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

Ruling: Questions and answers: | 1. Are you a resident of Australia for income tax purposes? | Yes. | 2. Is the foreign sourced income that you derive from your employment in country Z assessable in Australia? | 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 were born in the Australia and are a citizen of Australia. You have a spouse and children. You and your family moved to country Z for employment purposes. When you left Australia you stated on your Australia Immigration outgoing passenger card that you are leaving for work purposes. You entered country Z on a B Permit, Residence Permit which is renewed annually. You have an employment contract in country Z with organisation Y. Your employment contract has been renewed on 2 occasions. Your employment will for less than 2 years. It is expected that a permanent position will be offered at the conclusion of the contract. Your employment income that you derive in country Z is exempt from country Z income tax due to organisation Y being a country Z not for profit organisation. Although your country Z employment income is exempt from income tax in country Z, you have lodged obligatory income tax returns with the country Z authorities. You do not have an employment position to return to in Australia. While in country Z, you and your family live in a self-provided apartment. You have purchased beds, dining table, lounge, television and other household items to furnish the apartment. Your Australian home that you lived in prior to your departure is now being used as a rental property. Prior to leaving Australia your household effects were sold or gifted to family and friends. Prior to leaving Australia you did not advise any companies or any State or Federal Authorities including Medicare etc of your intention to leave Australia indefinitely. Prior to leaving Australia you cancelled your Australian health insurance policy. Since departing Australia you have returned to Australia on a number of occasions for brief periods for personal reasons. Your assets in Australia consist of the following; · a bank account; and · investment properties (including your family home which are both currently being rented). A portion of your remuneration derived from your country Z employment is being transferred to Australia to service your mortgage repayments. Other than your household furnishing, your assets in country Z consist of; · country Z bank accounts; · sport and recreational equipment; and · motor vehicle. You do not have any social or sporting ties with Australia. Your social and sporting ties in country Z consist of the following; · International Playgroup; · Social skiing; · Various sporting groups;and · Church group. Neither you nor your spouse has ever been a Commonwealth of Australia Government employee. You and your spouse have had a child while been living in country Z and as result was in receipt of the Australian baby bonus. You intend to live in country Z for an extended period of time possibly permanently. You formed this intention after arriving in country Z.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6(5) | Income Tax Assessment Act 1997 Section 995-1 | Income Tax Assessment Act 1936 Subsection 6(1) Residency | 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 NO. 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 a resident of Australia for tax purposes if they satisfy the conditions of one of the other three tests. | The resides test | In FC of T v Miller (1946) 73 CLR 93 at page 99-100 and Subrahmanyam v FC Of T [2002] AATA 1298; 2002 ATC 2303; (2002) 51 ATR 1173 at paragraph 43-44, it was determined that the word 'resides' should be given the widest meaning. | Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia, identifies a number of factors which assist in determining the residency status of a taxpayer. Although Tax Ruling TR 98/17, discusses the Commissioners view on the residency status of individuals entering Australia, the same principles can be applied to determine whether individuals leaving Australia remained residents of Australia for income tax purposes. | According to paragraph 20 of TR 98/17 factors to be considered in determining residency in Australia are: | · intention or purpose of presence; | · family and business/employment ties; | · maintenance and location of assets; and | · social and living arrangements. | Paragraph 21 of TR 98/17 further states that: | No single factor is necessarily decisive and many are interrelated. The weight given to each factor varies depending on individual circumstances. | Recent case law decisions have expanded on the list of factors identified in TR 98/17. Case 5/2013 and Sneddon v FC of T (Sneddons Case), for example, considered the following factors in relation to whether the taxpayer resided in Australia: | (i) Physical presence in Australia | (ii) Nationality | (iii) History of residence and movements | (iv) Habits and "mode of life" | (v) Frequency, regularity and duration of visits to Australia | (vi) Purpose of visits to or absences from Australia | (vii) Family and business ties to different countries | (viii) Maintenance of Place of abode. | Each of these factors will be considered in turn, with reference, where relevant, to recent Australian case law decisions in which the taxpayer was determined to be a resident of Australia in accordance with subsection 6(1). | Physical presence in Australia | A person does not necessarily cease to be a resident of a particular place just because he or she is physically absent. The test is whether the person has retained a continuity of association with the place , together with an intention to return to that place and an attitude that the place remains home ( Joachim v Federal Commissioner of Taxation 2002 ATC 2088, at 2090). | In recent court cases taxpayers were found to be residents of Australia for income tax purposes even though they had only spent a minimal period in Australia. | In Iyengar v. Federal Commissioner of Taxation 2011 ATC 10-222, (2011) AATA 856 ( Iyengar's case ), it was indicated that there is a requirement that you at least be physically present in Australia for part of an income year. Further in this case it was considered that the taxpayer remained a resident of Australia for income tax purposes even though during the period he was working overseas (2 years and 7 months) he had only returned to Australia for a two week period and for a 10 day period. | In your case, you and your family left Australia for employment purposes. Since departing Australia you have returned on a number of occasions for short periods of less than 7 days for personal reasons. | While it is acknowledged that your presence in Australia since your departure have been for brief periods, consistent with the principles established in the Iyengar case , we consider that this is sufficient to demonstrate that you have continued to maintain a continuity of association with Australia post your departure. | Nationality | The nationality of a person is rarely a decisive factor in deciding whether or not a person resides in a location, however it is a factor that is considered along with all of the circumstances of each case. | You are an Australian citizen and from the information that you have provided you have annually renewed your resident permit and not sought permanent residency status in country Z. | History of residence and movements | In Iyengar's case, the Tribunal noted that both past and subsequent history of a person's residence may be relevant in determining whether that person is ordinarily resident (for taxation purposes) in a country in a particular income year. | In your circumstances, you were born in Australia where you have lived with your family until you and your family moved to country Z. | Noteworthy is the fact that you left Australia for work purposes. This adds significant weight to the conclusion that had this opportunity not existed, you would have remained in Australia. Therefore it can be concluded that had it not been for the employment opportunity in country Z, you would have ordinarily continued to reside in Australia. | In light of the above and consistent with the principles established in Iyengar's case , your history of residence and movements are not consistent with someone who is no longer residing in Australia. | (iv) Habits and "mode of life" | In recent cases a taxpayers habits and mode of life in the country where they are/had been living were considered when determining whether a taxpayer continued to be a residence of Australia for income tax purposes. | In your case, you left Australia to enable you to pursue an employment opportunity in country Z. While in country Z you have been accompanied by your family and live in a self provided apartment. You have purchased beds, dining table, television set etc. to furnish the apartment. In addition you have purchased a motor vehicle. | Since your arrival in country Z you have established a number of social and sporting ties. When considering mode of life, in Iyegar's case, the taxpayer stated that that while he lived overseas, he was visited on numerous occasions by family and friends, was a member several sporting and recreational associations etc. However it was found that these activities are normal pursuits for most normal expatriate persons who are employed abroad and therefore did not add any weight in determining their residency status for income tax purposes. | In considering the above, it is not conclusive whether your habits and mode of life are consistent with someone who is a resident of Australia for taxation purposes. | (v) Frequency, regularity and duration of visits to Australia | In Lysaght v Inland Revenue Commissioners (1928) 13 TC 511 the Court noted that mere fact that visits to a country are of short duration does not of itself exclude residence in that country. | During the period post your departure from Australia you have returned to Australia on a number of occasions for periods of up to 7 days for personal reasons. | As previously discussed, when considering the issue of return visits to Australia by a taxpayer who was living and working overseas, the Tribunal in Iyengar's case also noted that the brevity of a visit to a particular country compared to length of time spent abroad does not of itself exclude an individual from being a resident in the country visited. Further, the taxpayer in Iyengar had only been present in Australia for two separate periods of two weeks and ten days during a period of two years and seven months and was also considered to a resident of Australia for income tax purposes. | Considering the above and the principles established in Iyengar's case , we do not consider the relatively short duration of the occasions that you returned to Australia is sufficient to preclude you from being considered a resident of Australia for taxation purposes post your departure from Australia. | (vi) Purpose of visits to or absences from Australia | The details of your return trips to Australia are discussed above. The fact that you have returned to Australia on occasions since your departure is a clear indication that you have continued to maintain a continuity of association with Australia whilst living in country Z. | In considering the purpose of your absence from Australia, you have stated that your absence from Australia was for work purposes particularly fulfilling your contractual obligations in country Z. Further you stated on you immigration outgoing card that the reason for your departure was for work purposes. | In light of the above, we consider that the purpose of your visits to Australia was for the purpose of maintaining your continuity of association with Australia while your absences from Australia are for employment purposes. Therefore these actions are sufficient to preclude you from being considered a non resident of Australia for taxation purposes in each of the income years included in this ruling. | (vii) Family and business ties to Australia and the overseas country or countries | Family | You have a spouse and children all of whom have travelled with you to country Z. | It is significant that in the recent decisions regarding the residency status of persons working overseas, including Beizuidenhout , Case 5/2013 , and Iyengar's case , the taxpayers had both family residing permanently in Australia. There is particular emphasis placed in these decisions on the taxpayers' Australian residence being the 'family home'. | The Macquarie Dictionary defines 'family' as: | · parents and their children, whether dwelling together or not. | · one's children collectively. | · any group of persons closely related by blood, as parents, children, uncles, aunts, and cousins. | Consistent with the findings in Case 5/2013 and Iyengar , and the definition of family provided by the Macquarie Dictionary the fact that your spouse and 2 dependants have accompanied you to country Z indicate the strength of your family ties lie in country Z rather than Australia. | Business or economic | While it is acknowledged that while in country Z you will derive employment income, from the information that you have provided this is the only business or economic tie that you will have with country Z. | Your business and economic ties in Australia consist of your investment properties that are currently deriving rental income rental and a bank account being used to manage your rental receipts and expenses. Significantly a portion of the income that you derive in country Z is being transferred to Australia to service your ongoing mortgage. | From the information that you have provided your business or economic ties are stronger in Australia then they are in country Z. | Assets | As previously discussed your assets in Australia consists of investment properties and a bank account, while in country Z your assets consist of household furnishings, a motor vehicle and sporting equipment. | Clearly your material wealth is in Australia, further you are continuing to grow this wealth through transferring your country Z derived income to Australia in part to service your mortgage repayments in Australia. | Maintenance of Place of abode | Upon departure from Australia you disposed of all your household possessions and used your home as a rental property. These actions are consistent with someone who is not maintaining a place of abode in Australia. | Conclusion | It is acknowledged that your family has accompanied you to country Z, you are living in self provided and furnished accommodation and you are not maintaining a place of abode in Australia. However it should be noted that you do have 2 investment properties in Australia with one of them being your family home prior to your departure. | With regards to the remaining factors and the findings in recent case's including Sneddon's case, Iyengar's case and case 5/2013, all of whom were found to be residents of Australia for income tax purposes the following are significant. | You have return to Australia on a number of occasions for personal reasons; you have remained a citizen of Australia and are required to renew your country Z residence permit annually. Although there may be prospects of a permanent position being offered by your country Z employer, at present you are still required to renew your employment contract. Your ties in terms of material assets are far stronger in Australia than in country Z and further you are continuing to grow these ties by transferring a portion of your country Z remuneration to Australia to service your mortgage repayments. | In consideration of all of the factors outlined above, it is concluded that you will continue to be a resident of Australia under the resides test for income tax purposes during the income years that are included in this ruling. | 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. In your case you were born in Australia and therefore you have an Australian domicile. From the information you have provided you have not demonstrated any intention of becoming a country Z citizen, therefore your Australian domicile remains 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. | Paragraph 23 of IT 2650 sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode: | a) the intended and actual length of the taxpayer's stay in the overseas country; | b) 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; | c) 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; | d) whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence; | e) the duration and continuity of the taxpayer's presence in the overseas country; and | f) 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 relation to the weight to be given to each of the above factors, paragraph 24 of IT 2650 states: | The weight to be given to each factor will vary with the individual circumstances of each particular case and no single factor will be decisive… however… greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant. | From 25 March 2012 your circumstances are as follows: | · you left Australia for employment purposes; | · you have been employed under an employment contract that has been renewed on a number of occasions, with an opportunity for a permanent position being offered in the future; | · you formed an intension of living in country Z for an indefinite period after your arrival; | · you arrived in country Z on residence permit that is required to be renewed annually; | · you and your family live in self provided and self furnished accommodation; | · since your departure you have returned to Australia on a number of occasions for personal reasons; | · your assets in country Z consist of household furnishings, bank accounts and a motor vehicle; | · you have not informed any Federal or State authority of your intension to leave Australia indefinitely and further your spouse has been in receipt of an Australian baby bonus payment; | · you have investment properties and a bank account in Australia; and | · you are using income that you are deriving in country Z to service your Australian assets. | Based on these facts and the greater weight applied against factors (c), (e) and (f), your pattern of behaviour is not consistent with someone establishing a permanent place of abode outside of Australia. | Significant in reaching this conclusion is the fact that while in country Z you have a residence permit that allows you to remain in country Z and is required to be renewed annually, at present your employment contract is required to renewed annually. You have not severed any ties to Australia in terms of informing any State or Federal authorities that you have left Australia indefinitely and you are continuing to service and grow your Australian assets. | Accordingly, as your Australian domicile will remain unchanged and the Commissioner is not satisfied that you will establish a permanent place of abode outside of Australia, you will continue to be a resident of Australia for income tax purposes in the years that are included in this ruling. | Conclusion | As it has been established that you will continue to be a resident of Australia for income tax purposes under both the resides test and the domicile test, there is no need to consider the remaining 2 tests. Therefore you will continue to be a resident of Australia for income tax purposes for the income years included in this ruling under subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997. | Assessability of foreign sourced income | Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived from all sources, whether in or out of Australia, during the income year. | However, subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable. | Subsection 6-20(1) of the ITAA 1997 provides that an amount of ordinary income is exempt income if it is made exempt by a provision of the ITAA 1997 or another Commonwealth law. | The International Organisations (Privileges and Immunities) Act 1963 (IO(P&I)A) is a Commonwealth law under which an international organisation, and persons engaged by it, may be accorded certain privileges and immunities including an exemption from tax. Taxation Ruling TR 92/14 Income tax: taxation privileges and immunities of prescribed International Organisations and their staff, discusses taxation privileges and immunities of prescribed international organisations and their staff. | Your circumstances | It is acknowledged that the income that you derive as a result of your employment with organisation Y is exempt from taxation in country Z due to it being a country Z non for profit organisation. However this organisation is not recognised as a prescribed organisation under the IO(P&I)A. Further there are no other provisions under ITAA 1997, ITAA 1936 or the country Z Double Tax Agreement that would apply to exempt your country Z derived employment income from Australian income tax. | Accordingly, the employment income that you derive from your country Z employment is subject to Australian income tax, under section 6-5 of the ITAA 1997.