Private ruling: Residency
Published: December 2012
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2012

Ruling: Question and answer | Are you a resident of Australia for taxation purposes? | Yes.

Relevant facts and circumstances: You are a resident of Australia for taxation purposes. You are currently a citizen of Australia. You are going overseas to work. Your work contract is permanent. You will rent an apartment overseas. Your spouse will remain in Australia. Your spouse will live in your family home in Australia. Your spouse will visit you overseas. You will return to Australia once a year. You and your spouse have a rental property in Australia.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 6(1). | Income tax Assessment Act 1997 Section 6-5. | Income Tax Assessment Act 1997 Subsection 995-1(1).

Reasons for decision: Summary: Generally where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source. The terms 'resident' and 'resident of Australia', in regard to an individual, are defined within the tax provisions and provides four tests to ascertain the residency status. Relevant to your situation is the second test which is examined in detail in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia . In examining these tests, IT 2650 provides a number of factors which assist in assessing a taxpayer's situation against the tests. A copy of this ruling is available from www.ato.gov.au. | Detailed Reasoning - The domicile test: Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia. Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence. Your domicile is Australia. In your case the Commissioner is not satisfied that you have a permanent place of abode outside of Australia because: · Your spouse is in Australia · You maintain a home in Australia · You rent accommodation overseas Therefore, you are a resident of Australia under this test. | Detailed Reasoning - Your residency status: As you meet the domicile test, you are considered to be a resident of Australia for tax purposes. As a resident of Australia for taxation purposes you are required to declare all your income both in and out of Australia in your Australian tax return. In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements. Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations). Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country Y Agreement is listed in section 5 of the Agreements Act. The Country Y agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The Country Y agreement operates to avoid the double taxation of income received by residents of Australia and Country Y. Article 11 of the Country Y agreement advises that salaries, wages and other similar remuneration derived by a resident of Australia shall be taxable only in Australia unless the employment is exercised in Country Y. If the employment is exercised in Country Y then the income may also be taxed in Country Y. | Detailed Reasoning - Foreign Income Tax Offset: If you have assessable income from overseas, you must declare it in your Australian income tax return. If you have paid foreign tax in another country, you may be entitled to an Australian foreign income tax offset (FITO), which provides relief from double taxation. The FITO rules apply for income years that start on or after 1 July 2008. Different rules apply for income periods up to 30 June 2008. To qualify for a FITO you must meet all of the following criteria: · you must have paid the foreign tax on the foreign income, · the foreign tax must be a tax which you were personally liable for, and · the income or gain that the foreign tax was paid must be included in your assessable income for Australian income tax purposes. The FITO is a non-refundable tax offset. The FITO is applied to your income tax liability including the Medicare levy and the Medicare levy surcharge where applicable. Any excess is not refunded to you. If you are claiming an offset of $1,000 or less, you only need to record the actual amount of foreign income tax paid on your assessable income (up to $1,000). If you are claiming a FITO of more than $1,000, you will first need to work out your FITO limit. The FITO that can be claimed is limited to the lesser of foreign income tax paid and the FITO limit. The limit is the amount of Australian income tax payable on that foreign income. The Medicare levy and the Medicare levy surcharge are included in calculating the FITO. The difference between the foreign income tax paid and the FITO limit cannot be refunded or carried over to a future income year.

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