ATO ID 2002/216: Assessability of ordinary income - effect of overseas holiday on residency status
Date of decision: 7 February 2002
Year of income: Year ended 30 June 2001
Business line: Small Business/Individual Taxpayers

Issue
Is the taxpayer's income assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) as an Australian resident?

Decision
Yes. The taxpayer is an Australian resident for income tax purposes and ordinary income derived by the taxpayer is assessable income under subsection 6-5(2) of the ITAA 1997.

Facts
The taxpayer received salary and wages during the year of income. The taxpayer lived with a partner on a genuine domestic basis for the whole of the income year. This included being named on a lease of property. The taxpayer was present in Australia for 300 days in the income year. The taxpayer travelled to Europe for 65 days in the income year to visit friends and family. The taxpayer has continued to reside in Australia since their return and is applying for permanent residency.

Reasons for decision
Summary: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year. Salary and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. The term 'Australian resident' is defined in section 995-1 of the ITAA 1997 and means a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936). Subsection 6(1) of the ITAA 1936 defines 'resident' or 'resident of Australia' to mean a person, other than a company, who resides in Australia and includes a person: In Taxation Ruling TR 98/17 Income Tax: residency status of individuals entering Australia (TR 98/17) at paragraph 12, it states that if a taxpayer is considered to 'reside' in Australia according to the ordinary meaning of the word, the other tests do not need to be considered. The term 'reside' is not defined in either the ITAA 1936 or ITAA 1997. TR 98/17 provides the Commissioner's interpretation of the ordinary meaning of the word 'reside'. It states that the quality and character of an individual's behaviour while in Australia, as well as the period of physical presence of the individual in Australia, assist in determining whether the individual resides here. Paragraph 20 of TR 98/17 states: 'All the facts and circumstances that describe an individual's behaviour in Australia are relevant. In particular, the following factors are useful in describing the quality and character of an individual's behaviour: TR 98/17, at paragraph 25, explains the Commissioner's view that individuals who enter Australia and extend their stay beyond 6 months are regarded as residents from the time of their arrival, as long as their presence has an habitual and routine character during the entire period. The taxpayer has established permanent ties with Australia through their taking on a lease of property, and developing a permanent relationship here. The taxpayer's application for permanent residency and the length of time they were present in Australia during the year of income also indicate that the taxpayer is a resident of Australia for income tax purposes. The trip to Europe to visit friends and family does not affect this conclusion. The taxpayer is considered to reside in Australia and is therefore considered a resident of Australia for income tax purposes under subsection 6(1) of the ITAA 1936. Accordingly, the taxpayer's salary and wages will be included in the taxpayer's assessable income under subsection 6-5(2) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1936 subsection 6(1)
Related public rulings and determinations: TR 98/17
Subject references: Residence in Australia Residence of individuals Domicile tests