Edited version of your written advice

Authorisation Number: 1012770858998

Ruling

Subject: residency

Questions and answers

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

No.

2. Is the income from your Australian employer assessable in Australia?

No.

This ruling applies for the following periods

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commenced on

The scheme has commenced

Relevant facts and circumstances

You were born in a foreign country.

You are a citizen of a foreign country.

You hold a Permanent Resident visa in Australia.

For the years you were in Australia, you lived in rented accommodation in exempt where you lived with friends.

You departed Australia.

Currently your intention is to remain in the foreign country.

You formed the intention to make your home indefinitely outside Australia as you wished to raise your child in the foreign country.

You currently do not plan to return to Australia permanently. However, you are due to fly to Australia for business in relation to your employment.

You do not hold a return airline ticket.

Since first leaving Australia you returned to Australia. You spent this time with colleagues on a variety of matters relating to your employment. You have supplied a copy of your passport showing the entry stamp.

You have purchased a home in the foreign country.

Your only asset you have in Australia is a bank account.

In the foreign country you have assets.

You do not have a place to live in Australia. On your business visits to Australia, you stay with friends.

Before your departure, your household effects in Australia were sold privately or given away to friends.

You are currently employed by an Australian employer though you conduct your duties in the foreign country. Due to the nature of your work you can work from anywhere in the world. You currently work out of your office in the foreign country. You have no other position or job being held for you in Australia.

You have a spouse who accompanied you to Australia and back to the foreign country. You also have a child who was born in Australia but returned to the foreign country with you.

Your only social and sporting connection with Australia was membership of a club. You are no longer a member.

Your only social and sporting connection with the foreign country is membership of a club.

Neither you nor your spouse is or was a Commonwealth Government of Australia employee for superannuation (super) purposes.

You have never been on the Australian electoral roll as you were not eligible to vote.

You do not have any investments with Australian financial institution or companies.

You have not informed Medicare of your departure from Australia although you cancelled your membership to your private health fund.

You submitted tax returns in the foreign country all the years while in Australia. You have supplied copies of all the relevant notices of assessment.

You do not recall what you stated as the 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)

International Tax Agreements Act 1953

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.

Based on a consideration of all of the factors outlined above, you are not a resident of Australia according to ordinary concepts as you did not maintain a continuity of association with Australia for the period of the ruling.

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 in a foreign country of which you are a citizen. When you moved to Australia, you did not become a citizen of Australia and you had no intention of making your home indefinitely in Australia.

Your domicile of origin is the foreign country and while you domicile change to Australia when you obtained your permanent residency it reverted to the foreign country when you returned to live there permanently.

Therefore, you are not a resident of Australia under this test for the period of the ruling.

The 183-day test

Under the 183 day test you are considered a resident of Australia if you are present in Australia for a total period of more than half of the year of income, i.e. 183 days, unless the Commissioner is satisfied that your usual place of abode is outside Australia and you do not intend to take up residence in Australia.

You currently do not plan to return to Australia permanently. However, you are due to fly to Australia for business in relation to your employment. You have not stated if your presence in Australia will be for a total period of more than half of the year of income. However, the Commissioner is satisfied that your usual place of abode is outside Australia and you do not intend to take up residence in Australia.

Therefore you will not be a resident of Australia under the 183-day test for the period of the ruling.

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. To be eligible to contribute to those schemes, you must be or have been a Commonwealth Government employee.

You have stated that you and your spouse have never been members of the PSS or CSS superannuation schemes, nor are you eligible to contribute to them. Further, you are more than 16 years of age. Therefore, you are not a resident of Australia under the superannuation 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 an Australian resident for taxation purposes.

Residency and double tax agreements

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the 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 foreign country Agreement is listed in section 5 of the Agreements Act.

The foreign country agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The foreign country agreement operates to avoid the double taxation of income received by residents of Australia and the foreign country.

Employment income and the foreign country Agreement

Article X of the foreign country Agreement advises that salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State.

In your case, you derive income from an employer in Australia.

The courts have established that the source of employment income is where the work is performed (FC of T v French (1957) 98 CLR 398).

In your case, you have been employed by an Australian employer but have been performing your employment duties in the foreign country. Therefore, your employment income does not have an Australian source.

Consequently, your employment income is only assessable in Australia up until the time you ceased to be a resident. None of your employment income is assessable in Australia after you ceased to be a resident.