Edited version of your written advice

Authorisation Number: 1013140290863

Date of advice: 16 December 2016

Ruling

Subject: Foreign income

Question

Are you required to pay tax in Australia on the income you earned from Country X?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 201X

The scheme commences on:

1 July 201X

Relevant facts and circumstances

You were born in Australia.

You are a citizen of Australia.

You went to Country X for work purposes.

You departed Australia on 1 July 201X and returned to Australia on 30 June 201X.

You were employed by a company in Country X.

The company was based in Country X.

Your employment was for X months.

Your employment could be extended for another X months.

You had a work visa that allowed you to enter Country X.

Your work visa was required to be renewed every X months.

Your visa was supplied by your employer.

You visited Australia frequently on your leave break.

The purposes for your visits were for family issues.

You informed the Australian Electoral Commission that you were departing Australia.

You lived on site while you were working in Country X.

You were renting in Australia prior to leaving.

You left your household effects in Australia at your relative's house prior to your departure.

You kept your personal effects in Australia in your furniture prior to your departure.

You have a bank account in Australia.

You did not make any investments in Australia while you were overseas.

You did not advise any Australian financial institutions that you were a foreign resident so that non-resident withholding tax can be deducted.

You had a bank account in Country X.

You did not lodge any foreign income tax returns while living overseas.

You paid tax to the Country X's government.

You have a spouse.

You have a dependent child.

Your family did not accompany you overseas.

The reason for that was because your trips were work-related.

You did not maintain any professional, social, or sporting connections with Australia.

You did not establish any professional, social or sporting connections in Country X.

You did not obtain any overseas qualifications in Country X.

Both you and your spouse are not Commonwealth Government of Australia employees for superannuation purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

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

Income Tax Assessment Act 1936 Subsection 6(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 income tax 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 offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the:

● resides test

● domicile and permanent place of abode test

● 183 day test and

● Commonwealth superannuation fund test.

The primary test for deciding the residency status of each individual is whether they reside in Australia according to the ordinary meaning of the word resides.  If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established.

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 Taxation Ruing IT 2650 - Income tax: residency - permanent place of abode outside Australia 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.

In your case, you went to Country X for work purposes. You departed Australia on 1 July 201X and returned back to Australia on 30 June 201X. Your employment contract was for X months. Your employment could be extended for another X months. You were only in Country X working for X months. You visited Australia frequently on your leave break. The purposes for your visits were for family issues. You lived on site while you were working in Country X. You did not establish any professional, social or sporting connections in Country X. Your family did not accompany you overseas. The reason for that was because your trips were work related.

In the recent case of Iyengar v Federal Commissioner of Taxation AATA 856; (2011) ATC 10-222; (2011) 85 ATR 924, the AAT held that the taxpayer was a resident of Australia, even though he was working overseas. The taxpayer's family ties, his intention (to complete his contract) and motive (to pay off his mortgage), and his maintaining an Australian place of abode while working overseas, were all indicative that he was an Australian resident during the relevant period.

You were residing in Australia according to ordinary concepts and you were choosing to work outside Australia rather than within Australia for the relevant period. Your family never lived with you in Country X. And your work contract was for X months with an extension for a further X months. You only worked in Country X for X months. You made frequent trips back to Australia which indicates that your connection to Australia was strong for the relevant period and you maintained your connection with Australia.

Therefore, you are a resident under this test.

Whilst it is not necessary to meet more than one test to determine residency for tax purposes (we have already established that you are a resident under the 'resides' test), we will also include a discussion of the 'domicile and permanent place of abode test as an alternative argument.

The domicile test

If a person's domicile is Australia they will be an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence.

In order to show that a new domicile of choice in a country outside Australia 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 and you are a citizen of Australia; therefore, your domicile of origin is Australia.

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.

The Commissioner is not satisfied that you had a permanent place of abode outside Australia for the following reasons:

● Your visa was required to be renewed every X months.

● You were only working in Country X for X months

● You lived in employer provided accommodation on the work site

● Your family remained in Australia for the period you worked in Country X

Therefore, you are a resident under this test.

Based on the facts you have provided, you were a resident of Australia for income tax purposes for the period you were working in Country X. As an Australian resident for income tax purposes, you are required to pay tax on your worldwide income gained from all sources, whether in or out of Australia. Therefore, you are required to pay tax in Australia on the income you earned from Country X and this must be declared in your Australian tax return.