Edited version of your written advice

Authorisation Number: 1012734232447

Ruling

Subject: Residency status and assessability of foreign sourced income

Questions and answers:

1. Are you a resident of Australia for income tax purposes?

No.

2. Is your foreign sourced income assessable in Australia?

No.

This ruling applies for the following periods:

Year ending 30 June 2014

The scheme commences on:

1 July 2013

Relevant facts and circumstances

You were born in Australia and are a citizen of Australia.

You are single with no dependants.

You left Australia to live and work in country Y on a working holiday.

You entered country Y on a work permit visa that is required to be renewed after an extended period.

You work in the entertainment industry on a freelance contracting basis. You also work in the hospitality industry.

Upon entering country Y you found long term rental accommodation.

Prior to leaving Australia you were living in rental accommodation.

Since departing Australia you have returned to Australia on a few occasions for short periods.

During one of the periods you returned to Australia you did some part time work.

Your assets in Australia consist of a bank account.

Your assets in country Y consist of a bank account and push bike.

Prior to leaving Australia you stored your household effects with your parent.

You do not have any social or sporting ties in either country Y or Australia.

You have never been an employee of the Commonwealth Government of Australia.

Prior to leaving Australia you advised the Australian Electoral Commission to remove your name from the electoral roll.

You have lodged income tax returns with the country Y authorities and have been treated as a resident of country Y for income tax purposes.

You intend to continue to live and work in country Y indefinitely, and intend apply for permanent residency sometime in the future.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(2)

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

Residency

An Australian resident for tax purposes is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to be a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the 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 NO. IT 2650 INCOME TAX: Residency - Permanent Place Of Abode Outside Australia.

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 satisfy the conditions of one of the other three tests.

The resides test

In FC of T v Miller (1946) 73 CLR 93 at page 99-100 and Subrahmanyam v FC Of T [2002] AATA 1298; 2002 ATC 2303; (2002) 51 ATR 1173 at paragraph 43-44, it was determined that the word 'resides' should be given the widest meaning.

Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia, identifies a number of factors which assist in determining the residency status of a taxpayer. Although Tax Ruling TR 98/17 discusses the Commissioners view on the residency status of individuals entering Australia, the same principles can be applied to those individuals leaving Australia.

According to paragraph 20 of TR 98/17 factors to be considered in determining residency in Australia are:

• intention or purpose of presence;

• family and business/employment ties;

• maintenance and location of assets; and

• social and living arrangements.

Paragraph 21 of TR 98/17 further states that:

No single factor is necessarily decisive and many are interrelated. The weight given to each factor varies depending on individual circumstances.

Recent case law decisions have expanded on the list of factors identified in TR 98/17.  Case 5/2013 and Sneddon v FC of T (Sneddons Case), for example, considered the following factors in relation to whether the taxpayer resided in Australia:

(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.^[] 

The weight given to each factor varies with individual circumstances and no single factor is necessarily decisive.

Your circumstances

You have lived and worked in country Y for a number of years, and during this period have returned to Australia on 2 occasions for short periods for personal reasons. You have remained an Australian citizen and prior to your departure resided in Australia. You are single with no dependants and have been living in long term rental accommodation in country Y for a number of years. You are not maintaining a permanent place of abode in Australia. It is your intension to remain in country Y for an indefinite period and at some stage apply for a more permanent country Y residency status.

In consideration of all of the factors outlined above, it is concluded that you ceased to be a resident of Australia for income tax purposes under the 'resides test' from the date that you originally left Australia. Significant in reaching this conclusion is that since your departure, you are not maintaining a place of abode in Australia, you have established long term accommodation in country Y and intend to remain in country Y for an indefinite period of time. Further, your stay in Australia in December 20XX before returning to country Y has not altered this status for the 2013-14 income year.

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 prove an intention to make his or her home indefinitely in that country.  In your case you were born in Australia, therefore your domicile of origin is Australia. From the information that you have provided you are yet to obtain relevant citizenship or a more permanent residency status in country Y. Therefore your Australian domicile will remain unchanged.

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. 

Paragraph 23 of IT 2650 sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode:

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 in Australia, i.e. maintaining bank accounts in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

In relation to the weight to be given to each of the above factors, paragraph 24 of IT 2650 states:

The weight to be given to each factor will vary with the individual circumstances of each particular case and no single factor will be decisive… however… greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant.

Based on the facts of your case, your pattern of behaviour is consistent with someone who has established a permanent place of abode outside of Australia. Significant in reaching this conclusion is that you have lived and worked in country Y for a significant period of time and in the process have maintained a long term residence. In addition, since your departure from Australia you have only returned on 2 occasions for personal reasons. Further it is your intension to remain in country Y indefinitely and at some stage apply for a more permanent form of residency.

Although it has been determined that your Australian domicile has remained unchanged, the Commissioner is satisfied that you have established a permanent place of abode outside of Australia from the date of your original departure. Therefore, as you have established a permanent place of abode outside of Australia, you are not a resident of Australia for income tax purposes under the 'domicile test'.

The 183-day test

Where a person is present in Australia for 183 days 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 were not physically present in Australia for a period of greater than 183 days. Therefore you will not be a resident of Australia for income tax purposes under the 183 day test.

The Superannuation test

An individual is considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Service Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person.  Generally Commonwealth Government employees are eligible to contribute to the PSS or CSS.

You have never been a member of a CSS or PSS.

Accordingly, you are not a resident under this test.

Your residency status

As you are not a resident of Australia under any 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 not considered to be an Australian resident for taxation purposes.

Assessable income

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident taxpayer includes ordinary income derived directly or indirectly from all Australian sources during the income year and other ordinary income that a provision includes as assessable income on some basis other than having an Australian source.

In your case, it has been determined that you are not a resident of Australia for income tax purposes. Therefore only income that is sourced in Australia will be assessable in Australia.

Accordingly, you are not required to include any of your foreign sourced income in your income tax return.