Private ruling: Residency
Date of advice: 5 August 2016
Published: September 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you a resident of Australia for tax purposes for the period 1 July 2015 to 30 June 2016? | A1: Yes. | Q2: Is your foreign income assessable in Australia? | A2: Yes. | Q3: Are you entitled to a foreign income tax offset ? | A3: Yes.

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 are an Australian citizen and your family all reside in Australia. Your country of origin is not Australia. You are working in country X on a fly-in-fly-out basis. Your employer is a Country X company. You have a work Visa supplied by your employer. You live near the work site in accommodation supplied by your employer. You normally spend a specific amount of days working continuously in Country X and then return to Australia for a specific amount of days. Your wages in Country X have income tax withheld in that country and the net pay is credited to an Australian bank account. Your contract with the employer is for an indefinite time period. You own and live in a house in Australia. You also own a rental property in Australia. You have no other sources of income. You have worked in Country X with this employer since the 2015-16 income year up until the present time. Neither you nor your spouse have ever been employed by the Commonwealth of Australia and neither of you are eligible members of the Public Sector Superannuation Scheme (PSS) or Commonwealth Superannuation Scheme (CSS).

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 6(1) | Income Tax Assessment Act 1997 Division 770 | Income Tax Assessment Act 1997 Section 6-5 Agreement between the Government of Australia and the Government of the Relevant Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income [1992 No. 40]

Reasons for decision: Summary: The terms 'resident' and 'resident of Australia' are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). So far as an individual is concerned, these terms are defined to mean: (a) a person, other than a company, who resides in Australia and includes a person- (i) whose domicile is in Australia, unless the Commissioner is satisfied that his permanent place of abode is outside Australia; (ii) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that his usual place of abode is outside Australia and that he does not intend to take up residence in Australia; or (iii) who is an eligible employee for the purposes of the Superannuation Act 1976 or is the spouse or a child under 16 years of age of such a person; " The above definition, in effect, provides four tests to ascertain whether an individual is a resident: 1. residence according to ordinary concepts; 2. the domicile and permanent place of abode test; 3. the 183 day test; or 4. the Commonwealth superannuation fund test. The primary test for deciding your residency status is whether you reside in Australia according to the ordinary meaning of the word resides. However, where this is not the case, you may still be a resident of Australia for tax purposes if you meet the conditions of any one of the other three tests. We refer to Taxation Ruling IT 2650 Income tax: residency - permanent place of abode outside Australia which provides guidelines for determining whether individuals who leave Australia to live and/or work overseas cease to be Australian residents. | Detailed Reasoning - 1. The residence according to ordinary concepts test: The Macquarie Dictionary defines reside as to dwell permanently or for a considerable time, have one's abode for a time. The Shorter Oxford English Dictionary defines reside as to dwell permanently, or for a considerable time, to have ones settled or usual abode, to live in or at a particular place. You stay in accommodation provided by your employer near your work place for the duration of each trip to Country X. You return to your family home in Australia at the end of each period overseas. Your circumstances indicate that your settled or usual abode is in Australia and that the accommodation provided for you in Country X is a convenient place to say while working there. | Detailed Reasoning - 2. The domicile and permanent place of abode test: Domicile If you have your domicile in Australia you will be an Australian resident unless the Commissioner is satisfied that you have established a permanent place of abode outside Australia. Paragraph 8 of IT 2650 explains that you will retain your domicile of origin unless and until you acquire a domicile of choice in another country or until you acquire another domicile by operation of law. Paragraph 21 states that 'in order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country e.g. through having obtained a migration visa.' Your country of origin was not Australia and you have become an Australian citizen. Your work requires you to travel to Country X on a regular, cyclical basis and you return home to your family in Australia at the end of each cycle. Applying IT 2650 to your circumstances with regard to your domicile you have not demonstrated an intention to acquire a new domicile of choice in Country X. Therefore, you have maintained your Australian domicile. Permanent place of abode 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. IT 2650 states in paragraph 14 that 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. Paragraph 23 points out that a person's permanent place of abode is a question of fact to be determined in the light of all the circumstances of each case. Some of these factors which have been considered relevant include: (a) the intended and actual length of the individual's stay in the overseas country; (b) any intention either to return to Australia at some definite point in time or to travel to another country; (c) the establishment a home outside Australia; (d) the abandonment of any residence or place of abode the individual may have had in Australia; (e) the duration and continuity of the individual's presence in the overseas country; and (f) the durability of association that the individual has with a particular place in Australia. You travel to Country X for work purposes and normally spend a specific amount of days working there before returning to Australia. You stay in accommodation provided by your employer while your spouse and family remain in Australia in your family home. Your salary is taxed in Country X and the net amount is paid to your Australian bank account. On balance, the Commissioner is of the opinion that you have not established a permanent place of abode outside Australia and you are a resident of Australia. | Detailed Reasoning - Your residency status: As you are 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. | Detailed Reasoning - Assessable income for residents of Australia: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) advises that where you are an Australian resident for taxation purposes, your assessable income includes income gained from all sources, whether from within or outside of Australia. It follows that the income you earn whilst an Australian resident working in Country X is assessable in Australia. In determining your liability to pay tax in Australia we not only have to consider the domestic income tax laws but also any applicable double tax agreements between Australia and Country X. The agreement between Australia and Country X contains rules for taxing salary, wages and other similar remuneration derived by visiting employees. The general rule is that remuneration derived by a resident of one country from employment exercised in the other will be liable to tax in the host country. However, where all the following conditions in Art 15(2) are satisfied, the country of residence has exclusive taxing power: • the employee's time in the host country does not exceed 120 days in aggregate during any 12-month period; • the remuneration is paid by, or on behalf of, an employer who is not a resident of the host country; • the remuneration is not deductible in determining taxable profits of a permanent establishment or a fixed base which the employer has in the host country; and • the remuneration is subject to tax in the country of residence. You are present in Country X for a specific amount of days and return home to Australia for another specific amount of days. Over a period of 12 months the amount of time you spend in Country X would exceed 120 days. Therefore Country X has a right to tax your income. As you are a resident of Australia for tax purposes, Australia also has a right to tax that same income. | Detailed Reasoning - Foreign income tax offset: A foreign income tax offset (FITO) is a non-refundable tax offset, that will reduce the Australian tax that would be payable on foreign income which has been subjected to foreign income tax. Under section 770-10 of the ITAA 1997, to qualify for an offset, you must have paid foreign income tax on an amount that is included in your Australian assessable income for that year. As your Country X employment is assessable to you in Australia, the Country X tax you paid on this income is used in calculating your allowable foreign income tax offset in Australia. The offset is based on the total foreign income tax paid, however, it is limited to the amount of Australian income tax that would have been payable on the relevant income (sections 770-70 and 770-75 of the ITAA 1997). For further information in relation to this, please refer to the Guide to foreign income tax offset rules 2016 on the Australian Taxation Office website www.ato.gov.au. Enter the quick code '48121' in the search field at the top right hand corner of the home page.