Private ruling: Foreign Income - Residency
Published: December 2011
Ruling period: Year ended 30 June 2010

Ruling: Q1: Were you an Australian resident for income tax purposes for a specific period some time early in the 2009-10 income year? | A1: Yes. | Q2: Were you an Australian resident for income tax purposes for a specific period some time late in the 2009-10 income year? | A2: No. | Q3: Is the foreign employment income you derived from employment with Company A some time in the 2009-10 income year in Country A exempt from tax in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)? | A3: No. | Q4: Is the foreign employment income you derived from employment with Company A some time later in the 2009-10 income year in Country A assessable income in Australia? | A4: No.


Relevant legislative provisions: Income Tax Assessment Act 1936 Section 23AG | Income Tax Assessment Act 1936 Section 23AG(1) | Income Tax Assessment Act 1936 Section 23AG(2) | Income Tax Assessment Act 1936 Subsection 26(e) | Income Tax Assessment Act 1936 Section 23AG(1AA) | Income Tax Assessment Act 1936 Section 23AG(1AA)(a) | Income Tax Assessment Act 1936 Section 23AG(1AA)(b) | Income Tax Assessment Act 1936 Section 23AG(1AA)(c) | Income Tax Assessment Act 1936 Subsection 6(1) | Income Tax Assessment Act 1997 Subsection 6-5(3) | Income Tax Assessment Act 1997 Subsection 6-10(5)

Reasons for decision: Summary: The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the ITAA 1936. Residency from some time early in the 2009-10 income year to some time later that same income year The Commonwealth superannuation fund test for residency covers Commonwealth government employees, as members of the Commonwealth superannuation funds (as well as their spouses and children under 16 years of age). A person is a ' resident ' under this test if they are: · a member of the superannuation scheme established by deed under the Superannuation Act 1990 (SA 1990), or · an eligible employee for the purposes of the Superannuation Act 1976 , or · the spouse, or a child under 16, of a person covered by either of the above. The SA 1990 established the PSS, and the Superannuation Act 1976 established a scheme called the Commonwealth Superannuation Scheme (CSS). You have advised that you were a member of the PSS, and that you were on unpaid, and long service leave. To determine whether you were a resident under the Commonwealth superannuation fund test, for the period you were deriving income in Country A, it is necessary to determine whether you were a member of the superannuation scheme (PSS) for the purposes of the SA 1990 for that period. A member of the superannuation scheme is defined in section 6(1) of the SA 1990 to mean a person who is a permanent employee. You were a Commonwealth Government employee who was on leave without pay and long service leave. Although you were on leave, you were considered to be a member of the PSS as you were still a permanent employee. As you were a member of the PSS you satisfy the Superannuation test. Therefore, you were considered to be an Australian resident for tax purposes for this specific period in the 2009-10 income year. Residency from some time in the 2009-10 income year until the end of that income year. There are 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 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 if they meet 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; have 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'. For the period that you were physically present in Country A in a period from some time in the 2009-10 income year until the end of that income year, you were not considered to be residing in Australia according to ordinary concepts under this test. | Detailed Reasoning - The domicile test: Generally, 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. | Detailed Reasoning - Domicile: 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. 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. In your case, from some time in the 2007-08 income year when you relocated overseas, you still maintained an association with Australia through a property and a bank account. However, your association with the Country A became more significant from a particular date in the 2009-10 income year when you resigned from your position with the Australian government as: · you were residing overseas since some time in the 2007-08 income year and, you've been residing and working in Country A since some time in the 2009-10 income year. · your spouse spent approximately 50% of her time with you in Country A. · you have a bank account that derives interest income. · you have friends in Country A. Based on these facts, it is therefore considered that you had established and maintained a permanent place of abode in Country A since some time in the 2009-10 income year. | Detailed Reasoning - The 183-day test: This test does not apply to you as it has been identified that your permanent place of abode was in Country A. | Detailed Reasoning - The superannuation test: An individual is still considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person. In your case, you were not a member of the PSS or the CSS, a spouse of such a person, or a child under 16 of such a person. | Detailed Reasoning - Your residency status: As you were not deemed to be an Australian resident for income tax purposes under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936, you were not considered to be an Australian resident since the date in the 2009-10 income year you resigned from your Australian government position, to the end of that income year. Foreign employment income derived in Country A between some time in the 2009-10 to later that same income year. Subsection 23AG(1) of the ITAA 1936 provides that where Australian resident individuals are engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from that foreign service are exempt from tax in Australia. However, new subsection 23AG(1AA), which took effect from 1 July 2009, provides that those foreign earnings will not be exempt under section 23AG unless the continuous period of foreign service is directly attributable to, amongst other things, the delivery of Australian official development assistance by the person's employer. Accordingly, two requirements are essential to satisfy subsection 23AG(1AA): first, your employer must be delivering Australian official development assistance; and second, your foreign service must be directly attributable to the delivery of that Australian official development assistance. Whether your employer is delivering Australian ODA The term 'Australian official development assistance' is not defined for the purposes of section 23AG of the ITAA 1936. However, the Explanatory Memorandum which accompanied Tax Laws Amendment (2009 Budget Measures No. 1) Bill 2009 (the EM) introducing paragraph 23AG(1AA)(a) of the ITAA 1936 provides guidance on the meaning of the phrase. The relevant paragraphs are below: Australian official development assistance 1.19 Australian official development assistance (ODA) is assistance delivered through the Australian Government's overseas aid program, as administered by the Department of Foreign Affairs and Trade and/or the Australian Agency for International Development (AusAID). Australian ODA aims to reduce poverty and achieve sustainable development in developing countries, in line with Australia's national interest. 1.20 In addition to providing Australian ODA directly, AusAID also competitively contracts aid work to Australian and international entities. Thus, in practice, individuals involved in the delivery of Australian ODA can include both Australian Public Service (APS) employees and non-APS employees. You advised us some time in the 2010-11 income year, that the Australian government funding for Company A's activities are drawn directly from the annual appropriation by Parliament for ODA; the funding is specifically to support Company A's organisational goals of pursuing a range of development, humanitarian and peace building initiatives in developing countries; the funding is included in the annual report by AusAID to the OECD Development Assistance Committee (DAC); and that the funding is reported by the Statistics Division of the DAC as Australian government ODA. You advised us some time in the 2010-11 income year, that AusAID disperses ODA via specific contracts and contributions to global programs; the true nature of the Company A AusAID relationship fits within AusAID's contribution to global programmes, and the subject of the funding agreement; under such an arrangement, the grantee (in your case, Company A) defines the programme of work and seeks funding support from donors (such as AusAID, and the governments of specific countries; the donors provide funding in the form of upfront grants, that are co-mingled and allocated by Company A to its core programme of work; and specifically, that AusAID provides unrestricted grants to Company A from the ODA appropriation for this purpose. Company A's Proposal (submitted to AusAID some time in the 2008-09 income year and annexed in a particular Schedule of the Funding Agreement Deed between the Commonwealth of Australia and Company A) states: · Company A engages "international [agencies] (NGOs, UN agencies, donor governments, universities and others) in gathering experience, comparing and analysing it, and [then] derives lessons on how to improve the effectiveness of international efforts to be helpful to poor and/or unstable societies". · Company A also "engages with a number of international corporations to help them develop healthy and productive relationships with local communities and ensure that their operations make people in these communities better off" · the problem Company A aims to rectify is how the relevant organisations "apply the lessons learned to their on-going programmes" i.e. "to help them move ideas/lessons learned to change in practice at both the policy level and the programming level"; · the overall aim is "to identify and track the factors that affect whether and how new ideas and lessons-learned are translated into action in international assistance". On the basis of the above information, for the purposes of paragraph 23AG(1AA)(a), we conclude that Company A is delivering Australian official development assistance for the period during which you were employed by Company A. Whether your foreign service is directly attributable to the delivery of Australian ODA by your employer Section 23AG of the ITAA 1936 does not specify what the term 'directly attributable to' means. However, the EM provides the following guidance: 1.35 Subsection 23AG(1AA) will apply where an individual undertakes a continuous period of foreign service of 91 days or more and the foreign service relates to more than one of the activities listed in paragraphs (a) to (e). | Detailed Reasoning - Example 1.5: Lisa is an APS employee employed by AusAID. On 1 July 2009 Lisa is posted to Tonga for 45 days, as a project advisor on an Australian ODA project. At the end of the 45 day posting, Lisa resigns from AusAID and takes up a position as an aid worker in Tonga, employed by a prescribed charitable institution covered by paragraph 23AG(1AA)(c). Lisa remains in her new position for another 100 days. Lisa's continuous period of foreign service for the purpose of subsection 23AG(1AA) is 145 days and her foreign earnings are eligible for exemption pursuant to section 23AG, subject to the conditions contained in subsection 23AG(2). | Detailed Reasoning - Example 1.6: As in the above example, Lisa resigns from AusAID at the end of her 45 day posting. However, rather than commencing work as an aid worker, Lisa takes up permanent employment with a bank in Tonga. Lisa's continuous period of foreign service in Tonga exceeds 91 days but none of her foreign earnings are eligible for exemption because she did not attain 91 days of continuous foreign service in relation to an activity covered by subsection 23AG(1AA). In the context of paragraph 23AG(1AA)(b) of the ITAA 1936, ATO ID 2010/117 states that these paragraphs indicate that the term 'directly attributable to' should mean directly related to. Accordingly, for the purposes of paragraph 23AG(1AA)(a) of the ITAA 1936, an individual's continuous period of foreign service must be directly related to the employer's delivery of ODA. The High Court in Federal Commissioner of Taxation v Dixon [1952] HCA 65; (1952) 86 CLR 540, determined that the words 'in relation directly… to, any employment' in the context of former subsection 26(e) of the ITAA 1936, means 'where the employment is the proximate cause of the payment'. Conversely, an indirect relation was 'one where the employment is a cause less proximate, or, indeed, only one contributory cause'. Former subsection 26(e) was intended to capture certain payments for services rendered which did not fall under the ordinary concepts of income. The subsection, provided a basis for the taxation of, 'allowances, gratuities, compensations, benefits, bonuses and premiums allowed, given or granted to a taxpayer in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by the taxpayer, whether so allowed, given or granted in money, goods, land, meals, sustenance, the use of premises or quarters or otherwise…' . In Dixon the High Court said 'the words "directly" or "indirectly" extend the operation of the words "in relation … to' and 'they mean that a direct relation or an indirect relation to the employment or services shall suffice'. Applying the reasoning of the High Court in Dixon to paragraph 23AG(1AA)(a), the Commissioner is of the view that one must have regard to the relationship between the delivery of Australian ODA and the foreign service. That is, the words "directly attributable" require that the delivery of Australian ODA should be the proximate cause of the foreign service. Where on the other hand, the delivery of Australian ODA is a cause less proximate, or indeed, only one contributory cause, then the foreign service would be regarded as indirectly, rather than directly, attributable to the delivery of Australian ODA by the person's employer. In that case, an exemption under section 23AG pursuant to paragraph 23AG(1AA)(a) of the ITAA 1936 would not be available. While the Commissioner notes that there are judgements of lower courts which have considered the phrase 'directly attributable to', those decisions were made in the context of non-taxing provisions. Dixon on the other hand, considered former subsection 26(e), a taxing provision which, along with section 23AG, forms or formed part of Part III - Liability to Taxation, of the ITAA 1936. On a specific day in the 2010-11 income year, you advised us of these further responsibilities you had in your role with Company A: · establishing the strategic priorities of Company A and overall management functions on a day-to-day basis; · allocating Australian government funds to specific Company A projects; · ensuring accurate implementation, monitoring and evaluation of all 'programmatic, operational and financial aspects' of the funding agreement; · providing annual briefing to AusAID on progress and priorities. According to your advice sent to us on a particular date in the 2010-11 income year, Company A seeks funding for its work from the governments of Australia and other specific countries. Donor countries provide funding in the form of upfront grants that are co-mingled and allocated by Company A to its core programme of work. AusAID provides unrestricted grants to Company A from the Australian ODA appropriation for this purpose. Given that Company A sources funding from a range of sources, it would appear that the tasks 1 to 4 listed above, are equally applicable to Company A's commitments to the governments of other donor countries which provide Company A with funding to complete its core programme of work. Further, that in your role within Company A, you would be responsible for performing these roles in relation to all of the funding agreements, rather than, simply the Australian ODA funded funding agreement. In order for the exemption in section 23AG to apply, pursuant to paragraph 23AG(1AA)(a), the delivery of Australian ODA must be the proximate cause of the foreign service rather than only one contributory cause. Based on the details provided, the Commissioner is of the view that your foreign service is indirectly rather then directly attributable to the delivery of Australian ODA by your employer Company A. Given this, you have not satisfied paragraph 23AG(1AA)(a) of the ITAA 1936, and therefore an exemption for your foreign earnings will not be available under section 23AG of the ITAA 1936. Foreign employment income derived in Country A from some time in the 2009-10 income year to the end of that same income year. Subsection 6-5(3) of the ITAA 1997 provides that ordinary income derived by a foreign resident directly or indirectly from Australian sources, as well as ordinary income included by a provision on a basis other than having an Australian source is assessable. Statutory income from all Australian sources is also included in a foreign resident's assessable income under subsection 6-10(5) of the ITAA 1997. The source of income derived from employment is generally the place where the duties or services are performed ( Federal Commissioner of Taxation v. French (1957) 98 CLR 398; (1957) 11 ATD 288; (1957) 7 AITR 76). In your case, you were deemed to be a foreign resident for income tax purposes in Australia from some time in the 2009-10 income year to the end of that same income year. Therefore, the foreign employment income you derived from employment in Country A during this period will not be assessable income in Australia under subsection 6-5(3) of the ITAA 1997.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You are a citizen of Australia and Country B.. | Your country of origin is Country B. | You left Australia some time in the 2007-08 income year. | You hold a specific Visa for Country A. | From some time in the 2009-10 income year, you were on unpaid leave from your employment with the Commonwealth Government of Australia through to some time later in that income year. You were then subsequently on long service leave through to another particular date in the 2009-10 income year. You also resigned from your position on that as well. Therefore, you were a member of the Public Sector Superannuation Scheme (PSS) until that date.. | Your spouse was not a Commonwealth Government of Australia employee during the 2009-10 income year. | You are living in rented accommodation in Country A. You also have a bank account that derives interest income in Country A. | You own a home in Australia and it is not rented out while you are overseas. | You were employed with a specific organisation in the Country C territory from some time in the 2007-08 income year to some time in the 2009-10 income year. | Your income from that organisation was exempt from tax in Australia as it is an international organisation to which the International Organisations (Privileges and Immunities) Act 1963 applies. | You commenced employment with Company A from some time in the 2009-10 income year. The duration of your employment will be three years with a renewal for two years or any other duration that is mutually agreed upon after the first three year period consistent with the specific visa requirements. | Company A is a specific organisation, based in Country A. It is governed by a Board of Directors. | Company A is primarily funded by grants from Australian government donors and other specific agencies. | Your have specific duties in your role with Company A. | Your employer does not operate a public fund declared by the Treasurer (of Australia) to be a developing country relief fund covered by item 9.1.1 of the table in subsection 30-80(1) of the Income Tax Assessment Act 1997 (ITAA 1997). | Company A is not listed in the Australian Business register and is not a prescribed institution in the ITAA 1997 for the purposes of subsection 50-50(c) or (d) of the ITAA 1997. | Company A was contracted to AusAID to provide projects. The projects work with international and local agencies and individuals who are engaged in trying to make life better for people who live in economically poor and/or politically unstable societies. | You advised us on a specific day in the 2010-11 income year, that the Australian government funding for Company A's activities (as described in a schedule of the AusAID agreement) is drawn directly from the annual appropriation by Parliament for ODA; the funding is specifically to support Company A's organisational goals of pursuing a range of development, humanitarian and peace building initiatives in developing countries; the funding is included in the annual report by AusAID to the OECD Development Assistance Committee (DAC); and that the funding is reported by the Statistics Division of the DAC as Australian government ODA. | You advised us on another day in the 2010-11 income year, that AusAID disperses ODA via specific contracts and contributions to global programs; the true nature of the Company A AusAID relationship fits within AusAID's contribution to global programmes, and the subject of the funding agreement; under such an arrangement, the grantee (in your case, Company A) defines the programme of work and seeks funding support from donors (such as AusAID, and the governments of specific countries); the donors provide funding in the form of upfront grants, that are co-mingled and allocated by Company A to its core programme of work; and specifically, that AusAID provides unrestricted grants to Company A from the ODA appropriation for this purpose. | You did not take any breaks in your overseas employment from some time in the middle of the 2010-11 income year to some time later in that same income year. | You only received a salary as part of your overseas employment.