Private ruling: Residency and foreign source income
Date of advice: 9 March 2016
Published: May 2016
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: 7 June 2015

Ruling: Questions and answers: | 1. Were you a resident of Australia for income tax purposes from the date of your departure from Australia until you returned to live? | No. | 2. Is the income that you derived in Country Z assessable in Australia? | No.

Relevant facts and circumstances: You were born in Australia and are a citizen of both Australia and Country V. You have a spouse and no dependants. You owned and operated an Australian business. You disposed of your business to a company located in Country Z. A condition of the settlement agreement stipulated that you would be required to move to Country Z and work as an employee of the business for an extended period to assist in operating and further developing the business. Shortly after, you departed Australia and moved to Country Z to fulfil the conditions of the settlement agreement. You entered Country Z on a visa that is renewable indefinitely. Your intentions were to remain in Country Z until you had satisfied the terms of the settlement agreement. Your spouse joined you in Country Z after your arrival once loose ends were tied up in Australia. Prior to leaving Australia you were living in your family home. Your family home was placed on the rental market. Many of your furnishings and motor vehicle disposed of. Some items were shipped with you to Country Z. Your personal items were also either disposed of, or shipped to Country Z. On arrival in Country Z, you acquired long term rental accommodation. Your employer provided assistance towards relocation and living expenses whilst you were living in the Country Z. Your assets in Australia consisted of your family home and a bank account. Your assets in Country Z consisted of various bank accounts and credit cards as well as furnishings. You did not maintain any professional, social or sporting connections with Australia. Your social and sporting ties to Country Z consisted of attending various professional conferences. You also obtained an international drivers licence. Prior to your departure you informed the Australian Electoral Commission and your bank that you were departing Australia. Neither you nor your spouse have ever been employed by the Commonwealth of Australia or been a member of the CSS or PSS superannuation schemes. Shortly after your arrival in Country Z, your employment contract was terminated as a result of an unanticipated restructure of your employer and you were paid out your employment contract in full. Shortly after, you and your spouse relocated back to Australia. Prior to your return to Australia you received a full severance payment from your employer. On return to Australia you moved back into your family home which was yet to be leased. Shortly after your arrival you gained full time employment.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2) | 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 determined to be a resident of Australia for income tax purposes. Based on the facts of your case, you did not satisfy any of the tests for residency and therefore were not a resident of Australia for income tax purposes. Significant when considering both the resides and domicile tests is that you intended to live and work in Country Z for an extended period and the steps that you took to facilitate your departure from Australia is consistent with this intention. Further neither you nor your spouse have ever been an employee of the Commonwealth Government of Australia. As you were not a resident of Australia under any of the tests outlined under subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, you were not a resident of Australia for income tax purposes for the period that you lived and worked in Country Z. | Detailed Reasoning - Assessable income: Subsection 6-5(3) of the ITAA 1997 provides that ordinary income derived by a non-resident will only be assessable in Australia if it is sourced directly or indirectly from Australian. In your case, it has been determined that you were not a resident of Australia. During this period you derived income that was sourced from outside of Australia. Therefore this income is not assessable in Australia under subsection 6-5(3) of the ITAA 1997.