Private ruling: Residency and assessable income
Published: May 2015
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Questions and answers: | 1. Are you a resident of Australia for income tax purposes? | No. | 2. Is the income that you derive from your Australian employer assessable in Australia? | No.

Relevant facts and circumstances: You were born in country S before moving to country T. Later you moved to Australia. You are a citizen of both Australia and country T. After a number of years, you and your spouse left Australia to reside permanently in country T. On arrival in country T you have re-obtained a drivers licence and found long term accommodation. All your household and personal belongings have been transported to country T. With the exception of bank accounts you have no other assets in Australia. You have never been an employee of the Commonwealth Government of Australia. Prior to your departure from Australia you informed the Australian Electoral Commission to remove your name from the electoral role and cancelled your private health insurance. You stated on your immigration outgoing card that you were migrating to country T. Since your departure you have not returned to Australia. It is your intention to live in country T for the foreseeable future. After returning to country T, you began employment as a research assistant for an Australian organisation. You are paid as an employee. Your employment activities are exclusively conducted in country T. Any contact that is required with your employer is done so via the internet. You have derived income from your Australian employer.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(3) | Income Tax Assessment Act 1997 Section 995-1 | Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision: Detailed Reasoning - Residency: 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. 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. An individual need only satisfy the conditions of one of the four tests to be deemed a resident of Australia for income tax 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. 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 will not be residing in Australia according to the ordinary meaning of the word. | 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. In your case your domicile of origin is country S, however you moved to country T and gained country T citizenship therefore electing country T as your domicile of choice. You moved to Australia and gained Australian citizenship, therefore changing your domicile of choice to Australia. You have now returned to country T re-establishing country T as your domicile of choice. Therefore your domicile is country T. Therefore you will not be a resident of Australia for income tax purposes under the domicile test.. | Detailed Reasoning - The 183-day test: Where a person is present in Australia for 183 days during the year of income the person will be a resident, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia. You will not be physical present in Australia for a period of greater than 183 days in the 2015 income year. Therefore you will not be a resident of Australia for income tax purposes under the 183 day test. | Detailed Reasoning - The Superannuation test: An individual is considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Service Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person. Generally Commonwealth Government employees are eligible to contribute to the PSS or CSS. You have never been a member of a CSS or PSS. Accordingly, you are not a resident under this test. | Detailed Reasoning - Your residency status: As you will not be a resident of Australia under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, you will not be considered to be an Australian resident for taxation purposes in the 2015 income year. | Detailed Reasoning - Assessable income: Subsection 6-5(3) of the ITAA 1997 provides that non-residents of Australia are only liable to pay tax on income sourced in Australia. The determining factor when considering which country income is sourced from is where the employment has been exercised. This is regardless of which country the employer is located. | Detailed Reasoning - Your circumstance: Although you are a contractor with an Australian organisation, all of your employment duties are performed in country T. Therefore your employment income is sourced from country T. Accordingly, as you are not a resident of Australia for income tax purposes and the income that you derived from you Australian employer is foreign sourced, this income is not assessable in Australia under subsection 6-5(3) of the ITAA 1997.