Edited version of your written advice

Authorisation Number: 1012799027380

Ruling

Subject: Residency and foreign source income

Question and answer

1. Are you a resident of Australia for taxation purposes from 1 July 20ZZ until your permanent return to Australia?

No.

2. Is the income you earned overseas from 1 July 20ZZ until your permanent return to Australia assessable in Australia?

No.

This ruling applies for the following periods

Year ending 30 June 20YY

Year ending 30 June 20XX

The scheme commenced on

1 July 20ZZ

Relevant facts and circumstances

You left Australia to live and work in a foreign country. At this time, you had no partner, dependants, house, car, leases, loans or major assets in Australia.

You worked for foreign owned companies in a foreign country on open ended contracts in support of an international organisation. You changed contracts once due to termination of contract and once to accept better opportunities.

Your employment involved working as a specific trainer and in logistics

The total of your period overseas was spent the mainly in a foreign country with short periods in Australia and several other countries.

You returned to Australia several times during this period of work; the last occasion being your permanent return to Australia.

Of your leave periods, you spent some in Australia and some abroad. This included periods of training.

You did not cancel your Medicare card.

You suspended your private health cover when you departed Australia. It was later cancelled.

You did not have your name removed from the electoral roll.

You retained Australian bank accounts as the contracting companies advised banks in a foreign country were not stable enough to be used.

You did not advise Australian banks with which you hold accounts regards international income and interest particulars.

You retained a drivers licence in Australia

You did not inform any other government bodies that you were leaving permanently.

You did not action anything regards superannuation and you did not receive any funds into your existing super accounts.

Accommodation, food and utilities were covered by the companies and as such employees were not involved with signing leases or payments.

Your main accommodation was at a place in a foreign country which provides long term living arrangements and amenities such as bank, cafes, coffee shops, gyms, restaurants, retail outlets, sports fields, boardwalks, cinema and social clubs.

You made local friends, travelled in spare time, learnt the national language to basic level, was invited to family gatherings and local weddings.

Due to the fragmented nature of a foreign country companies handled all permits, sometimes operating without visas. As such the full period of your overseas employment is not covered by visas. However, you have supplied copies all supporting documents.

Employees were not issued group certificates and were advised to seek their own tax advice as per the contracts attached. As such you are unable to say how much tax may have been paid on your behalf, if any.

On the immigration exit card you stated as your reason for leaving as 'Australian resident departing temporarily'. However, after a couple of months in the foreign country, you decided to work there permanently and from then on stated 'a resident of a foreign country' for further cards.

You returned to Australia permanently. You returned due to deteriorating security situation and a chronic medical complaint. On your return to Australia, you listed yourself as an Australian resident again. You did not work or receive employment related income for the remainder of the 20XX income year.

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.

As stated above it is important that not one single factor is decisive and the weight given to each factor depends on individual circumstances.

There are several factors outlined above which indicate that you ceased to be a resident of Australia during the years of the ruling, specifically:

• you left Australia to live and work in a foreign country

• on leaving you had no partner, dependants, house, car, leases, loans or major assets in Australia

• accommodation, food and utilities were covered by your employers and as such employees were not involved with signing leases or making payments

• you returned to Australia for short periods

• you made local friends in a foreign country, travelled in spare time, learnt the national language to basic level, was invited to family gatherings and local weddings

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

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.

As you remained an Australian citizen while living in a foreign country, your domicile was Australia and remains unchanged.

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. In your case:

• on leaving in April 20ZZ you had no place to live in Australia

• in a foreign country you lived in accommodation provided by your employers

The Commissioner is satisfied you had a permanent place of abode outside of Australia for the years of the ruling.

Therefore, you were not a resident of Australia under the 'domicile and permanent place of abode' test of residency.

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 were not present in Australia for a total period of more than half of any of the years of income of the ruling.

Therefore you were not a resident of Australia 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. To be eligible to contribute to those schemes, you must be or have been a Commonwealth Government employee.

You are not a member of an Australian government superannuation scheme, nor are you eligible to contribute to one. Further, you have no spouse and 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 considered to be an Australian resident for taxation purposes.

Assessable income

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that Australian resident taxpayers are required to include income earned from all sources, whether in or out of Australia, in their assessable income for the year. The income you received from your employment in a foreign country is ordinary income and so is assessable under section 6-5 of the ITAA 1997.

However, as you were not a resident of Australia for taxation purposes, you will only have to include income you have earned from an Australian source for the years of the ruling. The income you earned in a foreign country is not assessable in Australia.