In a rather generous decision, the Administrative Appeals
Tribunal (AAT) has recently held that a taxpayer
was a non-resident of Australia for income tax purposes and not
subject to income tax on foreign income derived from 1999 to 2002
The taxpayer is an electronic engineer who left Australia in
1997 in pursuit of overseas contracting opportunities. He
obtained work in Czech Republic, Turkey, South Africa, USA,
Germany, Thailand and China (all on a short-term basis) before
returning to Australia on a permanent basis on 30 January
During this time the taxpayer established a domestic relationship
with a Philippine national and established a base in Manila.
He considered himself a non-resident for Australian income tax
purposes and as such did not include any foreign income derived
overseas in his Australian income tax returns for the income years
The Commissioner of Taxation (the Commissioner),
on the other hand, sought to assess the taxpayer as a resident for
Australian income tax purposes and issued amended assessments
including the foreign income for the income years in
The AAT ruled that the taxpayer was not a resident under the
Australian income tax legislation primarily on the basis that:
He sold his principal place of residence in 1999;
The taxpayer did not maintain any business ties with Australia;
His domicile/permanent place of abode was considered by AAT to
be in the Philippines for the relevant years resulting from his
It was a rather surprising result considering the taxpayer had
retained strong personal ties with Australia.
The taxpayer also did not seek to argue that in the event that he
is considered a resident of Australia for income tax purposes, the
foreign employment income exemption under former section 23AG of
the Income Tax Assessment Act 1936 would apply, presumably
because he was engaged in the capacity as a contractor, rather than
as an employee.
However, the case highlights the importance of establishing a
permanent place of abode outside of Australia for employees seeking
to become foreign residents of Australia for income tax
Please contact Michael van Schaik, Associate Director,
Employment & Remuneration Services.
The Government plans a white paper on tax reform within two years and will then seek a mandate at the next election.
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