Private ruling: Residency
Date of advice: 14 October 2015
Published: October 2015
Ruling period: Year ending 30 June 2016
Date scheme commenced: 14 September 2015

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

Relevant facts and circumstances: You were born in a foreign country. You are a citizen of a foreign country and Australia. You have accepted an employment contract to work in a foreign country. The contract is for several months. You state that it may be extended for two to three years. Your contract does not mention an extension. You have also stated that it is standard commercial practice of international employment agreements to avoid commitments to extending a contract. Your understanding is that your contract is likely to be extended for two to three years. You intend to accept an extension if one is offered. You will have an employer sponsored visa for a foreign country which will allow you to be in a foreign country for the duration of your work contract. You commenced your employment in a foreign country. Your spouse will accompany you to a foreign country. Your employer will pay you an accommodation allowance. You will either rent accommodation by yourself or else your employer will find you accommodation. The accommodation will be fully furnished and for the use of you and your spouse only. You will rent out your home in Australia for the duration of your contract in a foreign country. You will take your personal items to a foreign country. You will take leave without pay from your job in Australia for the duration of the contract. You and your spouse are not eligible to contribute to the relevant Commonwealth super funds.

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

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that 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. | Detailed Reasoning - Residency for taxation purposes: The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 . Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936). The definition offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the: • resides test • domicile and permanent place of abode test • 183 day test and • Commonwealth superannuation fund test. The primary test for deciding the residency status of each individual is whether they reside in Australia according to the ordinary meaning of the word resides. If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established. | Detailed Reasoning - The resides (ordinary concepts) test: The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'. As the word 'reside' is not defined in Australian taxation law, it takes its ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936. In Dempsey and Commissioner of Taxation [2014] AATA 335 (29 May 2014) the Administrative Appeals Tribunal noted that the settled position of the courts (at ultimate appellant level) as to the meaning of the word resides in the ITAA 1936 is that the word: bears its ordinary English meaning, which 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". Recent case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the 'resides' test: (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. These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in IT 2650 and Taxation Ruling TR 98/ 17 Income tax: residency status of individuals entering Australia . It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances. In your case: • You are going to a foreign country to live and work • Your spouse will accompany you to a foreign country • Your work contract is for several months • You will either rent accommodation by yourself or else your employer will find you accommodation. • You house in Australia is rented out while you are in a foreign country • You will take your personal items to a foreign country. Based on the facts above you are not residing in Australia according to ordinary concepts for the period you are living and working in a foreign country. | Detailed Reasoning - The domicile test: If a person's domicile is Australia they will be an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia. 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. 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. 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. Your domicile of origin is in a foreign country and your domicile of choice is Australia. While in a foreign country your domicile of choice will remain Australia as you will not be taking steps to change your domicile to a foreign country by adopting a foreign country citizenship. In your case: • You are going to a foreign country for several months' employment. • You have an employer sponsored visa which allows you to stay in a foreign country only while you are employed there. • You will either rent accommodation by yourself or else your employer will find you accommodation. • You will take leave without pay from your job in Australia for the duration of the contract. In your case, your continuing presence in a foreign country will be dependent on your employer sponsored visa. Should your employment cease for any reason you will be required to leave the country. Although it is your intention to live and work in a foreign country on an ongoing basis, the duration and continuity of your presence is contingent on your continued employment in a foreign country. Also, you have taken leave without pay from your job in Australia for the duration of the contract which indicates that your stay in a foreign country will not be permanent. This makes your presence in a foreign country temporary in nature. You have not established a permanent place of abode in a foreign country as your presence in a foreign country is temporary in nature. You cannot establish a permanent place of abode when your presence in a place is temporary. The Commissioner is not satisfied you have a permanent place of abode outside of Australia. Therefore, while in a foreign country, you will remain a resident of Australia under the 'domicile and permanent place of abode' test of residency. As you are resident under the domicile test, there is no need to consider the 183-day and superannuation tests. | Detailed Reasoning - Your residency status: As you are a resident of Australia under one of the tests of residency outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, you are considered to be an Australian resident for taxation purposes for the period you are in a foreign country. You will be a resident of Australia for taxation purposes for the period you are working in a foreign country.