Private ruling: Assessability of income and residency
Date of advice: 13 March 2017
Published: August 2017
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020

Ruling: Q1: Are you a resident of Australia for income tax purposes? | A1: Yes | Q2: Are the volunteer allowances you receive in relation to the performance of foreign service as part of an overseas volunteer program exempt income? | A2: Yes | Q3: Are the allowances you receive in relation to arriving and departing Country Y in order to participate in an overseas volunteer program exempt income? | A3: No | Q4: Are the fortnightly stipend payments you receive exempt from income tax? | A4: Yes | Q5: Are donated funds that you receive to carry out work in Country Y assessable income? | A5: No | Q6: Will your private residence in Australia be considered your main residence? | A6: Decline to rule

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. You departed Australia X years ago to be engaged in various roles in Country Y. You have returned to and departed Australia on several occasions. During these periods in Australia, you attended workshops required for your higher Degree Research and stayed either on campus or in your own home and visited family. While in Australia you stayed in your own home or with family. You purchased a new home in City A in Australia. Your new home is rented out for the period you are overseas. You do not intend to reside overseas permanently as you will return to Australia at the end of X months as per your agreement with your university. You do not have any assets overseas. Your family resides in Australia. You are also taking part in an Australian Volunteer program in Country Y for a continuous period of not less than 91 days. The volunteer program is fully funded by the Relevant Department and run by Australian Volunteers. Your foreign service is directly attributable to the delivery of Australian official development assistance by Australian Volunteers. Your volunteer package in Country Y comprises four allowances. Two transfer allowances are one-off payments to cover expenses associated with taking up the assignment in Country Y and settling back in Australia. Two overseas allowances are paid to cover your expenses for food, other incidental costs and costs of accommodation. These include: ● Cost of living allowance ● Cost of accommodation allowance You study full time and are in receipt of a scholarship that is provided principally for educational purposes. The scholarship does not contain conditions that require you to perform specific work for the scholarship provider and does not provide any basis for the expectation that employment will be offered at some future date. You have received sponsorship funds from family, friends and community organisations to assist you in your living expenses in Country Y. The funds are donated to you voluntarily and are used to pay for your living expenses such as housing, food and groceries, utilities, household equipment, commuting fares and air fares. You hold a designated bank account where the donated funds are deposited and you are able to access the funds while you are in Country Y.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 6-5(2), | Income Tax Assessment Act 1997 section 6-5, | Income Tax Assessment Act 1997 section 6-10, | Income Tax Assessment Act 1997 section15-2, | Income Tax Assessment Act 1997 section 51-10. | Income Tax Assessment Act 1997 section 51-35 | Income Tax Assessment Act 1997 paragraph 118-110(1)(b), | Income Tax Assessment Act 1997 paragraph 118-190(1)(b), | Income Tax Assessment Act 1997 section 118-145, | Income Tax Assessment Act 1936 subsection 6(1), | Income Tax Assessment Act 1936 s ection 23AG, and | Tax Administration Act 1953 schedule 1 subsection 359-35(3).

Reasons for decision: Detailed Reasoning - Residency: 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 Income tax: residency - permanent place of abode outside Australia . 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 satisfy 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. 3rd 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'. As you have been residing in Country Y for several years, you are not considered to be residing in Australia according to ordinary concepts. | Detailed Reasoning - The domicile test: If a person is considered to have their domicile in Australia they will be considered an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia. In order to show that a new domicile of choice in a country outside of Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country. 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. In your case, although you have been living in Country Y for several years, your associations with Australia are considered to be more significant as you have retained your house, bank accounts and investments in Australia. You also do not have any assets or permanent place to live overseas. Based on these facts and that you intend to return to Australia, it is considered that you have not established a permanent place of abode in Country Y. Therefore, you are considered to have maintained your Australian domicile. Accordingly, you are an Australian resident for income tax purposes under the domicile test. | Detailed Reasoning - Your residency status: As you are deemed to be a resident of Australia under the domicile test of residency outlined in subsection 6(1) of the ITAA 1936 there is no need to examine the remaining tests. Therefore, you are considered to be an Australian resident for income tax purposes for the period you will be in Country Y. | Detailed Reasoning - Volunteer allowances: Subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that foreign earnings of an Australian resident derived during a continuous period of foreign service of not less than 91 days employment in a foreign country are exempt from income tax in Australia. Foreign earnings includes income consisting of salary, wages, bonuses or allowances (subsection 23AG(7) of the ITAA 1936). To qualify for the exemption the foreign earnings must be derived from the foreign service. That does not mean that the foreign earnings need to be derived at the time of engaging in foreign service. The important test is that the foreign earnings, when derived, need to be derived as result of the undertaking of that foreign service. Subsection 23AG(1AA) of the ITAA 1936 has been amended so that foreign employment income derived by Australian residents will only be exempt in certain circumstances. These amendments are effective from 29 June 2009. 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: a) the delivery of Australian official development assistance by the person's employer b) the activities of the person's employer in operating a public fund covered by item 9.1.1 or 9.1.2 of the table in subsection 30-80(1) of the ITAA 1997 (international affairs deductible gift recipients) c) the activities of the person's employer, if the employer is exempt from income tax because of paragraph 50-50(c) or (d) of the ITAA 1997 (prescribed institutions located or pursuing objectives outside Australia) d) the person's deployment outside Australia as a member of a disciplined force by a. the Commonwealth, a State or a Territory; or b. an authority of the Commonwealth, a State or a Territory e) an activity of a kind specified in the regulations. In your case, you have been appointed to undertake a deployment to Country Y on an Australian Government's overseas program as an Australian volunteer. As your deployment is directly attributable to the delivery of Australian official development assistance delivered through the Australian Government's overseas aid program, as administered by the Relevant Department, you satisfy one of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936. You receive two transfer allowances and two overseas allowances. | Detailed Reasoning - Transfer allowances: The transfer allowances are paid to cover costs associated with establishing yourself on assignment and relocating to Australia. These allowances are not paid to cover costs arising from the performance of your foreign service. They are paid to cover costs arising prior to and after the foreign service. Therefore, these allowances are not considered to be derived from your foreign service. Accordingly, the transfer allowances are not exempt from income tax in Australia under subsection 23AG(1) of the ITAA 1936 as it is not derived from your foreign service. | Detailed Reasoning - Overseas allowances: The overseas allowances are designed to cover various costs of the foreign service. As they are paid to compensate for costs arising from the foreign service, they are considered to be derived from your foreign service. Therefore, your overseas allowances are foreign earnings from foreign service for the purposes of subsection 23AG(1) of the ITAA 1936. Subsection 23AG(2) of the ITAA 1936 provides that the exemption in subsection 23AG(1) of the ITAA 1936 will not apply where the income is exempt from income tax in the foreign country only because of any of the reasons listed in that subsection. One of the reasons listed is where the income is exempt in the foreign country because of a tax treaty (paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936). There is no provision in the tax treaty between Australia and Country Y that would preclude the allowance from being assessed in Australia. Therefore, paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936 will not apply. As the laws of Country Y provide for the imposition of income tax and do not generally exempt employment income from income tax, paragraphs 23AG(2)(c) and (d) of the ITAA 1936 will not apply. None of the other reasons in subsection 23AG(2) of the ITAA 1936 apply to your situation. In your case, you are engaged in employment overseas for a continuous period of not less than 91 days, and none of the reasons listed in subsection 23AG(2) of the ITAA 1936 apply in your situation. Consequently, the overseas allowances you earn during your deployment to Country Y are exempt from income tax in Australia under subsection 23AG(1) of the ITAA 1936. | Detailed Reasoning - Scholarship allowance: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that assessable income includes income according to ordinary concepts, that is, ordinary income. Ordinary income is generally considered to include: ● amounts received in return for personal services, whether received in the capacity of an employee or otherwise, and ● amounts received periodically or regularly and which the recipient relies on for the maintenance of themselves and/or their dependants ( Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540). Payments received under a scholarship are considered to be ordinary income. Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income, it is not assessable income. Section 51-10 of the ITAA 1997 provides, subject to some exceptions listed in section 51-35 of that Act, that a scholarship, bursary, educational allowance or educational assistance payment is exempt from income tax if it is paid to a full-time student at a school, college or university. In general terms, for a scholarship to be exempt from income tax: ● the taxpayer must be in receipt of a scholarship and the scholarship must be provided principally for educational purposes ● the taxpayer must be a full-time student at a school, college or university, and ● there must be no condition that the taxpayer be an employee of the scholarship provider or enter into any contract with the scholarship provider that is wholly or principally for labour. As you are a full time student in receipt of a scholarship provided principally for educational purposes and are not required to enter into a labour contract with the scholarship provider, your scholarship income is exempt from income tax. | Detailed Reasoning - Donated funds: Taxation Ruling IT 2674 Income tax: gifts to missionaries, ministers of religion and other church workers - are the gifts income? provides guidelines for determining whether gifts received by church workers (including missionaries and ministers of religion) are assessable under section 6-5 of the ITAA 1997. Paragraph 28 of IT 2674, states that gifts are assessable income if: (a) they are received because of, in respect of, for, or in relation to any income-producing activity of the church worker; (b) it is possible to relate the receipt of the gift to any income-producing activity on the part of the church worker; (c) it is possible to point to any employment, personal exertion or other income-earning activity by the church worker of which the receipt of the gift is in a relevant sense a product or incident. A gift received in the above circumstances is assessable income even if the donor is not legally obliged to make a gift, or if the gift is made by a family member, friend or fellow worker. Furthermore, if a substantial reason (which does not have to be the dominant reason) of receiving the gift as a reward for some income-producing activity, the gift is assessable income even though the gift was also made as an expression of goodwill and received on personal grounds. Paragraph 32 of IT 2674 goes on to explain that gifts are not assessable income when they are: (a) a personal gift received for personal reasons, without any connection with any income-producing activity on the part of the recipient; (b) a gift or gratuity made only on grounds personal to the recipient; (c) if a gift is referable exclusively to the attitude of the donor personally to the church worker personally; (d) a voluntary payment received by a church worker from a family member, a friend or acquaintance, on grounds personal to the recipient, to assist his or her personal needs. In your case, we consider the donated funds you receive to carry out volunteer work in Country Y as personal gifts as they have no connection with any employment, services rendered to the donors, nor are they related to any income activities conducted by you. Therefore, the donated funds are not assessable income under subsection 6-5(2) of the ITAA 1997. | Detailed Reasoning - Main residence: Subsection 359-35(3) of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that The Commissioner may decline to make a private ruling if the Commissioner considers that the correctness of a private ruling would depend on which assumptions were made about a future event or other matter. We cannot rule on this issue as it relates to the future event of the disposition of your property. Accordingly, the application for a private ruling on this matter has been declined.