Private ruling: Residency
Published: September 2012
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2011

Ruling: Questions and answers | 1. Are you a resident of Australia for tax purposes from the time you left to travel overseas? | Yes | 2. Is your foreign income assessable in Australia? | Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. Your country of origin is Country X and you have been an Australian citizen since you were a child. You left Australia to travel overseas and to self study languages. You hold a tourist visa. You found a job in Country X during your travels and you worked for a Country X company for one year. You were a project manager and your employment was not attributable to the limited categories of foreign earnings exemption categories. You paid tax on the salary you earned in Country X. Your employer sponsored you on a Country X work visa and you rented an apartment in Country X while you were employed. You returned to Australia after one year. You have returned overseas to travel and continue your studies. You plan to go to several other tourist destinations. While overseas you stay with friends and at hotels. You plan to be overseas for a further Y months. You consider your travel overseas is for a working-cultural experience and that you travel as a tourist/student. You intend to return to Australia at the end of your travels. Assets in Australia include bank accounts, your apartment, and investments. You have an apartment in Australia which you currently let friends stay there. It is also where you stay when you return to Australia. The only asset you have overseas is a bank account. You have never held a position with the Commonwealth Government of Australia.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 6(1), | Income Tax Assessment Act 1997 Section 6-5, | Income Tax Assessment Act 1997 Section 995 and | Income Tax Assessment Act 1936 Section 23AG

Reasons for decision: Summary: 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, and · 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. If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established. Where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be an Australian resident if they meet the conditions of one of the other 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'. You have been travelling overseas for over a year and accordingly you are not residing in Australia. As you do not meet the resides test, we will need to consider whether you meet any of the other three tests of residency. | 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 the place that is considered by law to be your permanent home. It is usually something more than a place of residence. 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. Your domicile is Australia because you are an Australian citizen and you intend to return to Australia after your time away overseas. Therefore, you will be a resident of Australia unless the Commissioner considers you have established a permanent place of abode outside of Australia. | 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 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 Taxation Ruling IT 2650 Residency - Permanent place of abode outside Australia 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. The Commissioner is not satisfied that you have a permanent place of abode outside Australia because: · You are overseas on a tourist visa with no intention to stay overseas permanently · You rented an apartment overseas on a temporary basis while you were working for a period of only one year · You are now travelling to various countries to continue your travels and stay in hotels or with friends · You have kept your apartment in Australia for when you return · You plan to be overseas for a further Y months which will be a total of Z months you have been overseas since first leaving Australia in the relevant year. As the Commissioner is not satisfied that you have established a permanent place of abode outside Australia you are a resident of Australia under the domicile test. | Detailed Reasoning - Your residency status: As the Commissioner is satisfied that you are a resident of Australia under the domicile test of residency there is no need to examine the remaining tests. As you are domiciled in Australia, and the Commissioner is satisfied that you do not have a permanent place of abode outside Australia, you are a resident of Australia for income tax purposes. | Detailed Reasoning - Foreign income: Australian residents are taxed on their world wide income, that is, the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. You are required to declare your income both in and out of Australia in your Australian tax return. Section 23AG of the Income Tax Assessment Act 1936 exempts certain foreign salary and wage income from tax in Australia. The income must be from specified types of employment. Subsection 23AG(1AA) of the ITAA 1936 provides that foreign earnings are not exempt from tax unless the continuous period of foreign service is directly attributable to any of the following: · the delivery of Australian official development assistance by the taxpayer's employer (generally provided by AusAID or the Department of Foreign Affairs and Trade); · the activities of the taxpayer's employer in operating a public fund covered by the deductible gift recipient categories overseas aid fund and developed country disaster relief fund; · the activities of the taxpayer's employer whether they are a charitable institution or religious institution which is income tax exempt because they are a prescribed institution located outside Australia or pursuing objectives principally outside Australia; · the taxpayer's deployment outside Australia as a member of a disciplined force of Australia (generally considered to be the Australian Defence Force or Australian Federal Police); or · an activity of a kind specified in the regulations. You advised that your foreign employment did not fall within any of the above categories listed above. Your foreign income is assessable in Australia and you are required to lodge a tax return in Australia. You may, however, be entitled to a foreign income tax offset for the foreign tax you paid. For further information regarding residency and working overseas as a resident of Australia please refer to a range of information on our website www.ato.gov.au