Private ruling: Residency and deductions - living expenses
Published: May 2015
Ruling period: Year ended 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2013

Ruling: Question and answer | 1. Are you an Australian resident for taxation purposes? | Yes. | 2. If so, are you able to claim a deduction for meal and incidental expenses whilst working overseas? | No.

Relevant facts and circumstances: You are an Australian Citizen and were born in Australia. You lived in a house you are part owner in Australia prior to your departure to Country A. You departed Australia to work in Country A during 20XX. You obtained a working visa that entitled you to stay in Country A for 12 months, and could be renewed by your employer. Your employer provided you with an apartment to live in whilst you worked overseas. You were employed for over a year. You returned to Australia four times whilst working in Country A. Your visits back to Australia were to see friends, organise Power of Attorney and attend to other matters due to living overseas. You also returned to Australia in 20XX as the company you worked for was closed, and you had to fly back to Australia for medical treatment. You returned to Australia permanently in 20YY. Your intention is to obtain sponsorship from an employer in Country A and return to the country. You own a share in a dwelling, have a car in Australia and an Australian bank account. You left your household effects at you dwelling. You have no assets in Country A. You have not advised the Australian Electoral Office to have your name removed from the electoral roll. You have not advised any Australian financial institutions that you are a foreign resident so that non-resident withholding tax can be deducted. You have not advised Medicare or your health insurance provider to have your name removed from their records. You have not lodged tax returns in any other country. You stated your reason for going overseas when completing the Australian Immigration Outgoing passenger card as 'working'.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 6(1) | Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 995-1

Reasons for decision: Detailed Reasoning - Residency for taxation purposes: Section 995-1 of the Income tax Assessment Act 1997 (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. If any one of these tests is met, an individual will be a resident of Australia for taxation purposes. The resides test is the primary test for determining the residency status of an individual for taxation purposes. If residency is established under the resides test, the remaining three tests do not need to be considered. However, if residency is not established under the resides test, an individual will still be a resident of Australia for taxation purposes if they meet the conditions of one of the other three tests. | 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 it's ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936. In Dempsey and Commissioner of Taxation [2014] AATA 335 (29 May 2014) the Administrative Appeals Tribunal noted that the settled position of the courts (at ultimate appellant level) as to the meaning of the word resides in the ITAA 1936 is that the word: bears its ordinary English meaning, which 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". Based on the facts of your case, the Commissioner accepts that you were not residing in Australia according to the ordinary meaning of the word whilst working in Country A. | Detailed Reasoning - The domicile test: Under this test, a person whose domicile is in Australia will be considered a resident of Australia for taxation purposes, unless the Commissioner is satisfied the person's permanent place of abode is outside Australia. A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. A person's domicile of origin will not usually change, but can in some circumstances. For example, a person can acquire a domicile in another country by choice. In order to acquire a new domicile by choice, a person must have an intention to make their home indefinitely in a country outside their domicile of origin. Sufficient proof of such an intention is considered to exist in cases where a person is granted permanent residency, or becomes a citizen of a country outside of their domicile of origin. In your case, we consider that you did not make Country A your permanent place of abode because: • You had a temporary visa that relied on sponsorship from your employer. • You maintained a dwelling in Australia and kept most of your household effects there. • You returned to Australia on four occasions whilst working in Country A. • You returned to Australia after your contract finished. • You do not have any assets, social or sporting connections in Country A. The Commissioner is not satisfied that you have established a permanent place of abode outside Australia therefore you are a resident under this test. | Detailed Reasoning - Your residency status: As you meet the domicile test of residency, you are a resident of Australia for taxation purposes. You are required to declare all your income derived both in and out of Australia in your Australian tax return. | Detailed Reasoning - Deduction for meal and incidental expenses: Section 8-1 of the ITAA 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. As a general rule, expenditure on accommodation, meals and incidentals while working away from home is not allowed as a deduction. These costs are essentially 'living expenses' of a private or domestic nature. The fact that income cannot be earned unless certain expenses are necessarily incurred is not an indication of deductibility. 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 in the course of undertaking their work duties that the taxpayer's expenses can be deducted ( Taylor v. Provan 1975 AC 194). A deduction is not allowed for the cost of travel between home and your normal workplace as it is generally considered to be a private expense. The distance of travel does not change the private nature of the expense. In your case, your normal workplace was in Country A. The distance between your home and your work is what necessitates the need for you to stay away from home. Your trips between your home and your accommodation in Country A were not travelling on work but rather, you were travelling to work. Therefore, meal and incidental expenses incurred in Country A are considered to retain their private nature and a deduction is not available.