Private ruling: Residency
Date of advice: 22 November 2018
Published: April 2019
Ruling period: Year ended 30 June 2018 | Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you a resident of Australia for tax purposes? | A1: Yes.

Relevant facts and circumstances: Your country of origin is country Y and you are a citizen of country Y. You were granted permanent residency of Australia followed by citizenship. In Australia, you lived in rental accommodation with your family (spouse and child). You relocated to country X without your family to undertake a research/employment position under a salaried contract. The initial term was for one year, extendable up to five years. You were issued with a country X visa which applied for a period of up to five years. You lived in rental accommodation under a formal lease agreement and paid the rent from your own income. During this period, your spouse did not earn employment income and you supported your family financially. During your stay in the country X, you were on unpaid leave from your Australian employer. You entered in to a contract to acquire a block of land in Australia while you were in country X. You holidayed in Australia for a brief period prior to your family joining you in country X approximately half way through your stay in country X. You did not terminate your Australian rental lease and assigned it to a friend. You left your household and personal effects in the leased property. Nothing was disposed of. Your family stayed with you in country X until you all returned permanently to Australia less than 12 months later. You initially intended to live in country X ‘permanently’ but changed your mind after a period of time. You did not close your bank accounts in Australia while you were overseas. However, you informed your bank that you had left Australia. You opened a bank account in country X for the receipt of your salary. You obtained a drivers licence in country X. You purchased a motor vehicle in country X which was sold prior to your return to Australia. You were a member of two associations at the time of your initial departure to country X but these memberships were not renewed in the following year. You did not inform the Australian Electoral Commission that you had departed Australia. You did not establish any professional, social or sporting connections in country X. You lodged income tax returns in country X as a non-resident. Neither you nor your spouse were members of a Commonwealth superannuation scheme during the relevant period.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1936 subsection 6(1) | International Tax Agreements Act 1953

Reasons for decision: Summary: 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). 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 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 will be considered to be a resident of Australia if they meet the conditions of one of the other three tests. | Detailed Reasoning - The resides test: The ordinary meaning of the word 'reside', according to the Macquarie Dictionary , 2001, rev. 5 th edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; have one's 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 one's settled or usual abode, to live in or at a particular place'. In deciding cases of residency, the courts and tribunals have noted that a person does not necessarily cease to be a resident because he or she is physically absent from Australia. Instead, the test is whether the person has retained a continuity of association with a place in Australia, 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 ). Recent case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the ‘resides’ test: ● Physical presence in Australia; ● Nationality; ● History of residence and movements; ● Habits and ‘mode of life’; ● Frequency, regularity and duration of visits to Australia; ● Purpose of visits to or absences from Australia; ● Family and business ties to different countries; and ● Maintenance of a place of abode in Australia. In your case, we note that: ● Your family only lived with you in country X for about half the period of your contract ● You spent just less than two years in country X ● You were on unpaid leave from your Australian employer while you were in country X ● You did not terminate your Australian rental lease after your family joined you in country X but reassigned it to a friend. ● You left your household and personal effects in the Australian dwelling you leased. ● You purchased a block of land in Australia while you were in country X From the information provided, you did not break your ties with Australia sufficiently enough for it to be determined that you ceased to reside in Australia according to ordinary concepts. Your absence from Australia had the hallmarks of being temporary in nature and it is considered that you retained a continuity of association with Australia during this period. Therefore, you remained a resident of Australia for tax purposes under the resides test of residency. Whilst it is not necessary to meet more than one test to determine residency for tax purposes, we will also include a discussion of the domicile test as an alternative argument. | Detailed Reasoning - Domicile: 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. In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country. The intention needs to be demonstrated in a legal sense, for example, by way of obtaining a migration visa, becoming a permanent resident or becoming a citizen of the country concerned. In your case, you changed your domicile from country Y to Australia as evidenced by the granting of Australian permanent residency followed by citizenship. From the information provided, you did not take any legal steps to change your domicile to country X so your domicile remained in Australia during the period in question. | Detailed Reasoning - 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 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 necessarily prevent the taxpayer in the meantime setting up a permanent place of abode outside Australia. Paragraph 23 of Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (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 to 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 about leaving Australia, place of education of the taxpayer's children, family ties and so on. IT 2650 states that the longer an individual stays in any one particular place, the more permanent in nature is likely to be the stay in that place of abode. An individual's intention regarding the duration of the overseas stay and the length of the actual stay are significant factors in deciding whether they have set up a permanent place of abode. Where a taxpayer leaves Australia for an unspecified or a substantial period and establishes a home in another country, that home may represent a permanent place of abode of the taxpayer outside Australia. However, a taxpayer who leaves Australia with an intention of returning to Australia at the end of a ‘transitory’ stay overseas would remain a resident of Australia for income tax purposes. It is the Commissioner’s view that an overseas stay in excess of two years may indicate that an individual can be considered to have a permanent place of abode overseas, subject to a consideration of all the other relevant circumstances applying to the taxpayer (paragraphs 25 and 27 of IT 2650). In your case, and similarly to our comments regarding the resides test, we consider that you retained a durable association with Australia during the time you were in country X. Although you established a place of abode in country X, your family occupied this with you for only part of the period you were there and you were not away for a long enough period to say that you had a permanent place of abode outside Australia. Therefore, you remained a resident of Australia under the domicile test during the period in question. | Detailed Reasoning - Your residency status: As you meet the resides and domicile tests of residency you are a resident of Australia for tax purposes. | Detailed Reasoning - Assessability of employment income: 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. Where you have paid tax on your income in another country, you are entitled to claim a foreign income tax offset for the tax paid. In determining an individual’s liability to pay tax in Australia it may be necessary to consider not only the domestic income tax laws but also any applicable double tax agreement. 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). Broadly, the agreement between Australia and country X operates to allocate taxing rights between Australia and country X, thus avoiding double taxation. An article of the country X agreement deals with salaries and wages derived by an individual and allows Australia to tax the income you derived in country X under its domestic law. Another article of the agreement deals with claiming credits for tax paid in another country and confirms that you are entitled to claim a tax credit in Australia for the country X tax you paid.