Private ruling: Residency and assessable income
Published: December 2011
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015
Date scheme commenced: 1 July 2011

Ruling: Questions and answers: | 1. Will you be a resident for taxation purposes from the date you leave Australia for a foreign country? | No. | 2. Will your income earned from working in a foreign country be assessable in Australia? | No.

Relevant facts and circumstances: You are an Australian citizen. You were born in Australia. You are currently employed in Australia. You have accepted a position with a foreign airline. The airline has its headquarters in a foreign country. Your initial contract will be for several years, but with an option to renew it. The only circumstance where the contract would expire sooner would be due to ill health. You and your spouse, who will accompany you, will be provided with a permanent residence by the employer in the foreign country. The accommodation is provided for the term of the appointment. It is envisaged that employment and overseas residency will commence soon. You will have a "Residency Visa" in the foreign country. You have children who are independent adults. They will not accompany you to the foreign country. You have no plans to return to live in Australia. You have already sold your primary family motor vehicle and the second vehicle is for sale. You are in the process of selling all of your furniture. In addition to the family home, you and your spouse own three rental properties in Australia. These are: Existing residence (this will be rented out in your absence)Rental property #1 Rental property #2 Rental property #3 You will retain your ownership of these properties until the property market recovers. You intend selling all of them so you can acquire property in the foreign country. All of your bank accounts and credit cards in Australia will be closed except for one bank account which will be kept to manage the rental properties. You will also retain interest in a superannuation fund in Australia. You and your spouse plan to return to Australia to visit your family. This will occur no more than a few times a year for a few days each time. You and your spouse have no plans to holiday in Australia. You will open bank accounts in the foreign country. Your salary will be paid into an account in the foreign country. You will not pay tax on your salary in the foreign country. Your only sporting connection in Australia at present is gym membership, which will cease. Your social connections in Australia are family (including an elderly parent) and close friends. In the foreign country, your social connections will be work colleges and neighbours. Sporting connections will be gym membership. Neither you nor your spouse are or were employees of the Commonwealth Government that are/were eligible to contribute to the CSS or PSS. You have no superannuation benefits with PSS or CSS. Relevant legislation provisions: Income Tax Assessment Act 1997 Subsection 995-1(1) Income Tax Assessment Act 1936 Subsection 6(1) Income Tax Assessment Act 1997 Subsection 6(5)


Reasons for decision: Summary: An Australian resident for tax purposes is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to be 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', in regard to an individual, are defined in subsection 6(1) of the ITAA 1936. The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are: o the resides test o the domicile test o the 183 day test o 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 . 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 considered to be a resident of Australia for tax purposes if they satisfy the conditions of one of the other three tests. | Detailed Reasoning - The resides test: The ordinary meaning of the word 'reside', according to the Macquarie Dictionary , 2001, rev. 3 rd 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'. Taxation Ruling IT 2650 provides guidelines for determining whether individuals who leave Australia temporarily to live overseas, for example, on temporary overseas work assignments or on overseas study leave, cease to be Australian residents for income tax purposes during their overseas stay. The principles and guidelines adopted in IT 2650 can also be used for individuals who intend to reside overseas indefinitely. Paragraph 19 of IT 2650 states: The first question to be asked in considering the residency status of a person temporarily leaving Australia is whether he or she can be considered to reside in Australia. If the test of residence according to ordinary concepts is satisfied, there is no need to go any further. The person is a resident of Australia for income tax purposes. In your case, you will be living and working in a foreign country on a contract lasting several years with an option to renew it. You and your spouse, who will accompany you, will be provided with a permanent residence by the employer for the term of the appointment. Accordingly, it is considered that you will be residing in the foreign country while you are employed there and therefore, are not a resident of Australia under the resides test. | Detailed Reasoning - The domicile test: If a person is considered to have their domicile in Australia they will be considered an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia. In order to show that an individual's domicile of choice has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country. In your case, as you are still an Australian citizen while living in the foreign country, your domicile is Australia and remains unchanged. 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. Some of the factors which have been considered relevant by the Courts, Boards of Review and Administrative Appeals Tribunal and which are used by the ATO in reaching a state of satisfaction as to a taxpayer's permanent place of abode include: · the intended and actual length of the taxpayer's stay in the overseas country · 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 · 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 · whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence · the duration and continuity of the taxpayer's presence in the overseas country and · the 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 the Department of Social Security 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. In your case, you: · will live and work in a foreign country · will be employed on a contract for several years which can be renewed · have no plans to return to Australia · will maintain a residence in the foreign country in a dwelling provided by your employer · will establish bank accounts in the foreign country · will be accompanied by your spouse · will close your Australian bank accounts and credit cards but will retain a bank account for the rental properties · will retain interest in a superannuation fund in Australia · have an Australian residence, which will be rented out in the short term, and rental properties in Australia all of which you plan to sell so you can acquire property in the foreign country · are in the process of selling your furniture and cars. On balance and based on the above, the Commissioner is satisfied that you will establish a permanent place of abode outside of Australia. Therefore, you are not a resident under the domicile test during this period. | Detailed Reasoning - 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 and your spouse plan to return to Australia to visit your children and your elderly parent. This will occur no more than a few times a year for a few days each time. These visits will not be for a total of more than 183 days in any income year. Accordingly, you will not be present in Australia for more that 183 days in any income year. Therefore, you will not be a resident of Australia under the 183-day test. | Detailed Reasoning - 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 have stated that you and your spouse have never worked for the Commonwealth Government of Australia in a position where you were able to contribute to the CSS or PSS. Accordingly, you have no benefits with the PSS or CSS superannuation schemes. Further, you are more than 16 years of age. Therefore, you are not a resident of Australia under the superannuation test. | Detailed Reasoning - Conclusion: 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. | Detailed Reasoning - Assessable income of a foreign resident: Subsection 6(5) of the ITAA 1997 states that foreign residents are assessable in Australia on their Australian sourced income. The income you will earn in the foreign country working for a foreign airline will not be Australian sourced income as the effective management of your employer is outside Australia. Therefore, it will not be assessable in Australia.

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