Edited version of your written advice

Authorisation Number: 1012837010903

Date of advice: 14 August 2015

Ruling

Subject: Residency and assessable income

Questions and answers

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

Yes.

2. Is the income you receive from a foreign country assessable in Australia?

Yes.

This ruling applies for the following periods

15 May 2014 to 3 March 2015

The scheme commenced on

15 May 2014

Relevant facts and circumstances

You hold dual citizenship.

You were born overseas.

You arrived in a foreign country in begin studies.

In the five years prior to your arrival in Australia you lived in a foreign country.

You departed a foreign country for Australia.

You came to Australia so your spouse (an Australian citizen) could finish a university degree.

Your intentions regarding residency are uncertain. You have no concrete plans as yet to take up residency outside of Australia again.

You have not applied for the end date of your Australian visa to be extended.

Since your arrival in Australia, you have not applied for permanent residency.

You have left Australia since first arriving in Australia.

You have previously been to Australia. The visa granted for this trip was a tourist visa.

In Australia, you are currently living in a rented apartment. The lease has not been renewed at this stage.

Your assets in Australia are:

• a car

• bank accounts

You have no property or investments in Australia.

You do not have a permanent place to live in a foreign country. You lived there in a rented apartment.

In a foreign country you have bank account but no investments, property, motor vehicles or household effects.

You were receiving income from a foreign country. Your duties included:

• attending courses

• taking exams

• performing original research:

• performing the research necessary for your dissertation

• writing papers

• writing your dissertation

• being part of the academic community

• attending conferences

• giving presentations and

• supervising master and junior students.

You still work on an ad hoc basis for a not-for-profit organisation affiliated with the university where you studied. You are required assist writing some academic papers; among other tasks. You have worked a few hours for them and have not earned much income. You do not have a position or job being held for you in a foreign country apart from this work.

During the period of the ruling you were still involved in your studies in a foreign country; even though you spent most of that time in Australia. You finished these studies at which time you commenced your first job. You have stated that, until that date, you were not a resident of Australia for taxation purposes.

In Australia, you are working in X. Your role is full-time and the contract is indefinite. Your probationary period will expire.

Only your spouse accompanied you to Australia; your family live overseas. You have no children or dependents. Your spouse's family are all Australian.

You have no sporting connections with Australia. You have made some social connections with colleagues at your job and have some social connections mostly with your spouse's family and friends.

You have many social (but no sporting) connections in a foreign country. You regularly maintain contact with fellow students.

Neither you nor your spouse has ever been a Commonwealth Australia Government employee for superannuation (super) purposes.

You are more than 16 years of age.

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 6-5(2)

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.

There are several factors outlined above which indicate that you have not ceased to be a resident of Australia, specifically you:

• departed a foreign country for Australia at which time you were still studying and employed in a foreign country; this ceased at which time you resigned from your position in a foreign country and commenced employment in Australia

• continued minor employment on an ad hoc basis for a non-profit organization in a foreign country

• have not applied for your Australian visa to be extended

• have not applied for permanent residency

• initially came to Australia so your spouse could finish university

• have no definite intention to take up residency outside Australia

• have left Australia twice since first arriving in Australia and will do so again for study or recreation

• are have dual foreign citizenship

• have assets in Australia are: a car and bank accounts

• have a bank account in a foreign country

• live in rented accommodation in Australia and previously did so in a foreign country

• have a spouse who is an Australian citizen

• have no children or dependents

• have family overseas

• have no sporting connections with Australia or a foreign country

• have many social connections in a foreign country

• have made some social connections with work colleagues and your spouse's family and friends

• declared your income and paid tax in a foreign country during the period of the ruling

Based on a consideration of all of the factors outlined above, you were a resident of Australia according to ordinary concepts as you did maintained a continuity of association with Australia for the period of the ruling.

Whilst it is not necessary to meet more than one test to determine residency for tax purposes (we have already established that you were a resident under the resides test), we will also include a discussion of the 183-day test as an alternative argument.

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, that is, 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.

Please note that in Australia the income year starts on 1 July and ends on 30 June the following year. You were present in Australia during two income years:

• the income year ending 30 June 2014; less than 183 days

• the income year ending 30 June 2015; more than days.

You were in Australia for a total period of more than half of the income year ending 30 June 2015.

Your reason for coming to Australia was to accompany your spouse who returned home to Australia to continue university studies while you continued your studies and employment in a foreign country; making two return trips there in connection with these activities.

Therefore you were a resident of Australia under the 183-day test during the period of the ruling.

It is not necessary to consider the domicile and permanent place of abode test and the superannuation test

Your residency status

As you were 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 during the period of the ruling.

Assessable income

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.  

Salary and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

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. A 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. A foreign country agreement operates to avoid the double taxation of income received by residents of Australia and a foreign country.

Article 15(1) of the a foreign country agreement advises that salary, wages and other similar remuneration derived by a resident of Australia shall be taxable only in Australia unless the employment is exercised in a foreign country. However, Article 15(2) sates that if you are resident in Australia more than 183 days of an income year then you will taxed in Australia on your foreign country income. You were resident in Australia for more than 183 days in the income year ending 30 June 2015.

As you are a resident of Australia for taxation purposes for the period of the ruling, you will be taxed on your worldwide income in Australia (including your foreign country income) under section 6-5 of the ITAA 1997 for the period of the ruling. You may be entitled to a foreign income tax offset in relation to tax paid on the income you earned in the foreign country.