Edited version of your written advice

Authorisation Number: 1012724139497

Ruling

Subject: residency

Question and answer

1. Are you a resident of Australia for taxation purposes?

Yes.

2. Are the salary and allowances you receive from your employment in a foreign country assessable in Australia?

Yes.

3. Are you liable to pay Medicare levy and/or Medicare levy surcharge on the salary and allowances you receive from your employment in a foreign country?

Yes.

4. Are you liable to pay to pay the Temporary Budget Repair Levy?

Yes.

This ruling applies for the following periods

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commenced on

1 July 2013

Relevant facts and circumstances

You are a resident of Australia for income tax purposes. You do not consider yourself to be a foreign resident.

You are an Australian citizen.

Your country of origin is overseas.

Prior to your departure, you lived in Australia with your family at your home. Your family (spouse and children) currently lives at this address. Your household effects are still in your home.

You first left Australia and arrived back on for your rest and relaxation (R&R) break and left again. You will have your scheduled R&R break again. You will be in Australia until. You have a return airline ticket to City A; of which you have supplied a copy.

As part of your employment with an aid agency, your employer has provided lodging and accommodation for you in a hotel which is a secured compound in a foreign country. You are a long-term resident of the hotel with permanent room allocated to you.

You do not have assets overseas except for personal belongings and clothing.

You currently have a working visa granted by a foreign country's government. It does not allow you to stay in the country permanently.

You are employed by a foreign company to work on a development project in a foreign country. You have supplied a copy of your current employment contract.

Your employment commenced. The duration of your employment contract to work in a foreign country is a maximum of X months with an option to extend it. You expect your employment to last the full X months.

As part of your employment you are only allowed a maximum of X days of break or absence from employment.

Since starting you have taken only one period of R&R; in Australia.

Aside from your daily rate, you also received or are entitled to allowances.

As an employee you are also covered by private health insurance.

You are provided with accommodation and meals whilst in a foreign country and when you travel on business.

Although the tax law of a foreign country provides for the imposition of income tax on employment income, the project you are working on is an approved aid project which is the equivalent of AusAID; hence, you do not pay tax in a foreign country. There is no tax treaty between Australia and a foreign country.

For the 2013-14 income year, you received the following income in Australia:

• business income

• employment income from part-time contract employment

• rental income

• interest income

• dividend income

You expect to continue receiving rental, interest and dividend income. You might also receive business income from consulting based on demand.

Your spouse also contributes regularly to your superannuation fund.

Your assets in Australia are:

• your family home

• investments properties

• a bank account

• motor vehicles

• shares

• various household effects.

There is currently no position or job being held for you in Australia.

Your spouse and you have made a decision that they will not accompany us firstly because the job offer was for single status only and secondly because of the high risk attendant with the location. As your family is in Australia, you intend returning to Australia. You are just living and working in a foreign country for the aid project.

You do not have any sporting connections with Australia. However, you have social and professional connections which you maintain. These include:

• social connections - friends and relatives

• professional memberships.

You do not have any sporting or social connection in a foreign country.

Your spouse is currently employed by the Commonwealth of Australia Government.

Even though you no longer hold a position with any Commonwealth Government of Australia, you still voluntarily make contribution your super fund. You are not contributing is to a self-managed superannuation fund.

You have not requested the Australian Electoral Office to remove you from the electoral roll and you intend to exercise your right to vote in the upcoming State Election. You have contacted AEC for advice on how to vote from overseas.

You have not advised Medicare to have your name removed from their records.

Whenever you leave for a foreign country after your R&R, you write 'employment' as reason for going overseas when completing the Australian Immigration Outgoing passenger card.

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)

Reasons for decision

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

• the superannuation test.

The first two tests are examined in detail in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650).

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 in IT 2650 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.

The following factors indicate that you have not ceased to be a resident of Australia:

• You left Australia to live and work in a foreign country.

• You will return periodically to Australia for R&R breaks.

• Your intention is to return to Australia when your employment contract expires.

• You are a citizen an Australian citizen.

• You maintain a home in Australia (with household effects and motor vehicles) where your family continue to live and where you return to for you R&R breaks.

• You own two rental properties in Australia from which you derive income.

• You expect to continue receiving rental, interest and dividend income while overseas.

• You have a bank account and shares in Australia.

• You may also receive business income from consulting fees.

• Your visits to Australia are for a maximum of X days.

• Family

• Your spouse and children will remain in Australia while you are overseas.

• Business or economic

• You own two rental properties and shares in Australia from which you will continue to obtain income while overseas.

• You have a bank account in Australia.

• You may also receive business income from consulting fees.

• You are employed in a foreign country.

• Assets

• You own a home (with house hold effects and motor vehicles) in Australia where you spouse and children live.

• You own two rental properties in Australia.

• You have a bank account and shares in Australia.

• You do not have assets overseas except for personal belongings and clothing.

• In a foreign country, you live in hotel accommodation provide by your employer.

Summary

Based on a consideration of all of the factors outlined above, you are a resident of Australia according to ordinary concepts as you will maintain a continuity of association with Australia for the relevant period.

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 and permanent place of abode test

Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia, unless the Commissioner is satisfied that their permanent place of abode is outside of Australia.

Domicile

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. A person may acquire a domicile of choice in another country if they have the intention of making their home indefinitely in that country. The intention needs to be demonstrated in a legal sense, for example, by way of obtaining a migration visa, becoming a permanent resident or becoming a citizen of the country concerned.

In your case, you were born overseas and moved to Australia and became a citizen of Australia.

Therefore, your domicile of origin was overseas and you changed your domicile to Australia.

Your domicile will still be Australia while you are working in a foreign country as you have not indicated that you will be taking any legal steps to change your domicile to that country.

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 you intend to live for the rest your life.  An intention to return to Australia in the foreseeable future to live does not prevent you in the meantime setting up a permanent place of abode elsewhere.

It is clear from the case law that a person's permanent place of abode cannot be ascertained by the application of any hard and fast rules. It is a question of fact to be determined in the light of all the circumstances of each case.

The taxpayer Boer v. Federal Commissioner of Taxation (Boer's case) lived in employer provided accommodation overseas which was not indicative of them establishing or maintaining their 'own' accommodation. This aspect was a contributing factor to them being unable to establish that they had a 'permanent place of abode' overseas.

Your continuing presence in a foreign country will be dependent on your continued employment there. Your visa does not permit you to stay permanently. You live there in hotel accommodation provided by your employer. This makes your presence in a foreign country temporary in nature.

You have not established a permanent place of abode in a foreign country as your presence is temporary in nature. You cannot establish a permanent place of abode when your presence in a place is temporary.

The Commissioner is not satisfied you have a permanent place of abode outside of Australia.

Therefore, you will remain a resident of Australia under the 'domicile and permanent place of abode' test of residency while you are in a foreign country.

As you are a resident of Australia under the resides and domicile tests it is not necessary to consider the 183-day test and the superannuation test.

Your residency status

As you are a resident of Australia under two of the tests of residency outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, you are considered to be an Australian resident for taxation purposes.

Exempt foreign employment income

Subsection 23AG(1) of the ITAA 1936 provides that where Australian resident individuals are engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from that foreign service are exempt from tax in Australia.

In your case, you are an Australian resident individual engaged in foreign service for a continuous period of not less than 91 days. Therefore, your foreign earnings are exempt under section 23AG of the ITAA 1936, provided that all of the conditions in that section are met.

Subsection 23AG(1AA) of the ITAA 1936, which took effect from 1 July 2009, provides that those foreign earnings will not be exempt under section 23AG of the ITAA 1936 unless the continuous period of foreign service is directly attributable to any of the following:

(a) delivery of Australian official development assistance by your employer;

(b) activities of your employer in operating a public fund declared by the Treasurer to be a developing country relief fund, or a public fund established and maintained to provide monetary relief to people in a developing foreign country that has experienced a disaster (a public disaster relief fund);

(c) activities of your employer as a prescribed charitable or religious institution exempt from Australian income tax because it is located outside Australia or the institution is pursuing objectives outside Australia; or

(d) deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force.

You are employed by an aid agency to work in a foreign country. As such, you have not met any of the conditions set out in Subsection 23AG(1AA) of the ITAA 1936. Therefore, the income you earn in a foreign country not exempt under section 23AG of the ITAA 1936.

Medicare levy & surcharge

Medicare is the scheme that gives Australian residents access to health care. To help fund the scheme, most taxpayers pay a Medicare levy of 2.0% of their taxable income.

From 1 July 2014 the Medicare levy rose from 1.5% to 2.0%.

As you are a resident of Australia for taxation purposes, you are liable to pay the Medicare levy.

You have to pay the Medicare levy surcharge (MLS) if your income for Medicare levy surcharge purposes is above a certain threshold and you (or any of your dependents) don't have appropriate private patient hospital cover. The surcharge is in addition to the Medicare levy.

Temporary Budget Repair Levy

As part of the 2014-15 Federal budget the Government introduced a Temporary Budget Repair Levy.

Individual taxpayers with a taxable income of more than $180,000 per year will have additional tax withheld by their employer, starting from 1 July 2014.

The levy is payable at a rate of two per cent of each dollar of a taxpayer's taxable income over $180,000.

It will apply to both resident and non-resident individuals from 1 July 2014 and applies to the 2014-15, 2015-16 and 2016-17 income years.

In some cases the levy is payable even if you have a taxable income of $180,000 or less. For example, the unearned income of resident individuals under the age of 18 is subject to special rates and will include additional amount for the levy on income greater than $416.

The levy will cease to apply from 1 July 2017.