Private ruling: Residency, assessable income and work related expenses
Date of advice: 22 February 2018
Published: June 2018
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you a non-resident of Australia for income tax purposes? | A1: Yes | Q2: Is the income derived in Australia until you left for Country B assessable income? | A2: Yes | Q3: Is the income earned during while living ion Country B required to be apportioned to include only the income earned while you were physically present in Australia? | A3: Yes | Q4: Is the cost of airfares from Country B to Australia and return, paid by you as part of your employment agreement, deductible against your Australian sourced income? | A4: No

Relevant facts and circumstances: You are an Australian citizen. You were employed by an Australian company. You moved to Country B. Your spouse moved to Country B before you. You agreed to travel back to Australia to work for approximately one week every month at your own cost. This was a requirement for your relocation to Country B. The Australian company arranged to pay for your visa’s and other costs. You continued to be paid by the Australian company into your Australian bank account. You lived with your spouse’s family while you worked in Australia. You lived with your spouse in leased accommodation while in Country B. You did not retain any assets in Australia when you relocated to Country B.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-10(5)(a) | Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision: Detailed Reasoning - Residency: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation 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 provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are: ● the resides test ● the domicile test ● the 183 day test ● 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. However, where an individual does not reside in Australia according to ordinary concepts, they may still be a resident of Australia for tax purposes if they meet the conditions of one of the other three tests. | Detailed Reasoning - The resides (ordinary concepts) 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'. The Commissioner may make reference to the following factors in determining whether a taxpayer is 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. 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, there are various factors that indicate that you were not residing in Australia during the years in question, specifically: ● you only returned to Australia for one week per month to fulfil employment obligations; ● you live in leased accommodation in Country B which was for your own exclusive use; and ● you did not maintain a place of abode in Australia. Based on the above, you were not residing in Australia during the years in question. Therefore, you were not a resident of Australia under the resides test of residency for the period of the ruling. | Detailed Reasoning - The domicile and permanent place of abode test: Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia, unless the Commissioner is satisfied that their permanent place of abode is outside of Australia. | Detailed Reasoning - 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. In your case, your domicile of origin is Australia and there is no evidence to suggest that you changed your domicile to Country B while you were based in that country. Therefore, your domicile was still Australia during the relevant period. | Detailed Reasoning - 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 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. 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. In your case, there are various factors that indicate that you had a permanent place of abode outside Australia during the relevant years: ● you lived and worked in Country B; ● you lived in leased accommodation in Country B which was for your own exclusive use; and ● you did not maintain a place of abode in Australia. Based on the above, the Commissioner is satisfied you had a permanent place of abode outside Australia during the relevant period. Therefore, you were not a resident of Australia under the domicile and permanent place of abode test of residency for the period of the ruling. | Detailed Reasoning - The 183 day test: Under the 183 day test, a person is a resident of Australia if they are present in Australia for more than 183 days in an income year unless the Commissioner is satisfied that their usual place of abode is outside of Australia and they have no intention of taking up residence here. You were not a resident of Australia under this test as you were not present in Australia for more than 183 days during any of the relevant years. | 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. You were not a resident under this test for the relevant years. | Detailed Reasoning - Your residency status: You were not an Australian resident for taxation purposes for the relevant income years. | Detailed Reasoning - Assessable Income: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a taxpayer includes ordinary and statutory income derived directly and indirectly from all sources (whether in or out of Australia) during the income year. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source. Your income is sourced where you are conducting the relevant activities for which you are paid. In this case a portion of your income is sourced in Australia as this is where you perform your duties for one week out of every month. Section 6-10(5)(a) of the ITAA 1997 provides that if you are a foreign resident, your assessable income includes your statutory income from all Australian sources. For the period before your moved to Country B all of your income is assessable, during the period you were living in Country B but also working in Australia only the portion of the income you earned in Australia is assessable income. | Detailed Reasoning - Deductions: Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. In considering the deductibility of travel expenses, a distinction is made between travel to work and travel on work. It is only if the duties of the job require a taxpayer to travel that the taxpayer's expenses can be deducted. Taxation ruling 95/34 provides a deduction is generally not allowable for the cost of travel by an employee between home and their normal workplace as it is considered to be a private expense. The cost of this travel is incurred to put you in a position to perform your duties of employment, rather than in the performance of those duties. Draft TR 2017/D6 provides that travel undertaken because of an employee's choice, such as where to live, is not usually incurred in gaining or producing the employee's assessable income and has a private or domestic character. However, if travel by an employee is required in performing their work duties or work activities, little regard is given to a choice the employee may have had which would have avoided or reduced the need for the travel. In your case, you have incurred expenses for the airfares between your home and your work. This travel is incurred in order to put you in a position to perform the duties of your employment; it is not incurred in the performance of the duties of your employment. Travel is not a part of your actual work duties, accordingly you cannot claim the cost of your airfares as a deduction.