Private ruling: Residency status and foreign sourced income
Published: November 2012
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2012

Ruling: 1. Are you a resident of Australia for income tax purposes? | Yes. | 2. Is the employment income you earned in country F assessable in Australia? | Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997, Subsection 995-1(1). | Income Tax Assessment Act 1936, Subsection 6(1). | Income Tax Assessment Act 1997 Subsection 6-5(2) | Income Tax Assessment Act 1997 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 · 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 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. 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'. TAXATION RULING IT 2650: RESIDENCY - PERMANENT PLACE OF ABODE OUTSIDE AUSTRALIA, provide guidelines for determining whether individuals who leave Australia temporarily to live overseas, for example, on temporary overseas work assignments or on overseas study leave, cease to be Australian residents for income tax purposes during their overseas stay. The principles and guidelines adopted in IT 2650 can also be used for individuals who intend to reside overseas indefinitely. Paragraph 19 of IT 2650 states: The first question to be asked in considering the residency status of a person temporarily leaving Australia is whether he or she can be considered to reside in Australia. If the test of residence according to ordinary concepts is satisfied, there is no need to go any further. The person is a resident of Australia for income tax purposes. You left Australia to live and work in country F for an extended period. Since you will be physically present in country F during this period, you will not be considered to be residing in Australia according to ordinary concepts under this test. Therefore, you are not a resident of Australia for income tax purposes under the ‘resides test’. | 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. A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. In order to show that an individual's domicile of choice has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country. From the information that you have provided, you were born in country C however you moved to Australia and became an Australian citizen, therefore adopting Australia as your domicile of choice. From the information you have provided you do not intend to become a country F citizen or resident. Therefore it is considered your Australian domicile is unchanged. 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 you intend to live for the rest your life. An intention to return to Australia in the foreseeable future to live does not prevent you in the meantime setting up a permanent place of abode elsewhere. Some of the factors which have been considered relevant by the Courts, Boards of Review and Administrative Appeals Tribunal and which are used by the ATO in reaching a state of satisfaction as to a taxpayer's permanent place of abode include: · the intended and actual length of the taxpayer's stay in the overseas country; · 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; · 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; · whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence; · the duration and continuity of the taxpayer's presence in the overseas country; and · 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 your case: · you departed Australia to live and work in country F for an extended period; · you intend to return to Australia for short periods to visit your children; · you entered country F on a residency card visa; · you live in donga style accommodation when working on the work site; · during your breaks you live in a fully furnished company leased accommodation, which is also used by others while you are on site; · your only major asset in Australia is your family home where your ex-spouse and children have remained; and · your only other asset in Australia is a bank account which contains a minimal balance and is primarily used to make child support payments. On the balance and based on the above, the Commissioner is not satisfied that you have established a permanent place of abode outside of Australia, particularly given that you live in fully furnished company provided accommodations both on site and while on breaks. Further these accommodations are also used by others in the same capacity. Accordingly, as you have not established a permanent place of abode outside of Australia, you remain a resident of Australia for income tax purposes under the domicile test outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997. As you are a resident of Australia under the domicile test there is no need to consider the remaining 2 tests. | Detailed Reasoning - Assessable income: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that if you are an Australian resident, your assessable income includes ordinary income from all sources, whether in or out of Australia, during an income year. Salary and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. As Australia does not have a tax treaty with country F your foreign sourced employment income is subject to Australia’s domestic tax laws. Country F does not impose personal income tax on the salary and wages of employees. Consideration must be given as to whether your foreign salary and wages will be exempt under section 23AG of the ITAA 1936. Subsection 23AG(1) of the ITAA 1936 provides that foreign earnings of an Australian resident derived during a period of foreign service of not less than 91 days employment in a foreign country are generally exempt from tax in Australia. You are employed in country F and are engaged in foreign service for a continuous period of not less than 91 days. Therefore your foreign earnings derived from that foreign service are exempt from tax in Australia, subject to other provisions listed under section 23AG of the ITAA 1936. Subsection 23AG(1AA) of the ITAA 1936, which took effect from 1 July 2009, provides that those foreign earnings will not be exempt under section 23AG of the ITAA 1936 unless the continuous period of foreign service is directly attributable to any of the following: · delivery of Australian official development assistance by your employer; · activities of your employer in operating a public fund declared by the Treasurer to be a developing country relief fund, or a public fund established and maintained to provide monetary relief to people in a developing foreign country that has experienced a disaster (a public disaster relief fund); · activities of your employer as a prescribed charitable or religious institution exempt from Australian income tax because it is located outside Australia or the institution is pursuing objectives outside Australia; or · deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force. Broadly, the foreign service must be directly attributable to Australia's overseas aid program, a relief fund, an exempt institution or a disciplined force. In your case from the information that you have provided the employment income that you derive from your employment in country F is not attributable to any of the provisions listed under subsection 23AG(1AA) of the ITAA 1997. Therefore, section 23AG of the ITAA will not apply to exempt your foreign sourced income from Australian income tax. In addition, 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. Paragraph 23AG(2)(d) of the ITAA 1936 states as one of the conditions for non exemption under this section, the law of the foreign country does not provide for the imposition of income tax on the categories of income listed in paragraph 23AG(2)( c) of the ITAA 1936. Included in paragraph 23AG(2)(c) of the ITAA 1936 is income derived in the capacity of an employee. As your salary and wages is not subject to income tax in country F subsection 23AG(2) of the ITAA 1936 will also apply to deny an exemption from Australian income tax on your foreign salary and wages under subsection 23AG(1) of the ITAA 1936. Accordingly, the employment income you that you earn in country F is assessable in Australia under subsection 6-5(2) of the ITAA 1997.

Relevant facts: You were born in the country C and became a citizen of Australia. | You a have an ex-spouse and children. | You left Australia to live and work overseas in country F for an extended period. | You have an employment contract with a company in country F for an extended period. | The terms of your employment contract are such that you are required to work for a period at the work site followed by a break after the completion of the working roster. | When you are working at the work site you live in donga style accommodations with an en-suite. | When you are not working on the work site you live at an apartment in country F. This accommodation is company leased, is fully furnished and forms part of your employment conditions. When you are based at the work site the accommodation is used by other employees. | You do not pay any tax to the country F Authorities. | You intend to return to Australia to visit your children during each year for short periods. | The only assets that you own in Australia are your family home where your ex-spouse and children continue to reside, and a bank account which contains a minimal balance and is used to supply monthly child support payments. You have not lived in your family home since separating from your spouse. | Prior to leaving Australia you did not live with your ex-spouse. | Your only asset that you hold overseas is an overseas bank account where your salary is paid into. | You have transported all your personal effects such as your clothes and suit case with you to country F. | You do not have any social or sporting ties in Australia. | Your overseas sporting and social ties will consist of private gym membership and health club. | Neither you nor your ex-spouse has been a Commonwealth Government of Australia employee. | You intend to return to Australia after completion of the life of the work site.