Private ruling: Residency
Published: January 2014

Ruling: Question and answer | Are you a resident of Australia for taxation purposes? | Yes. | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | 1 July 2013

Relevant facts and circumstances: You were born in Australia and are an Australian citizen. Your parents and sibling reside in Australia. You do not have any children and are not married or in a defacto relationship. You took more than 12 months leave from your Australian employer to travel overseas. You recommenced work with your Australian employer for a period of a couple of months before resigning to take up an employment position with a company in country X. You intend to stay in country X for a continued period of time, and for at least a couple of years. You intend to work for your employer in country X for an indefinite period of time, subject to future visa approvals and extensions. You entered country X with a work permit that your employer obtained for you. A work permit is issued to enable a sponsored employee to seek a residence permit. You have provided a copy of a residence permit which has the name of your profession and employer/sponsor recorded on it. Your residence permit is valid for a period of a couple of years. Your residence permit will become invalid should you live outside country X for more than a set number of months. You understand that in the future your employer can apply for another work permit and subsequent residence permit prior to expiry of your current permit. Your employment contract states that the period of your contract is 'unlimited'. The terms of your employment include a probationary period. You will consider other overseas employment opportunities should your initial or extended residence permits lapse. Your employer paid for your flight to country X. Your employer has not provided you with accommodation. Your employer provided you with an initial temporary accommodation allowance in country X. However, you were required to arrange and pay for your own accommodation after the initial period. You are responsible for expenses such as electricity, gas, water, internet and cable. You are sharing a furnished two bedroom apartment in country X. The lease is in the other person's name and you sub-lease your room. Your employer provided you with an allowance to establish yourself in country X. You will use the allowance to pay for your excess baggage expenses and to purchase your own electrical appliances, linen and additional storage and home office related items. A clause of your employment contract states that on termination of your employment, your employer will provide air tickets to your 'base' unless you fail to complete a set period of employment or are offered other local employment. Australia is specified as being the destination of your demobilisation flight. You intend to spend your periods of annual leave in overseas countries. At this stage, you have no plans to return to or visit Australia. You would only return to Australia in unforeseen circumstances such as a family/friend's wedding or funeral. You took various personal items with you to country X such as clothes, shoes, toiletries, books, hairdryer, laptop and phone. Some lifelong personal effects are stored at your parent's house in Australia. As you are not married and do not own any property, you consider that it is not unreasonable for these personal effects to be stored with your parents until such time as you are in a position to settle with your own family. You do not own any property in Australia or abroad. You have a superannuation fund and cash savings in bank accounts in Australia. You have discussed the options available to close your Australian superannuation fund with your fund administrator; however, due to your age you have no other option but to retain your account. You have opened a bank account in country X for the receipt of your salary and will retain your Australian long term bank accounts. You have retained X Australian airline loyalty memberships which are affiliated with major airlines in country X. You have cancelled your Australian mobile phone account. You have requested that your name be removed from the Australian electoral role. You have requested that your name be taken off Medicare records. You have cancelled your Australian private health insurance policy. You have never worked for the Australian Commonwealth government. You are over 16 years of age.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | 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. 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' and 'permanent place of abode' test; · the 183 day test; and · the Commonwealth superannuation fund test. If any one of these tests is met, an individual will be a resident of Australia for taxation purposes. The resides test is the primary test for determining the residency status of an individual for taxation purposes. If residency is established under the resides test, the remaining three tests do not need to be considered. However, if residency is not established under the resides test, an individual will still be a resident of Australia for taxation purposes if they meet the conditions of one of the other three tests. | Detailed Reasoning - The resides 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. The ordinary meaning of the word 'reside', 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; having 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 considering the definition of 'reside', the High Court of Australia, in Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 at page 99-100, per Latham CJ, noted the term 'reside' should be given a wide meaning for the purposes of section 6(1) of the ITAA 1936. Similarly, in Subrahmanyam v Commissioner of Taxation 2002 ATC 2303, Deputy President Forgie said at paragraphs 43 and 44 that the widest meaning should be attributed to the word 'reside'. The question of whether an individual 'resides' in a particular country is a question of fact and degree and not of law. In deciding this question, the courts have consistently referred to and taken into account the following factors as being relevant: (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 with Australia compared to the foreign country concerned; and (viii) maintenance of a place of abode. The weight given to each factor varies with individual circumstances and no single factor is necessarily decisive. In Shand v Federal Commissioner of Taxation 2003 ATC 2080, the Tribunal stated (at 35): Questions of residence, domicile, permanent place of abode, have frequently been found by the courts and tribunals to be difficult to assess on a factual level and not easy to define in concrete legal terms. To determine whether or not you are residing in Australia for taxation purposes, it is necessary for us to examine each of these factors in the context of your circumstances. | Detailed Reasoning - (i) Physical presence in Australia: It is important to note that a person does not necessarily cease to be a resident because he or she is physically absent from Australia. In Joachim v Federal Commissioner of Taxation 2002 ATC 2088 , the Tribunal stated (at 2090): Physical presence and intention will coincide for most of the time but few people are always at home. Once a person has established a home in a particular place, even involuntary, a person does not necessarily cease to be resident there because he or she is physically absent. The test is, whether the person has retained a continuity of association with the place, together with an intention to return to that place and an attitude that the place remains home. Further, in Iyengar v. Federal Commissioner of Taxation 2011 ATC 10-222, (2011) AATA, the Tribunal stated (at 62): Physical presence in a country for some period during a particular year of income is usually considered by the courts as necessary in order that a person should be resident in that country during that particular income year. However, there have been exceptions to this: Rogers v Inland Revenue Commissioners (1879) 1 TC 225 and Slater v Commissioner of Taxation (NZ) (1949) 9 ATD 1. In your case, you have taken up an open ended employment contract in country X for a period of at least a couple of years and currently have no plans to visit or return to Australia. You state that you will only return to Australia in unforeseen circumstances such as a family member or friend's wedding or funeral. Although you may not return to Australia and may not be physically present here while you are working in country X, this does not preclude you from being an Australian resident as no one single factor is necessarily decisive, as mentioned above. | Detailed Reasoning - (ii) Nationality: You were born in Australia and are an Australian citizen. | Detailed Reasoning - (iii) History of residence and movements: You lived and worked in Australia prior to leaving the country to travel overseas. You returned to Australia for a couple of months and left the country again to take up an employment contract in country X. | Detailed Reasoning - (iv) Habits and 'mode of life': You intend to live and work in country X for at least a couple of years and have established shared accommodation in that country. You also intend to spend your periods of annual leave in overseas countries which is consistent with someone who is no longer residing in Australia. You have cancelled your Australian mobile phone account, cancelled your Australian private health insurance policy and requested that your name be removed from Medicare records and the Australian electoral role. These actions are consistent with someone who is no longer residing in Australia. You have retained two Australian airline loyalty memberships which are affiliated with major airlines in country X. Although the retention of these memberships is understandable, your decision to retain the memberships indicates a continuing association with Australia and is consistent with someone who is still residing in Australia. You intend to work for your employer in country X for an indefinite period of time; however, you acknowledge that this intention is dependent on future visa approvals and extensions. As your ability to live in country X is subject to an employer sponsored residence visa/permit, it is evident that your stay in the country X is contingent on your ongoing employment with the company. Should your employment cease for any reason, you will be required to leave the country. In this regard, your employment contract states that on termination of your employment, the company will provide demobilisation air tickets to Australia unless you fail to complete a set period of employment or if you are offered other local employment. Therefore, regardless of your future work and residency intentions, you will in effect be repatriated to Australia by your employer should your employment be terminated after the expected minimum period. This is indicative of your continuing association with Australia and is consistent with someone who is still residing in Australia. | Detailed Reasoning - (v) Frequency, regularity and duration of visits to Australia: As mentioned above, you currently have no plans to make any return visits to Australia. You will only return to Australia in unforeseen circumstances such as a family member's or friend's wedding or funeral. | Detailed Reasoning - (vi) Purpose of visits to and absence from Australia: The purpose of your absence from Australia is to work in country X for an indefinite period of time, subject to future visa approvals and extensions. | Detailed Reasoning - Family: Your parents and sibling reside in Australia and you may return to Australia should there be unforeseen circumstances such as a family related wedding or funeral. It is evident that you have stronger family ties to Australia than country X. | Detailed Reasoning - Business or economic: As mentioned above, you have taken up an employment contract in country X for a period of at least a couple of years. | Detailed Reasoning - Assets: Your assets in Australia comprise of a superannuation fund, cash savings in bank accounts and personal effects such as printed photo albums, books and artworks that are stored at your parents' house. Your assets in country X comprise of personal and household affects you have purchased in country X and items you took with you from Australia which include clothes, shoes, toiletries, , books, hairdryer, laptop and phone. You have also opened a bank account for the receipt of your salary. It is evident that you have a higher value of assets in Australia than country X. Further, the retention of your savings accounts and storage of personal effects at your parents' home is consistent with someone who is still residing in Australia. | Detailed Reasoning - (viii) Maintenance of a place of abode in Australia: You are sharing a furnished two bedroom apartment in country X. The lease is in the other person's name and you sub-lease your room. As you do not have a place of abode in Australia, your circumstances are consistent with someone who is no longer residing in Australia. | Detailed Reasoning - Summary of the resides test: As mentioned above, the weight given to each factor varies with individual circumstances, no single factor is necessarily decisive and the term 'reside' should be given a wide meaning. In your case, although you intend to be physically absent from Australia for at least a couple of years, there are various factors that indicate that you have not ceased to be a resident of Australia. These are primarily: · you have a restrictive visa whereby your ability to live in country X is dependent on your continuing employment with your employer; · you are an Australia citizen who will be repatriated to Australia by your employer should your employment cease after the expected minimum period; · you have stronger family ties to Australia than with country X; · you have stronger financial ties through your assets to Australia than with country X; and · you are maintaining Australian bank accounts and have personal items stored at your parents' house in Australia. Based on the above, you will retain a continuity of association with Australia while you are overseas and will be residing in Australia according to the ordinary meaning of the word. Therefore, you are a resident of Australia under the 'resides' test of residency. Whilst it is not necessary to meet more than one test to determine residency for tax purposes (we have already established that you are a resident under the resides test), we will also include a discussion of the 'domicile and permanent place of abode' test as an alternative argument. | Detailed Reasoning - The domicile and permanent place of abode test: Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia, unless the Commissioner is satisfied that their permanent place of abode is outside of Australia. Domicile A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. A person may acquire a domicile of choice in another country if they have the intention of making their home indefinitely in that country (section 10 of the Domicile Act 1982 ). In this regard, paragraph 21 of Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650) states that: 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 e.g., through having obtained a migration visa. A working visa, even for a substantial period of time such as 2 years, would not be sufficient evidence of an intention to acquire a new domicile of choice. In your case, as you have not obtained a migration visa or become a permanent resident or a citizen of country X, you have not established a new domicile of choice in that country. You were born in Australia and your domicile is still 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 surroundings in which a person lives (paragraph 12 of IT 2650). A permanent place of abode does not have to be 'everlasting' or 'forever'. It does not mean an abode in which you intend to live for the rest your life. An intention to return to Australia in the foreseeable future to live does not prevent you in the meantime setting up a permanent place of abode elsewhere (paragraph 14 of IT 2650). 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 the circumstances of each case. In your case, your continuing presence in country X is dependent on your employer sponsored residence permit. 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 country X indefinitely, the duration and continuity of your presence in country X is contingent on your continued employment with your employer. It is the Commissioner's view that an individual cannot have a permanent place of abode in a country where his or her presence is contingent on restrictive visa or residence permit conditions of this type. Further, your accommodation is only secured through an arrangement with the primary leasee of the property and you have no control/involvement in whether this property continues to be leased from the owner. The Commissioner considers that you are not able to establish a permanent place of abode when your accommodation arrangements are so tenuous in nature. Consequently, the Commissioner is not satisfied that you have established a permanent place of abode outside of Australia and therefore, you are a resident of Australia under the domicile test of residency. | Detailed Reasoning - Applegate and Jenkins' cases: You mentioned the cases of Federal Commissioner of Taxation v Applegate 79 ATC 4307; (1979) 9 ATR 899 (Applegate's case) and Federal Commissioner of Taxation v Jenkins 82 ATC 4098; (1982) 12 ATR 745 (Jenkins' case) in your arguments supporting your view in your ruling application. We acknowledge that there are some similarities between your situation and the circumstances surrounding those cases (you intend to work in an overseas country for a substantial or indefinite period as did the taxpayers in Applegate and Jenkins' cases). However, in both of these cases, the taxpayers involved went to work in Vanuatu, where there was no requirement to be employed in order to stay in the country. This contrasts with your situation where there is a requirement to be employed in order to maintain a residency permit. | Detailed Reasoning - Your residency status: As you meet the resides and domicile tests of residency, you are a resident of Australia for tax purposes for the income tax years.