Edited version of your written advice

Authorisation Number: 1013008586986

Date of advice: 6 May 2016

Ruling

Subject: Residency status and assessabilty of overseas income

Questions and answers

1) Were you a resident of Australia for tax purposes for the relevant income years?

Yes

2) Were you assessable on the salary income you earned in Country A and Country B?

Yes

This ruling applies for the following period

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on

1 July 20XX

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Your country of origin is Australia and you are a citizen of Australia.

You worked in Country A and Country B during the relevant income years. You were employed, on a contract basis then you were overseas.

Your income was not taxed in Country A. Your employer in Country B deducted tax from your salary income.

You had a work visa which permitted you to stay for 6 months in Country A and 3 months in Country B. You renewed the visas when they expired in the respective countries. The visas were supplied by your employers.

Your intention whilst overseas was to reside overseas for the term of the employment with visits back to Australia to stay with your parents. Between contracts you visited your parents and friends in Australia.

You removed yourself from the electoral commission to avoid fines for being unavailable to vote.

You suspended your private health insurance.

When completing incoming and outgoing passenger cards, you stated your residency status and address on these documents as 'permanent resident leaving and arriving Australia'.

You did not lodge any tax returns in Australia whilst you were overseas.

You lodged a tax return in Australia for the 20XX year as you were living in Australia that year. You indicated on your 20XX return that you were a resident of Australia.

Accommodation and other benefits

You stayed in employer provided accommodation in both Country A and Country B

You were also provided with food and transport in both Countries A and B and your employer in both countries provided airfares to return to Australia.

When you returned to Australia you stayed with relatives or friends for the duration of the holiday.

Assets

Your assets in Australia included some bank accounts and a car stored at your parents' home which was kept registered.

You did not have any investments overseas.

All your personal belongings were on your parents' property.

You did not advise any Australian financial institutions with whom you had investments that you were a foreign resident so that non-resident withholding tax could be deducted.

You did not own any assets overseas.

Family and social connections

You did not maintain any social or sporting connections with Australia or in any overseas country.

You did not maintain any professional or occupational memberships in Australia.

You have not been employed by the Commonwealth of Australia.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Subsection 995-1(1)

Reasons for decision

Residency

An Australian resident for taxation purposes is defined in subsection 995-1(1) of the ITAA 1997 as 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' are defined in subsection 6(1) of the ITAA 1936. The definition gives us a series of tests which assist in determining whether a person is a resident of Australia. These tests are:

1. residence according to ordinary concepts;

2. the domicile/permanent place of abode test;

3. the 183 day/usual place of abode test; or

4. the Commonwealth superannuation fund test.

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 you do not reside in Australia according to ordinary concepts, you may still be a resident of Australia for tax purposes if you meet the conditions of any one of the other three tests.

We refer to Taxation Ruling IT 2650 Income tax: residency - permanent place of abode outside Australia which provides guidelines for determining whether individuals who leave Australia to live overseas cease to be Australian residents for income tax purposes during their overseas stay.

1. Residency according to ordinary concepts test 

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3rd edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; having one's abode for a time', and according to the Compact Edition of the Oxford English Dictionary (1987), is 'to dwell permanently, or for a considerable time, to have one's settled or usual abode, to live in or at a particular place'.

The question of whether an individual 'resides' in a particular country is a question of fact and degree and not of law. In deciding this question, the courts have consistently referred to and taken into account the following factors as being relevant:

(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.

You went overseas for work purposes and worked in Country A and Country B for some years. You returned to Australia for relatively short periods to visit family and friends during the period you were overseas. Your behaviour in Australia when you were working overseas was not of a kind that could be reasonably expected from a person residing in Australia.

Based on the facts above you were not residing in Australia according to ordinary concepts for the relevant income years.

Other residency tests

Even where a taxpayer is not considered to 'reside' in Australia in accordance with the ordinary meaning of the term, the taxpayer will still be considered to be a resident of Australia for domestic taxation purposes where they meet one of the other three residency tests, being the domicile and permanent place of abode test, the 183 day test and superannuation fund test.

2. The domicile and permanent place of abode test

If a person has their domicile in Australia they will be an Australian resident unless the Commissioner is satisfied they have a permanent place of abode 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.

Your domicile is Australia because your country of origin is Australia and you are an Australian citizen.

Therefore you will be a resident of Australia unless the Commissioner is satisfied that you have a permanent place of abode outside of Australia.

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 a person intends to live for the rest of his or her life. An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer 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.

IT 2650 sets out a number of factors established by Court and Tribunal decisions which assist in determining 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) 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 Centrelink 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.

As with the factors under the resides test not one single factor is decisive and the weight given to each factor depends on individual circumstances.

Paragraph 24 of IT 2650 instructs that the weight of each factor will vary with individual circumstances and no single factor is decisive. However, 'greater weight should be given to factors (c) the establishment of a home outside Australia, (e) the duration and continuity of the individual's presence in the overseas country and (f) the durability of association that the individual has with a particular place in Australia than to the remaining factors'.

Weighing all the factors above in light of your individual circumstances, you did not establish a permanent place of abode outside Australia for the following reasons:

• Your employment contracts when you were living and working in Country A and Country B were not for an indefinite time period.

• You did not have permanent resident visas when overseas. You had a work visa which permitted you to stay for only 6 months in Country A and 3 months in Country B. You renewed the visas when they expired in the respective countries. The visas were supplied by your employers.

• You did not cancel your private health insurance in Australia. You suspended your private health insurance before you first departed overseas.

• When completing incoming and outgoing passenger cards, you stated your residency status and address on these documents as 'permanent resident leaving and arriving Australia'.

• You did not own any property or purchase a place to live or, rent any accommodation. You stayed in employer provided accommodation in both Countries A and B.

• You were provided with food and transportation by your employers in both Countries A and B.

• Your employers in both Country A and Country B provided airfares to return to Australia.

• You retained assets in Australia including bank accounts and a car stored at your parents' home which was kept registered. All your personal belongings were stored on your parents' property.

• You did not have any assets or investments overseas.

• You lodged a tax return in Australia for a year you were not overseas and indicated you were an Australian resident in that return.

Weighing all the factors above in light of your individual circumstances, you did not establish a permanent place of abode outside Australia. Your connections with Australia were stronger than your connections with Countries A and B. It was always your intention to return to Australia.

As the Commissioner is not satisfied that you had a permanent place of abode outside Australia, you were a resident of Australia for income tax purposes under this test for the period of this ruling.

As you were a resident of Australia for the relevant income years under the domicile and permanent place of abode test, it is not necessary to consider the remaining two tests.

We shall now consider if the income earned in Country A and/or Country B was assessable in Australia.

Was your income from Country A assessable in Australia?

Subsection 6-5(2) of the 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.

Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not included in assessable income.

Section 11-15 of the ITAA 1997 lists those provisions dealing with income that may be exempt. Included in this list is section 23AG of the ITAA 1936, which deals with overseas employment income.

Subsection 23AG(1) of the ITAA 1936 provides that foreign earnings of an Australian resident derived during a continuous period of foreign service of not less than 91 days employment in a foreign country are exempt from tax in Australia.  

Section 23AG of the ITAA 1936 was amended so that foreign employment income derived by Australian residents will only be exempt in certain circumstances. These amendments were effective from 29 June 2009.

Subsection 23AG(1AA) of the ITAA 1936 provides that foreign earnings are not exempt from tax unless the continuous period of foreign service is directly attributable to any of the following:

• the delivery of Australia's overseas aid program by the individual's employer;

• the activities of the individual's employer in operating a developing country relief fund or a public disaster relief fund;

• the activities of the individual's employer being a prescribed institution that is exempt from Australian tax; or

• the individual's deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force.

In your case, you were employed to work in Country A by a company. Your employment does not fall into one of the exemption categories listed above.

As you do not satisfy any of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936, your employment income derived from Country A is not exempt from income tax in Australia under subsection 23AG(1) of the ITAA 1936 and consequently is assessable in Australia under subsection 6-5(2) of the ITAA 1997.

Was your income from Country B assessable in Australia?

Australia has a tax treaty with Country B it is necessary to consider whether your foreign earnings were exempt from income tax in Country B under this agreement.

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 Country B Agreement is listed in section 5 of the Agreements Act.

The Country B Agreement operates to avoid the double taxation of income received by Australian and Country B residents.

Paragraph (1) of Article 15 of the Country B Agreement provides that salary and wages income of an Australian resident will be taxable only in Australia unless the employment is exercised in Country B. If the employment is exercised in Country B then Country B may also tax the income unless the taxpayer is present in Country B on a temporary visit.

Temporary visits are dealt with in paragraph (2) of Article 15 of the Country B Agreement which provides that remuneration derived by a resident of Australia in respect of employment exercised in Country B shall be taxable only in Australia if all of the following apply:

• the taxpayer is present in Country B for a period or periods not exceeding in the aggregate 90 days in the Country B year of income

• the remuneration is paid by, or on behalf of, an employer who is not a resident of Country B

• the remuneration is not deductible in determining the taxable profits of a permanent establishment or fixed base that the employer has in Country B, and

• the remuneration is subject to tax in Australia.

You were present in Country B or periods greater than 90 days aggregate in the respective Country B years of income.

Accordingly paragraph 2 of Article 15 of the Country B Agreement will not apply. Hence, Article 15(1) of the Country B Agreement will apply, and the salary and wages you derived in Country B may be taxed in Country B. As you were an Australian resident for tax purposes, your salary income from Country B was assessable in Australia. You have advised your employer taxed your income in Country B. A foreign income tax offset is allowable for the tax paid in Country B.