Private ruling: Residency
Published: June 2012
Ruling period: 30 June 2012 | 30 June 2013
Date scheme commenced: 28 January 2012

Ruling: Q1: Is the taxpayer assessable as a resident of Australia for the purposes of section 6-5 of the Income Tax Assessment Act 1997 (the ITAA 1997)? | A1: No, the taxpayer is not a resident of Australia.

Relevant facts and circumstances: The taxpayer is a citizen of country X and has a Special Category Visa 444. The taxpayer has been a permanent employee of employer X since year X. The taxpayer has been appointed to position X for a renewable fixed term of X years. The taxpayer will be based in country X, the remainder of the two year period (1 year and 6 months) which may be extended for a further year, prior to this the taxpayer was residing in Australia with his wife and two children and was a resident of Australia for tax purposes. The placement will end at the conclusion of the defined period unless a further period is mutually agreed between the taxpayer and their employer. On completion of the posting the taxpayer will return to Australia. The taxpayer will continue to be an employee of employer A during the period of his posting overseas and will continue to be renumerated by employer X. Employer X will continue to contribute to the Public Sector Superannuation Scheme, a scheme established under the Superannuation Act 2005, of which the taxpayer is a member. Employer X will provide reimbursement of return economy class air fares to Australia, up to a total of amount X per annum, to the taxpayer and their family once during each year of the assignment for the purpose of taking recreational leave in Australia. To facilitate conducting business outside office hours, employer X will meet the cost of purchase, installation and operation of telephone equipment at the taxpayer's overseas residence. Employer X will advance or reimburse the costs associated with relocation and establishment to the taxpayer as follows: Air fares of up to amount X for the taxpayer and their family to travel to country X (the same provision will be made for your return travel on completion of the posting). The cost of obtaining passports/visas and the costs associated with any official documents required during residency for the taxpayer and family members. Amount X per child for the costs of education in country X. Up to a maximum of amount X for transport (including insurance) of a reasonable quantity of personal and household goods to country X (the same will apply upon return to Australia on completion of the posting). The cost of storing remaining, furniture, household goods and personal items, including removal from the taxpayer's residence to storage facility and insurance. The cost of renting a suitable residence in country X and the costs of utilities used in the taxpayer's residence (provided these are in the normal range). The taxpayer will be accompanied overseas by his wife and children who are Australian citizens. The taxpayer has signed a 12 months lease on an apartment in country X, one container of house goods is being shipped to country X to furnish the apartment, while a small amount of effects which would not fit in the container is in storage in Australia. The taxpayer owns his own home in Australia which he will retain and rent out during his overseas posting annually unfurnished. The taxpayer has the following assets: Australian : a residence, rental properties, Australian bank accounts, a mortgage and shares. Overseas : bank account and shares. The taxpayer holds no assets in country X.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1936 subsection 6(1) Reasons for decision | Question 1 | Summary | The taxpayer will not be assessable as a resident of Australia for the purposes of section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Detailed Reasoning | Discussion of the law | Section 6-5 of the 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. | Therefore, in order to determine whether your income will be assessable in Australia it is necessary to first determine your residency status for tax 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 (ITAA 1936). "(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: | (A) a member of the superannuation scheme established by deed under the Superannuation Act 1990 : or | (B) an eligible employee for the purposes of the Superannuation Act 1976 : or (C) the spouse, or a child under 16, of a person covered by subparagraph (A) or (B); ....." | The definition provides four tests to ascertain whether an individual is a resident of Australia for income tax purposes. These tests are: | · The resides test ; | · The domicile test; | · The 183 day test ; and | · The superannuation test. | 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, they may still be considered to be a resident of Australia for tax purposes if they meet the conditions of one of the other three tests. | The resides test | The word 'reside' is not defined in the Australian Tax Law. Therefore it is necessary to consider the ordinary meaning of the word. The ordinary meaning of the word resides, according to the Macquarie Dictionary , 2001, rev. 3 rd edition, The Macquarie Library Pty Ltd, NSW, is to dwell permanently or for a considerable time; have ones abode for a time and according to the Compact Edition of the Oxford English Dictionary (1987), is to dwell permanently, or for a considerable time, to have ones settled or usual abode, to live in or at a particular place. | You have been a permanent employee of the employer X since year X. | You have been appointed to position X for a renewable fixed term of 2 years. | You will be based in country X for the remainder of the two year period (1 year and 6 months) which may be extended for a further year, prior to this you were residing in Australia with your wife and children and were a resident of Australia for tax purposes. | You have signed a 12 month lease on an apartment in country X where you will reside with your wife and children during this period. | You own your home in Australia which you will retain and rent out during you posting overseas on an annual basis, unfurnished. | In your case the length of your physical absence from Australia and the surrounding circumstances (such as establishing a home overseas with your family and renting out your family home in Australia) are not consistent with residing in Australia, even though you have retained the family home in Australia. As you left Australia to work overseas you are therefore not residing in Australia according to ordinary concepts and you are not a resident of Australia for tax purposes according to this test. | The domicile test | · There are essentially three types of domicile that an individual can have: | · the domicile of origin; | · the domicile of choice; and | · the domicile of dependency. | Paragraph 6(1)(a)(i) of the ITAA 1936 states: | '6(1) In this Act, unless the contrary intention appears…… 'resident' or 'resident of Australia' means- | (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; | Taxation Ruling IT 2650 Income Tax: Residency - Permanent Place of Abode Outside Australia (IT 2650) provides guidelines for determining whether individuals who leave Australia temporarily to live overseas on a temporary overseas work assignment cease to be Australian residents for income tax purposes during their overseas stay. | The first part of this test requires you to have a domicile in Australia. IT 2650 states in paragraph 8, that 'domicile' is a legal concept, determined according to the Domicile Act 1982 and the common law rules. Paragraph 8 of IT 2650 states: | 'the primary common law rule is that a person acquires at birth a domicile of origin, being the country of his or her father's permanent home. … A person retains the domicile of origin unless and until he or she acquires a domicile of choice in another country…' | Paragraph 9 of IT 2650 states: | 'The primary common law test of domicile of choice has now been restated in section 10 of the Domicile Act which provides: "The intention that a person must have in order to acquire a domicile of choice in a country is the intention to make his home indefinitely in that country". | Paragraph 10 of IT 2650 states: | In determining a person's domicile for the purposes of the definition of "resident" in subsection 6(1), it is necessary to consider the person's intention as to the country in which he or she is to make his or her home indefinitely. Thus, a person with an Australian domicile but living outside Australia will retain that domicile if he or she intends to return to Australia on a clearly foreseen and reasonably anticipated contingency e.g., the end of his or her employment. On the other hand, if that person has in mind only a vague possibility of returning to Australia, such a state of mind is consistent with the intention required by law to acquire a domicile of choice in the foreign country. | In the present case, there is no evidence that the taxpayer has an intention to remain overseas permanently as upon completion of the posting the taxpayer will return to Australia, or that the taxpayer has acquired a domicile of choice in country X. However, it is not necessary to decide this point in light of the following comments that address the issue of whether the taxpayer's permanent place of abode is outside Australia. | 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 surrounding 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. | It is clear from the case law that a person's permanent place of abode cannot be ascertained by the application of any hard and fast rules. It is a question of fact to be determined in the light of all circumstances of each case. | The Courts have considered a person's 'place of abode' is where they consider 'home'. In R v Hammond (1982) ER 1477, Lord Campbell CJ stated that, "a man's residence, where he lives with his family and sleeps at night, is always his place of abode in the full sense of that expression." | A place of abode must exhibit the attributes of a place of residence or a place to live, as contrasted with the overnight, weekly or monthly accommodation of a traveller. | 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: | · the intended and actual length of the taxpayer's stay in the overseas country; | · whether the taxpayer intended to stay in the overseas country only temporarily and then move on to another country or to return to Australia at some definite point in time; | 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; | Whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence; | The duration and continuity of the taxpayer's presence in the overseas country; and | 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, or course, relevant. | In your case, you are currently living in: | Country X for your appointment in position X for a renewable fixed term of 2 years from July 2011. | You will be based in country X for the remainder of the two year period (1 year and 6 months) which may be extended for a further year. | The placement will end at the conclusion of the defined period unless a further period is mutually agreed between yourself and your employer. | On completion of the posting you will return to Australia. | You will continue to be an employee of employer X during the period of your posting to country X and will continue to be renumerated by employer X. | Employer X will continue to contribute to the Public Sector Superannuation Scheme, a scheme established under the Superannuation Act 2005, of which you are a member. Employer X will provide reimbursement of return economy class air fares to Australia, up to a total of amount X per annum, to you and your family once during each year of the assignment for the purpose of taking recreational leave in Australia. | To facilitate conducting business outside office hours, employer X will meet the cost of purchase, installation and operation of telephone equipment at your overseas residence. | Relocation expenses : Employer X will advance or reimburse the costs associated with relocation and establishment to you as follows: | Air fares of up to amount X for you and your family to travel to country X (the same provision will be made for your return travel on completion of the posting). | The cost of obtaining passports/visas and the costs associated with any official documents required during residency for you and family members. | Amount X per child for the costs of education in country X. | Up to a maximum of amount X for transport (including insurance) of a reasonable quantity of personal and household goods to country X (the same will apply upon return to Australia on completion of the posting). | The cost of storing remaining, furniture, household goods and personal items, including removal from your residence to storage facility and insurance. | The cost of renting a suitable residence in country X and the costs of utilities used in your residence (provided these are in the normal range). | You will be accompanied overseas by your wife and children who are Australian citizens. | You have signed a 12 months lease on an apartment in country X. One container of house goods is being shipped to country X to furnish the apartment, while a small amount of effects which would not fit in the container is in storage in Australia. | You own your own home in Australia which you will retain and rent out during your overseas posting on an annual basis unfurnished. | You have the following assets: | Australian : a residence, rental properties, Australian bank accounts, a mortgage and shares (direct fund managers). | Overseas : bank account and shares. The taxpayer holds no assets in country X. | Clearly, the fact that you intend to return to Australia at some point in the future does not rule out the possibility that in the meantime, you have established a permanent place of abode in country X. As the ruling has it at Paragraph 14, 'of more importance is the nature and quality of use which the taxpayer makes of a particular place of abode overseas'. | Your permanent place of abode is outside Australia due to the length of time you have committed to spending overseas, establishment of a home overseas, and the fact that your family has accompanied you. The fact that you will not be selling your home in Australia, although relevant, is not persuasive enough to overcome the finding on the basis of the other factors. It is arguable that you have abandoned your home in Australia for the duration of your posting, by renting it out. | On the balance of factors the Commissioner considers that your abode in country X is a permanent place of abode and therefore you are not a resident of Australia under the domicile test as you have established a permanent place of abode overseas. | Hence, whether or not you have retained your Australian domicile, you will not be regarded as a resident of Australia in terms of the domicile test. | The 183 day test | As your usual place of abode during period X will be outside of Australia, you do not satisfy this test for residency. | The Superannuation test | A person will be considered a resident under the Commonwealth superannuation fund test if they currently contribute to certain superannuation funds for Commonwealth government employees. The eligible funds are funds: | Established under the Superannuation Act 1976 (such as the Commonwealth Superannuation Scheme), or | Established under the Superannuation Act 1990 (such as the Public Sector Superannuation Scheme), or The spouse or child under 16 of a person covered b y either of the above funds. | You do not satisfy the Commonwealth superannuation fund test because you are a Commonwealth government employee contributing the Public Sector Superannuation Scheme (Accumulation Plan), a scheme established under the Superannuation Act 2005 . Conclusion | You have established a permanent place of abode outside Australia and therefore you have become a non-resident of Australia for taxation purposes for period X. | You will be considered a non-resident of Australia for the duration of your posting in country x, and therefore will generally be exempt from taxation in Australia on both ordinary (subsection 6-5(3) of the ITAA 1997) and statutory income (subsection 6-10(5) of the ITAA 1997) unless the income has an Australian source. | The source of a taxpayer's income is the place where the services are performed: French v. FC of T (1957) 98 CLR 398. | In these circumstances, the salary and wages income you derive from employer X during your posting in country X are sourced in country X because your services are performed in country X. Therefore, your salary and wages would not be included in as Australian assessable income.


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