Private ruling: Residency
Published: March 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: 1 . Are you a resident of Australia for tax purposes? No. 2. Is your income from Country A assessable in Australia? No.


Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 6(1). | Income Tax Assessment Act 1997 Subsection 6-5(2). | Income Tax Assessment Act 1997 Subsection 995-1(1). | Income Tax Assessment Act 1997 Subsection 6-5(3) | International Tax Agreements Act 1953 Section 4 | International Tax Agreements Act 1953 Section 5

Reasons for decision: Detailed Reasoning - Residency: 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 during the income year. 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) and section 995-1(1) of the ITAA 1997. 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 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. 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. | 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'. You were residing in country A as evidenced by: o living in long term rental accommodation o working full time o your intention to work in country A indefinitely, and o only returning to Australia due to natural disasters in country A. At the time this move was considered to be temporary. Therefore, you were not considered to be residing in Australia and so are not a resident for tax purposes under this 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 a new domicile of choice in a country outside Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country. In your case, you moved to country A intending it to be on a permanent basis. You had a spousal visa that ran for about 12 months and intended extending this visa to remain living in country A. It is considered that those actions and intentions resulted in you obtaining a new domicile of choice, that is, a domicile in country A. As your domicile was considered to be in country A (and not Australia), you are not a resident for tax purposes under this test. | 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, 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. As you were present in Australia for less than 183 days in the financial year, you are not a resident for tax purposes under this test. | Detailed Reasoning - The superannuation test: An individual is still considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person. To be eligible to contribute you must be or have been a Commonwealth Government employee You will not be treated as a resident under this test as you or your wife have not worked for the Commonwealth Government of Australia and so cannot be a member of the CSS or PSS. Further you are over 16 years old. | Detailed Reasoning - Conclusion: As you did have not passed any of the tests of residency, it is considered that you were not a resident of Australia for tax purposes under subsection 995-1(1) of the ITAA 1997 and subsection 6(1) of the ITAA 1936. | Detailed Reasoning - Taxation of income: Subsection 6-5(3) of the ITAA 1997 provides that ordinary income derived by a non resident directly or indirectly from Australian sources, as well as other ordinary income included by a provision on a basis other than having an Australian source, is assessable. Salary and wages are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997. Generally, Australian courts have held that the source of employment income is where the employee performs their duties ( C of T (NSW) v. Cam and Sons Ltd (1936) 36 SR (NSW) 544; 4 ATD 32 and FC of T v. French (1957) 98 CLR 398; (1957) 7 AITR 76; 11 ATD 288). The courts also confirmed that it is appropriate to apportion income earned to reflect the source of income. Thus, employment income earned while carrying out duties in Australia is considered to be sourced in Australia. Employment income earned while being carried out overseas is considered to be sourced in that overseas country, unless it is merely incidental to the performance of the taxpayer's duties in Australia. In determining the liability to tax on Australian sourced income received by a non resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act). Section 4 of the 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 # of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section # has the force of law. The Japanese Agreement is listed in section # of the Agreements Act. The country A agreement operates to avoid the double taxation of income received by residents of Australia and country A. Article * of the country A Agreement provides that salary and wages derived by an individual who is a resident of country A in respect of an employment will be taxable only in country A unless the employment is exercised in Australia. If the employment is exercised in Australia, the remuneration may be taxed in Australia. However, Article @ of the country A Agreement provides that salary and wages derived by an individual who is a resident of country A in respect of employment exercised in Australia shall be exempt from tax in Australia if: (a) the recipient is present in Australia for a period or periods not exceeding in the aggregate 183 days in any 12 month period commencing or ending in the taxable year of Australia (b) the remuneration is paid by or on behalf of an employer who is not a resident of Australia, and (c) the remuneration is not borne by a permanent establishment which the employer has in Australia In your case you are not a resident of Australia for tax purposes. Accordingly, the income you earned while living and working in country A was derived from a source outside Australia, and so it is not assessable in Australia. You derived income from your country A employer when you were physically working in Australia at some stage during the income year. However, as you were present in Australia for less than 183 days during the income year, and your remuneration was paid by your employer who was not a resident of Australia and was without a permanent establishment in Australia, your income from country A derived when you were in Australia, is not assessable in Australia.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You left Australia to live in country A. | You entered country A on a Spouse visa. | The spouse visa was for about 12 months which could be extended. | Your spouse is a country A national and a permanent resident of Australia. | Your child is a dual citizen of Australia and country A. | It was your intention to live indefinitely in country A. | You do not own a property in Australia. | You lived in rental accommodation in Australia and terminated the lease when you moved to country A. | You disposed of your furniture and car, and stored some small belongings prior to leaving for country A. | In Australia you had approximately $ in shares, $ in term deposits, and your spouse holds approximately $ in a term deposit. | You and your family left Australia on one-way airline tickets. | You did not have employment to go to in country A. | You began permanent employment in country A after arriving in country A. | You opened a bank account for your salary to be paid into. | You lived with your spouse's family for a short time in country A, then secured rental accommodation on a multiple year lease. | You purchased furniture, obtained health Insurance, and were registered in the municipality you lived in. | You had close ties with your wife's family and friends while in country A. | You established friendships within the company and became part of your local community. | You returned to Australia following natural disasters in country A which posed health risks to your family. At the time it was a temporary move only. | You remained working for your employer from an affiliated office in Australia and continued to pay rent on your apartment in country A. | You took leave of absence (unpaid) later on the condition that you return to work before a set date. Prior to this you returned to country A to pack personal belongings and work a few days in an office in country A. You returned to Australia. | Your employment with your country A employer ceased unexpectedly and you were granted a full redundancy with benefits some months after arriving back in Australia. | You or your spouse have never been Australian government employees. | You are over 16 years of age.