Private ruling: Residency status and foreign sourced income
Published: August 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Question and answer: | Are you a resident of Australia for income tax purposes? | Yes. | Is your foreign sourced income assessable in Australia? | Yes.


Relevant legislative 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. | Income Tax Assessment Act 1936, Section 23AG.

Reasons for decision: Summary: 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. 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: · the resides test · the domicile test · the 183 day test · the superannuation test. The first two tests are examined in detail in Taxation Ruling It 2650: Residency - Permanent Place Of Abode Outside Australia . | Detailed Reasoning - Residence according to ordinary concepts: The primary test for deciding your residency status is whether you reside in Australia according to the ordinary meaning of 'resides'. 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'. There have been several court cases where residence according to ordinary concepts has been examined in detail. Overall, residence includes two elements: physical presence in a particular place and the intention to treat the place as home, at least for the time being, not necessarily forever. In Joachim v FCT [2002] ATC 2008, physical presence was determined to include whether or not the person has retained a continuity of association with a place, together with an intention to return to that place and an attitude that the place remains home. In a recent case Iyengar and Commissioner of Taxation [2011] AATA 856 (30 November 2011) (Iyengar's case) the AAT found the individual was a resident of Australia under the resides test because of his continuity of association with Australia by maintaining his jointly owned home in Australia and the fact that this spouse remained in that home in Australia. In reaching its conclusion the Tribunal considered the following factors in relation to Iyengar residency status: | Detailed Reasoning - Physical presence: · his family remained in Australia; · he transferred his employment income to Australia to pay his mortgage; · he returned to his home in Australia during holidays; · he retained most of his personal items in Australia; · his temporary and fixed employment contract (2 years); and · he did not purchase any substantial items of personal property whilst overseas. | Detailed Reasoning - Nationality: Ordinarily, the nationality of an individual does not weigh significantly in deciding the residency status of an individual. However, in borderline cases, this factor may play a role. In Iyengar's case the taxpayer and his family became Australian citizens in June 2003. | Detailed Reasoning - Maintenance of a place of abode: In Iyengar's case the taxpayer maintained a place of abode in Australia, being his family home, whilst he was employed overseas. The taxpayer also left behind in Australia some of his personal items, such as two motor vehicles, furniture and appliances, clothing and other household items. These factors were found to be indicative of him remaining an Australian resident. | Detailed Reasoning - Family and business ties with a country: Case law has established that the family or business ties that an individual retains with a country are relevant in determining whether an individual has remained or ceased to be a resident. In Iyengar's case the following ties that the taxpayer had with Australia were such that he remained a resident of Australia: · his family remaining in Australia (except for the short trip to Dubai by his wife); · he maintained his family home in Australia; · he used all his foreign income to make additional payments on his mortgage; and · his holidays in Australia were at his family home. | Detailed Reasoning - Physical presence:: · your family spouse and children have remained in Australia; · the income derived from your overseas employment is transferred to Australia to pay your Australian mortgage; · you return to your home in Australia during your holidays; · you have retained personal belongings in Australia; · your employment contract is temporary and fixed in duration; and · you have not purchased any substantial items of personal property whilst overseas. | Detailed Reasoning - Nationality: You are an Australian citizen, however ordinarily this does not weigh significantly in deciding the residency status of an individual unless the case is a borderline case. | Detailed Reasoning - Maintenance of a place of abode: You have maintained a place of abode in Australia, being your family home, whilst you were working overseas. You also left behind in Australia some of your personal belongings. These factors were found to be indicative of you remaining an Australian resident. | Detailed Reasoning - Family and business ties with a country: In your case the following ties that you have with Australia add weight to the argument that you remained a resident of Australia: · your spouse and children have remained in Australia while you were working overseas; · you have maintained your family home in Australia; · you returned to your family home when you were not working overseas. | Detailed Reasoning - Result of residence according to ordinary concepts test: Despite your limited physical presence in Australia, based on the principles established in Iyengar's case we cannot overlook the fact that you have maintained a continuity of association with Australia, significantly, the maintenance of your family, home and personal items in Australia. Therefore, consistent with the principles established in Iyengar's case you continue to be a resident of Australia for taxation purposes under the 'resides test'. As it has been established that you are a resident under the resides test there is no need to consider the remaining 3 tests. | Detailed Reasoning - Your residency status: As you are a resident of Australia under the 'resides test' outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, you are an Australian resident for income tax purposes for the 2011-12 income year. | Detailed Reasoning - Assessability of foreign sourced income: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Salary and wages are ordinary income for the purpose of subsection 6-5(2) of the ITAA 1997. Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not included in assessable income. Section 11-15 of the ITAA 1997 lists those provisions dealing with income that may be exempt. Included in this list is section 23AG of the Income Tax Assessment Act (ITAA 1936), which deals with overseas employment income. Subsection 23AG(1) of the ITAA 1936 provides that where Australian resident individuals are engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from that foreign service are exempt from tax in Australia. You are employed overseas at a learning institute, and are engaged in Foreign Service for a continuous period of not less than 91 days. Therefore your foreign earnings derived from that Foreign Service are exempt from tax in Australia, subject to other provisions listed under section 23AG of the ITAA 1936. Subsection 23AG(1AA) of the ITAA 1936, which took effect from 1 July 2009, provides that those foreign earnings will not be exempt under section 23AG of the ITAA 1936 unless the continuous period of foreign service is directly attributable to any of the following: · delivery of Australian official development assistance by your employer; · activities of your employer in operating a public fund declared by the Treasurer to be a developing country relief fund, or a public fund established and maintained to provide monetary relief to people in a developing foreign country that has experienced a disaster (a public disaster relief fund); · activities of your employer as a prescribed charitable or religious institution exempt from Australian income tax because it is located outside Australia or the institution is pursuing objectives outside Australia; or · deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force. The foreign employment income that you have derived is not attributable to any of the provisions listed under subsection 23AG(1AA) of the ITAA 1997. Therefore, section 23AG of the ITAA will not apply to exempt your foreign sourced income from Australian income tax. Accordingly, the foreign sourced income that you have derived in country Z is subject to Australian income tax under section 6-5 of the ITAA 1997.

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 were born in country Z and are a citizen of Australia. | You moved to Australia with your spouse and children. | After a period of unemployment in Australia, you found employment working overseas at a learning institute. | You departed Australia to take up your overseas employment position. | You entered country Z on a residency visa that is renewable annually. | The terms of your overseas employment assignment are such that your contract is renewable annually. | The income that you derive from your employment in country Z is not attributable to any of the following: | · the delivery of Australian official development assistance by your employer | · the activity of your employer in operating a public fund declared by the Treasurer to be a developing country relief fund; or a public fund operated by a public benevolent institution solely to provide relief to people in a foreign country other than one which has been declared to be a developing country by the Foreign Affairs Minister | · the activities of your employer, being a prescribed institution that is exempt from Australian income tax | · deployment outside Australia by an Australian Government (or an Australian Government authority) as a member of a disciplined force | · an activity of the kind specified in the regulations. | While in country Z you live in a unit which you are required to pay rent and have a renewable lease. | Some of your personal items have remained in Australia. | While you were overseas your spouse remained in Australia to look after your children who are studying in Australia. | Since first departing Australia you have returned on a number of occasions for short periods to visit your family. | When you were in Australia you lived with your spouse and children in your family home. | Your spouse and some of your children travelled to country Z to accompany you for a period over the summer break. A number of your children remained in Australia. | The assets that you hold in Australia consist of the following: | · a share in your family home; | · a share in an investment property; and | You do not own any assets overseas. | The income that you derive from your overseas employment is transferred to Australia to pay for your Australian mortgage. | You intend to return to Australia permanently as soon as you are able to find employment in Australia.