country Y in to learn the language full-time.

You initially worked part-time in Country Y.

You are currently employed full-time with the same employer.

You intend on returning to Australia.

Prior to going to Country Y you lived and worked in Australia.

You had a student visa initially to enter Country Y as you were studying.

You now have a work visa for country Y.

The work visa is only valid for the duration of your employment or its expiry date September xxxx whichever is the earliest.

You have come back to Australia for a visit since leaving and you will return for another visit.

You rent a flat in Country Y.

You have a bank account in country Y.

You have bank accounts in other overseas countries.

You have a bank account in Australia.

You have no household effects in Australia.

You do not have a spouse or any dependants.

You have never been a Commonwealth government employee.

You are over 16 years of age.

You pay the following taxes in country Y:

• Health insurance

• Residence tax

• Income Tax

• Social security tax

• Employment insurance

• Pension contribution

Reasons for decision

Residency

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' and 'permanent place of abode' test;

• the 183 day test; and

• The Commonwealth superannuation fund test.

If any one of these tests is met, an individual will be a resident of Australia for taxation purposes.

The resides test is the primary test for determining the residency status of an individual for taxation purposes. If residency is established under the resides test, the remaining three tests do not need to be considered. However, if residency is not established under the resides test, an individual will still be a resident of Australia for taxation purposes if they meet the conditions of one of the other three tests.

The resides test

The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'. As the word 'reside' is not defined in Australian taxation law, it takes its ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936.

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'.

In considering the definition of 'reside', the High Court of Australia, in Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 at page 99-100, per Latham CJ, noted the term 'reside' should be given a wide meaning for the purposes of section 6(1) of the ITAA 1936. Similarly, in Subrahmanyam v Commissioner of Taxation 2002 ATC 2303, Deputy President Forgie said at paragraphs 43 and 44 that the widest meaning should be attributed to the word 'reside'.

The question of whether an individual 'resides' in a particular country is a question of fact and degree and not of law. In deciding this question, the courts have consistently referred to and taken into account the following factors as being relevant:

(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 with Australia compared to the foreign country concerned; and

(viii) maintenance of a place of abode.

The weight given to each factor varies with individual circumstances and no single factor is necessarily decisive. In Shand v Federal Commissioner of Taxation 2003 ATC 2080, the Tribunal stated (at 35):

Questions of residence, domicile, permanent place of abode, have frequently been found by the courts and tribunals to be difficult to assess on a factual level and not easy to define in concrete legal terms.

To determine whether or not you are residing in Australia for taxation purposes, it is necessary for us to examine each of these factors in the context of your circumstances.

(i) Physical presence in Australia

(ii) It is important to note that a person does not necessarily cease to be a resident because he or she is physically absent from Australia. In Joachim v Federal Commissioner of Taxation 2002 ATC 2088, the Tribunal stated (at 2090):

Physical presence and intention will coincide for most of the time but few people are always at home. Once a person has established a home in a particular place, even involuntary, a person does not necessarily cease to be resident there because he or she is physically absent. The test is, whether the person has retained a continuity of association with the place, together with an intention to return to that place and an attitude that the place remains home.

Further, in Iyengar v. Federal Commissioner of Taxation 2011 ATC 10-222, (2011) AATA, the Tribunal stated (at 62):

Physical presence in a country for some period during a particular year of income is usually considered by the courts as necessary in order that a person should be resident in that country during that particular income year. However, there have been exceptions to this: Rogers v Inland Revenue Commissioners (1879) 1 TC 225 and Slater v Commissioner of Taxation (NZ) (1949) 9 ATD 1.

You went to Country Y to study and you are now working in Country Y.

You have returned to Australia for visits since leaving Australia.

You intend on returning to Australia to live.

Although you will not be physically present here while you are working in Country Y, this does not preclude you from being an Australian resident as no one single factor is necessarily decisive, as mentioned above.

(ii) Nationality

You were born in an overseas country and you are a citizen of that country.

You are a permanent resident of Australia.

(iii) History of residence and movements

You lived and worked in Australia prior to going to Country Y.

(iv) Habits and 'mode of life'
You have gone to Country Y to study and work.

You have a work visa which allows you to be present in Country Y for the duration of your employment.

You rent a flat in Country Y.

It is considered that you still have a continuing association with Australia which is consistent with someone who is still residing in Australia.

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

You have returned to Australia for visits since leaving and will return again for another visit.

(vi) Purpose of visits to and absence from Australia

The purpose of your presence in Country Y was to study and is now to work.

(vii) Family, business and financial ties

Family

No family members accompanied you to Country Y.

Business or economic

You have employment in Country Y.

Assets

You have a bank account in Australia.

You have bank accounts in overseas countries.

(viii) Maintenance of a place of abode in Australia

You are not maintaining a home in Australia for the period you are working in Country Y.

Summary of the resides test

As mentioned above, the weight given to each factor varies with individual circumstances, no single factor is necessarily decisive and the term 'reside' should be given a wide meaning.

In your case, although you intend to be physically absent from Australia, there are various factors that indicate that you have not ceased to be a resident of Australia. These are primarily:

• you have a restrictive visa whereby your ability to live in Country Y is dependent on your continuing employment;

• you are permanent resident of Australia; and

• you intend on returning to Australia

Based on the above, you will retain a continuity of association with Australia while you are overseas and will be residing in Australia according to the ordinary meaning of the word.

Therefore, you are a resident of Australia under the 'resides' test of residency.

Whilst it is not necessary to meet more than one test to determine residency for tax purposes (we have already established that you are a resident under the resides test), we will also include a discussion of the 'domicile and permanent place of abode' test as an alternative argument.

The domicile test

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.

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. In order to show that an individual's domicile of choice 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 Country Z.

A domicile of choice is adopted when you become a citizen of a new country or apply for permanent residency in a new country.

Your domicile of choice is Australia as you have permanent residency of Australia.

You have not changed your domicile of choice.

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 not satisfied that you have set up a permanent place of abode outside Australia for the following reasons:

• Your visa only allows you to be in Country Y for the duration of your employment.

• You intend on returning to Australia.

Your accommodation, and your overall presence in Country Y is entirely contingent on your ongoing employment, it is considered that your place of abode is temporary in nature and could not be considered to be a permanent place of abode.

You are a resident under this test.

As you meet the resides and domicile tests of residency, you are a resident of Australia for tax purposes.

Foreign income tax offset
Foreign income tax is a tax imposed by a law other than an Australian law, on income profits or gains (subsection 770-15(1) of the ITAA 1997).

In determining the availability of a foreign income tax offset (FITO) it is necessary to consider not only the income tax laws but also any applicable tax treaties contained in the International Tax Agreements Act 1953 (Agreements Act).

Section 4 of the International Tax Agreements Act 1953 incorporates that Act with the Income Tax Assessment Act 1936 (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 Country Y Agreement is listed in section 5 of the Agreements Act.

The Country Y agreement operates to avoid the double taxation of income received by residents of Australia and Country Y.

Article xx (2) of the Country Y Agreement provides that

Subject to the provisions of the law of Australia from time to time in force which relate to the allowance of a credit against Australian tax of tax paid in a country outside Australia (which shall not affect the general principle of this Article), Country y tax paid under the law of Country Y and in accordance with this Agreement, whether directly or by deduction, in respect of income, profits or gains derived by a person who is a resident of Australia from sources in Country Y shall be allowed as a credit against Australian tax payable in respect of that income, profits or gains.

Article 2(1) of the Country Y Agreement identifies the taxes to which the Agreement shall apply. The Country Y tax covered by the Agreement is income tax and corporation tax.

Article 2(2) of the Country Y Agreement states that the Agreement shall also apply to any identical or substantially similar taxes which are imposed by either Australia or Country Y after the date of signature of this Agreement, in addition to existing taxes in place. At the end of each calendar year, the competent authority of each country shall notify the competent authority of the other of any substantial changes made during the year.

In interpreting the wording of the tax treaty, the Commissioner accepts in Taxation Ruling TR 2001/13 that it is appropriate to have reference to the OECD Commentary on the Model Tax Agreement on Income and Capital (Condensed Version 2005) (the OECD Model Commentary).

The OECD Commentary on this paragraph provides that:

• Social security charges or any other charges paid where there is a direct connection between the levy and the individual benefits to be received shall be excluded from the list of taxes covered by the Agreement, and

• It is immaterial on behalf of which authorities such taxes are imposed; it may be the State itself or its political subdivisions or local authorities (constitutes States, regions, provinces, department, cantons, district etc).

Based on the OECD Commentary, the taxes covered by the Country Y Agreement that an Australian resident shall be allowed as a FITO would be income tax. These taxes can be imposed on income at the Federal and the State level.

The social security tax, health insurance, employment insurance, residence tax and pension contributions are not taxes covered by Country Y Agreement, as they are social security charges or any other charges paid where there is connection between the tax or levy and the intended benefits to the individual.

Since you have paid Country Y income tax and your foreign income is assessable in Australia, FITO is available for this tax subject to the FITO limits. All the other taxes and levies paid by you are not eligible for FITO against Australian tax payable as explained above.