Private ruling: Assessability of overseas income
Ruling period: Year ending 30 June 2011 | Year ending 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2010

Ruling: Q1: Will the income you derive in Country X be assessable in Australia? | A1: 


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

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. Therefore, to determine the assessability of your overseas income, it is necessary to determine your residency status for taxation purposes. 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, and · the superannuation test. The first two tests are examined in detail in Taxation Ruling IT 2650. 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 meet 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'. Although the question of whether a person resides in a particular country is a question of fact, the courts have referred to and taken into account various factors considered to be relevant. These are: · whether the person is physically present in that country at some time during the year of income · the history of the person's residence and movements · if the person is a visitor to the country, the frequency, regularity, duration and purpose of the visits · if the person is outside the country for part of the relevant income year, the purpose of the absences · the family and business ties which the person has with the particular country, and · whether a place of abode is maintained by the person in the relevant country or is available for his or her use while there. Taxation Ruling IT 2650 emphasises the intended and actual length of the individual's stay in an overseas country, any intention to return to Australia or travel elsewhere, the establishment or abandonment of any residence, and the durability of association that the individual maintains with a particular place in Australia as the main factors to be considered when determining the residency status of individuals leaving Australia. Application to the facts of the case You will not be residing in Australia according to ordinary concepts after your departure in the income year ending 30 June 2011. You intend to establish a permanent home in Country X with your family and rent out your home in Australia. You intend to reside in Country X for the foreseeable future and at this stage believe you will be there more than 10 years. You have no firm plans to return to Australia to live. You intend to only return to Australia for a maximum of 4 weeks per year for a holiday. Therefore, you will not be a resident of Australia under this test. | Detailed Reasoning - The domicile 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: Domicile is a legal concept, determined according to the Domicile Act 1982 and common law rules established by private international law cases. There are essentially 3 types of domicile that an individual can have: · the domicile of origin · the domicile of choice, and · the domicile of dependency. Basically, the domicile of origin is where the individual was born. 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 relation to domicile of dependency, such a domicile will normally only exist in relation to minors or individuals who are of unsound mind. Application to the facts of the case Your domicile is Australia because you were born in Australia and you are an Australian citizen. Permanent place of abode 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. The courts have considered a person's 'place of abode' is where they consider 'home'. In R v Hammond (1982) ER 1477, Lord Campbell CJ stated that "a man's residence, where he lives with his family and sleeps at night, is always his place of abode in the full sense of that expression." A place of abode must exhibit the attributes of a place of residence or a place to live, as contrasted with the overnight, weekly or monthly accommodation of a traveller. A permanent place of abode does not have to be 'everlasting' or 'forever'. It does not mean an abode in which a person intends to live for the rest of his or her life. An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a permanent place of abode elsewhere. Paragraph 23 of IT 2650 sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode: (a) the intended and actual length of the taxpayer's stay in the overseas country; (b) 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; (c) 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; (d) whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence; (e) the duration and continuity of the taxpayer's presence in the overseas country; and (f) 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 relation to the weight to be given to each of the above factors, paragraph 24 of IT 2650 states: The weight to be given to each factor will vary with the individual circumstances of each particular case and no single factor will be decisive… however… greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant. Application to the facts of the case You intend to reside in Country X for more than 10 years. You only intend to return to Australia for holidays of up to 4 weeks per year. You intend to establish a home in rented accommodation in Country X with your spouse and child and to rent out your home in Australia. You have some family and a bank account in Australia but no social or sporting connections. In conclusion, the Commissioner is satisfied that, based on your intentions, you will establish a permanent place of abode outside of Australia. Therefore, while your domicile is in Australia, since you have satisfied the Commissioner that you will establish a permanent place of abode outside Australia, you will not be a resident of Australia under this test. | Detailed Reasoning - The 183 day test: Under the 183 day test, a person is a resident of Australia if they are actually physically present in Australia for more than 183 days in an income year unless the Commissioner is satisfied that their usual permanent abode is outside of Australia and they have no intention of taking up residence here. Application to the facts of the case In your case you will not be physically present in Australia for more than 183 days in the income years ending 30 June 2011, 2012, 2013 and 2014. Therefore, you will not be a resident of Australia under this test. | Detailed Reasoning - The superannuation test: A person will be considered a resident under the Commonwealth superannuation fund test if they currently contribute to certain superannuation funds for Commonwealth government employees. The eligible funds are funds: · established under the Superannuation Act 1976 (such as the Commonwealth Superannuation Scheme), or · established under the Superannuation Act 1990 (such as the Public Sector Superannuation Scheme), or · the spouse or child under 16 of a person covered by either of the above funds. Application to the facts of the case In your case, neither you, nor your spouse, have ever been Commonwealth government employees and therefore you are not able to contribute to the abovementioned superannuation schemes. Therefore, you will not be a resident of Australia under this test. | Detailed Reasoning - Your residency status: As you do not meet any of the above tests, you will not be a resident of Australia for tax purposes from when you depart Australia in the income year ending 30 June 2011. As you will not be a resident of Australia, according to section 6-5 of the ITAA 1997, your assessable income will only include income gained from sources in Australia. In your case, your assessable income in Australia will include the rental income from your investment property and the interest from your bank account. Therefore, you will not be assessable in Australia on the income you derive in Country X.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | You are a citizen of Australia. | You intend to move to Country X in the income year ending 30 June 2011. | The purpose of your visit is to take up employment there. | Your employment contract is perpetual and can be extended for as long as you wish. | You intend to remain in Country X for the foreseeable future and at this stage you will be there for more than 10 years. | You have no plans to return to Australia to live at this stage. | Your family (spouse and child) will be accompanying you to Country X. | You will return to Australia during your holidays for up to 4 weeks per year. | You will be staying in rented accommodation during your time in Country X. | You own your home in Australia. | You will rent out your home for the duration of your absence from Australia. | You have no sporting or social connections with Australia except family. | You have an Australian bank account. | You have never worked for the Commonwealth Government of Australia. | Your spouse has never worked for the Commonwealth Government of Australia.