Private ruling: Residency status and assessable foreign sourced income
Date of advice: 5 May 2017
Published: September 2017
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: May 201X

Ruling: Q1: Are you a resident of Australia for income tax purposes for period 1? | A1: Yes. | Q2: Are you a resident of Australia for income tax purposes for period 2? | A2: Decline to rule. | Q3: Are you exclusively a resident of Australia for income tax purposes under the Country Z Double Tax Agreement? | A3: Yes. | Q4: Is the income that you derive in Country Z assessable in Australia under the Country Z Double Tax Agreement? | A4: Yes.

Relevant facts and circumstances: You were born in Country Z and are a dual citizen of Country Z and Australia. You have a spouse and independent children. You moved to Australia and for many years have lived and worked in Australia. Due to the down turn in your employment industry you took up a full-time employment position based in Country Z. The result of your employment is that you intend to live and work in Country Z for a number of years. Shortly obtaining employment in Country Z, you left Australia to live and work in Country Z. Due to Country Z containing one of the most dangerous cities in the world and the limited work opportunities your spouse has remained in Australia. You entered Country Z using your Country Z passport. While in Country Z you have lived in an apartment on a long term lease and have personally purchased furniture, whitegoods and household items. As a represent period you have returned to Australia on a number of occasions for short periods. The purpose of each visit was to be with your spouse who continued to live and work in Australia. You have advised that in future there will be limited travel to Australia. You have advised the Australian Electoral Commission that you were no longer a residing in Australia. You have maintained your Australian private health insurance. You are awaiting the outcome of this private ruling before informing your financial institutions that you are a foreign resident for income tax purposes. Your assets in Australia consist of your family home, bank accounts, credit cards and a number of motor vehicles that are used by members of your family. Your spouse who is employed in Australia continues to occupy your family home. Your assets in Country Z consist of a motor vehicle, household goods and a mobile phone. You have cancelled all of your professional, social and sporting ties to Australia. Your professional, social and sporting ties to Country Z consist of a club and relevant membership. Since your arrival in Country Z, you have lodged income tax returns to the Country Z authorities. Your taxation status in Country Z is both 'tax resident of Country Z' and 'ordinary resident'. You and your spouse have never been employees of the Commonwealth Government of Australia. Your intention is to continue to live, work and eventually retire in Country Z.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 6(1) | Income Tax Assessment Act 1997 Section 995-1

Reasons for decision: Summary: Section 995-1 of the ITAA 1997 defines an Australian resident for tax purposes as 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. The tests are: ● the resides test, ● the domicile (and permanent place of abode) test, ● the 183 day test, and ● the superannuation test. The first two tests are examined in detail in TAXATION RULING NO. IT 2650 INCOME TAX: Residency - Permanent Place of Abode Outside Australia . The latter two tests are relatively self-explanatory as they require the individual to either be physical present in Australia for a period greater than 183 days or be eligible to contribute to the PSS or CSS superannuation schemes. If any one of these tests is met, an individual will be a resident of Australia for taxation purposes. | Detailed Reasoning - The resides test: The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'. As the word 'reside' is not defined in Australian taxation law, it takes its ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936. 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 TR 98/17 Income tax: residency status of individuals entering Australia, discusses the Commissioners view on the application of the 'resides' test when determining an individual's residency status. Although Tax Ruling TR 98/17 considers the residency status of individuals entering Australia, the same principles can be applied to those departing Australia. Paragraph 18 of Tax Ruling TR 98/17 provides; The period of physical presence or length of time in Australia is not, by itself, decisive when determining whether an individual resides here. However, an individual's behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here. The weight to be given to each factor will vary with the individual circumstances and no single factor is necessarily decisive. In Joachim v. Federal Commissioner of Taxation 2002 ATC 2088; AATA 610, the Tribunal stated (at 2090): Physical presence and intention will coincide for most of the time but few people are always at home. Once a person has established a home in a particular place, even involuntarily, a person does not necessarily cease to be a resident there because he or she is physically absent. The test is, whether the person has retained a continuity of association with the place, together with an intention to return to that place and an attitude that the place remains home. | Detailed Reasoning - Residency status - period 1: In your case, you have lived in Australia with your family for many years. After a number of years you obtained overseas employment. From the information that you have provided and was subsequently corrected, you have demonstrated a pattern of repeatedly returning to Australia to be with your spouse who has continued to live and work in Australia. Therefore, the Commissioner is satisfied that you have retained a continuity of association with Australia and thus are a resident of Australia for income tax purposes under the 'resides test'. As it has been determined that you are a resident of Australia under the 'resides test', there is no need to consider the remaining 3 tests for residency. Accordingly, as you are a resident of Australia under the 'resides test', you are a resident of Australia for income tax purposes under subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997. | Detailed Reasoning - Residency status beyond 1 July 2017 - Decline to rule: Under section 357-105 of Schedule 1 to the Taxation Administration Act 1953 (TAA), if further information is required in order to make a private ruling, the Commissioner must request that information from the applicant. Because of the binding nature of a private ruling and the rights of review available to the applicant, the facts in relation to the scheme to be ruled on must be fully disclosed and explained to ensure that the scheme has been clearly identified. We are declining to provide you with private ruling for future income years because we consider that the correctness of your ruling would depend on the assumption that there is a significant change in the nature of your travel to and from Australia from that which has been demonstrated in the prior years. We are not prepared to make a ruling on the basis of that assumption. | Detailed Reasoning - Assessable income: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that for an Australian resident, assessable income includes ordinary income derived directly or indirectly from all sources whether in or out of Australia. Foreign sourced employment income is assessable as ordinary income. Therefore, as you are a resident of Australia for income tax purposes the foreign sourced employment income that you have derived in Country Z is assessable in Australia under section 6-5 of the ITAA 1997. | Detailed Reasoning - Double tax agreement: In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements. Section 4 of the International Tax Agreements Act 1953 (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 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country Z Agreement is listed in section 5 of the Agreements Act. The Country Z Agreement is located on the Austlii website (http://www.austlii.edu.au/) in the Australian Treaties Series database. The Country Z agreement operates to avoid the double taxation of income received by residents of Australia and Country Z | Detailed Reasoning - Residence: Article 4(2) of the Country Z Agreement advises that where a person is a resident of both Australia and Country Z then the person shall be deemed to be a resident only of the country in which a permanent home is available to the person, or if a permanent home is available to the person in both countries, or in neither of them, the person shall be deemed to be a resident only of the country with which the person's personal and economic relations are closer. In your case, you have a permanent home in both Australia and Country Z. However, your spouse and children have continued to reside in Australia and your Australian assets are far more substantial than your Country Z assets. Therefore, as your personal and economic relations are closer to Australia than Country Z, you are only a resident of Australia under Article 4(2) of the Country Z Agreement. | Detailed Reasoning - Dependent personal services: Article 15(1) of the Country Z Agreement advises salaries, wages and other similar remuneration derived by an individual who is a resident of Australia in respect of employment shall be taxable only in Australia unless the employment is exercised in the Country Z. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in Country Z. In your case, as you are a resident of Australia any salaries, wages and other similar remuneration that you derive in Country Z is assessable in Australia. | Summary: You are a resident of Australia for income tax purposes under subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997. Under Article 4(2) of the Country Z Agreement, as your personal and economic are closer to Australia you are only a resident of Australia. Under Article 15(1) of the Country Z Agreement, your salaries, wages and other similar remuneration will be assessable in Australia. | Detailed Reasoning - Dempsey v Commissioner of Taxation (2014) AATA 335: Taxation Ruling IT 2650 provides guidelines for tax officers in determining whether individuals who leave Australia temporarily are Australian residents as defined in section 6(1) of the Income Tax Assessment Act 1936 (Cth). The recent decision of the AAT in Dempsey v Commissioner of Taxation [2014] AATA 335 was consistent with the taxation ruling in applying the ordinary meaning of “reside” in determining whether a taxpayer is a resident of Australia, and concluding that it is not possible to provide conclusive rules for determining the residency status of individuals leaving Australia temporarily. Since the decision of the AAT is consistent with the taxation ruling, we do not consider that any private binding rulings or decisions of the ATO will change as a result of the Tribunal's decision in Dempsey. Decisions in residency matters are based on the specific facts of each case. We encourage taxpayers to provide us with all relevant information when applying for a ruling on their residency status, so that the appropriate decision can be made at first instance.