Edited version of private advice

Authorisation Number: 1012677613502

Ruling

Subject: Residency and assessability of postdoctoral research fellowship income

Questions and answers:

1. Will you be a resident of Australia for taxation purposes while undertaking a postdoctoral Fellowship in another country?

Yes.

2. Is the financial support you receive while undertaking a postdoctoral Fellowship in another country included in your assessable income in Australia?

Yes.

This ruling applies for the following period:

1 July 2013 to 30 June 2016.

The scheme commenced on:

The scheme has commenced

Relevant facts and circumstances:

You were born in country A.

You have been an Australian citizen for several years.

You have a spouse and a child (your family).

You have been awarded a Fellowship to do postdoctoral research in country B.

The Fellowship requires you to conduct research in country B for X months.

You left Australia to take up the Fellowship.

You will return to Australia at the end of the Fellowship.

You have rented accommodation in country B.

You do not intend to reside overseas permanently.

Your family have remained in Australia.

Your assets in Australia are more significant than they are in country B and include a home and a car.

You will be paid a monthly allowance for living expenses for the duration of the Fellowship.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 995-1(1)

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

Assessability of income in Australia - general concept

In Australia, income is classified for taxation purposes either as ordinary or statutory income and will generally be assessable unless a provision of the tax law provides otherwise.

The general concept is that an individual who is a resident of Australia for taxation purposes is assessable in Australia on all the ordinary and statutory income they receive from all sources, in or out of Australia, during the financial year.

Conversely, an individual who is a non-resident of Australia for income tax purposes is only assessable in Australia on the ordinary and statutory income they receive from Australian sources.

Ordinary income includes receipts such as salary and wages and some allowances, as well as other similar payments that can be said to have a degree of regularity about them and upon which an individual may rely.

We consider that the monthly allowance you will be paid during the Fellowship constitutes ordinary income for the purpose of Australian tax law.

This position is supported by Class Ruling CR 2003/26 Income tax: CSIRO funded Studentships and Scholarships which notes that relocation, maintenance and travelling allowances paid to recipients of CSIRO Studentships are forms of ordinary income.

Although the allowance will be ordinary income for the purposes of Australian tax law, whether or it will be assessable in Australia depends on whether or not you will be a resident of Australia for taxation purposes during the period of the Fellowship.

Residency for taxation purposes

Australian tax law 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.

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

The primary test is the resides test. 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 any of the remaining 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'.

The Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01 defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

You will live outside of Australia for two years. During that time you will not be residing in Australia according to the ordinary meaning of the word 'reside'. Accordingly, you will not be a resident of Australia for taxation purposes under the resides test for the period.

The domicile test

Under this test, a person with an Australian domicile is considered to be a resident of Australia for taxation purposes, unless the Commissioner is satisfied the person's permanent place of abode is outside Australia.

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. A person's domicile of origin will not usually change unless it can be shown a person has acquired a new domicile by choice.

Taxation Ruling IT 2650 - Income tax: residency - permanent place of abode outside Australia notes that the test for determining whether or not a person has acquired a new domicile by choice is whether or not the person has an intention to make their home indefinitely in a country outside their domicile of origin. It is generally accepted that individuals who seek citizenship of a country outside of their country of birth do so with an intention to make their home indefinitely in the country the citizenship is being sought and therefore acquire a new domicile in that country by choice.

Taxation Ruling IT 2650 specifies that a person with an Australian domicile who is living outside Australia will retain their Australian domicile if they intend to return to Australia on a 'clearly foreseen and reasonably anticipated contingency' - at the end of a specific period of overseas employment for example.

Although your domicile of origin was Country A, Australia became your new domicile by choice when you became an Australian citizen. Because you have stated that you do not intend to reside overseas permanently and will return to Australia at the end of the Fellowship, we consider you will retain your Australian domicile throughout the period of the Fellowship.

Because you will retain your Australian domicile, if the Commissioner is not satisfied your permanent place of abode is outside Australia throughout the period of the Fellowship, you will be a resident of Australia for taxation purposes under this test during that time.

IT 2650 states that a person's place of abode is that person's dwelling place or the physical surroundings in which a person lives.

The word 'permanent' in the context of this test of residency is not taken to mean everlasting or forever but is used in the sense of being contrasted with an abode that would be considered temporary or transitory in nature, rather than permanent. In this regard, Taxation Ruling IT 2650 notes that:

• Generally speaking, an overseas stay for a period of less than two years is considered temporary or transitory and a taxpayer may not be considered to have established a permanent place of abode outside Australia in those circumstances.

• A period of two years or more living in a country where a taxpayer had established a home may be regarded as being substantial enough to conclude the taxpayer had established a permanent place of abode outside Australia.

Notwithstanding the above, a period of time, regardless of whether it is greater or less than two years, is not conclusive in its own right in determining whether or not a permanent place of abode was established in an overseas location.

As noted in IT 2650, a number of factors require consideration to properly determine whether or not a permanent place of abode was (or will be) established overseas during an absence from Australia. These factors are identified in IT 2650 as:

(a) the intended and actual length of the taxpayer's stay in the overseas country,

(b) whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time,

(c) whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia,

(d) whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence,

(e) the duration and continuity of the taxpayer's presence in the overseas country, and

(f) the durability of association that the person has with a particular place.

Having considered the facts of your case, and noting that IT 2650 specifies that while no single factor is decisive, greater weight should be given to factors (c), (e) and (f) than to the other factors identified above, the Commissioner is not satisfied that you will establish a permanent place of abode in country B during the period of the Fellowship. In particular, we note that:

• You have a place of abode in country B in the form of the rented accommodation you are occupying. However, the duration of your stay in country B will be two years, essentially on the border of what might generally be considered temporary, as opposed to permanent. As a consequence, and also considering the fact that you have stated you will return to Australia at the conclusion of the Fellowship, we consider it proper for the purposes of this test of residency to classify your place of abode in country B as a temporary, rather than a permanent place of abode.

• To support that conclusion, we note that despite the fact that you will be overseas for two years, your family have chosen to remain in Australia during your absence. This strongly supports the conclusion that although you will be living in country B for two years, your durability of association is greater with Australia than it is with country B.

• The conclusion that your durability of association with Australia is greater than it is with country B is further supported by the facts that your assets in Australia are more significant than your assets in Country B.

• Whilst it can be said that you have abandoned your Australian home for the period you are in country B (noting your home has been rented out for the period you will be away and your family have moved to live in rental accommodation in another part of Australia), we do not consider this fact is sufficient to outweigh the fact that you will quite clearly have a greater strength of association with Australia that with country B during the Fellowship.

Considering the above, you will be a resident of Australia for taxation purposes under the domicile test for the period of time you are in country B. As you will be a resident for taxation purposes under this test, there is no need to consider the application of the remaining two tests of residency to your circumstances.

Conclusion

You will be a resident of Australia for taxation purposes during the two year period you are in country B for the Fellowship. As such, your assessable income in Australia will include the monthly allowance that you receive as financial assistance during the Fellowship.