Private ruling: Residency status
Published: May 2015
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2014

Ruling: Question and Answer: | Are you a non-resident of Australia for tax purposes for the period you are overseas? | Yes

Relevant facts and circumstances: You were born in Country A and are a citizen of Country A. You and your spouse moved to Australia during the 2011-12 income year and lived in a unit in City M. You and your spouse were granted permanent residency in Australia during the 2012-13 income year. You moved to City N in Australia during the 2013-14 income year. Your spouse continued to live in City M. You were employed in Australia on a full time basis You departed Australia on date X in the 2014-15 income year for Country B on a student visa. Your visa does not allow you to stay permanently in Country B. Your purpose of travelling to Country B is to undertake post graduate studies at a University in Country B for two years. You have taken sufficient funds to cover your living expenses. You do not plan to work in Country B and plan to return to Australia thereafter on approximately date Y in the 2016-17 income year, two years after your departure. You will live in only one city in Country B and will stay in one accommodation. You will not be earning income whilst overseas. You will support yourself financially with funds you have transferred to a bank account in Country B. Your assets overseas include a house and bank account in Country A, and a bank account in Country B. Prior to leaving for Country B, you lived in rental accommodation in Australia. You do not own a house in Australia. Your only asset in Australia is a bank account. Prior to leaving Australia you sold or gave away your personal effects. Your spouse lives in a rental apartment in City M in Australia. Your spouse will not visit you in Country B. You will not visit your spouse in Australia for the duration of your overseas stay. Your spouse is currently studying in City M and works casually to be self-sufficient. You plan to search for a job in Australia when you return to Australia. Neither you or your spouse is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Service Superannuation Scheme (CSS).

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

Reasons for decision: Summary: 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 terms 'resident' and 'resident of Australia', in regard to an individual, are defined in subsection 6(1) of the ITAA 1936. The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. The tests are: • the resides test, • the domicile (and permanent place of abode) test, • the 183 day test, and • the superannuation 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'. Because 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". Based on the facts of your case, the Commissioner accepts that you will not be residing in Australia according to the ordinary meaning of the word 'reside' between date X and approximately date Y. Therefore you will not be a resident of Australia for taxation purposes under this test during that period. | Detailed Reasoning - The domicile test: Under the domicile test, a person whose domicile is in Australia will be considered a resident of Australia for taxation purposes, unless the Commissioner is satisfied the person's permanent place of abode is outside Australia. A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin' and will not usually change, but can in some circumstances. For example, a person can acquire a domicile in another country by choice: but to do so, a person must have an intention to make their home indefinitely in a country outside their domicile of origin. Taxation Ruling IT 2650 - Income tax: residency - permanent place of abode outside Australia specifies that a person with an Australian domicile who is living outside Australia will retain their Australian domicile if they intend to return to Australia on a 'clearly foreseen and reasonably anticipated contingency' - at the end of a specific period for example. In your case, your domicile of origin is Country A as you were born there. Your domicile of choice is Australia as you moved with your spouse to Australia during the 2011-12 income year and you were both granted permanent residency in the 2012-13 income year. You were employed in Australia on a full time basis. You have stated that your intention is to return to Australia and gain employment after your studies and thus you will retain your Australian domicile during the period overseas. | Detailed Reasoning - Permanent place of abode: Because you will retain your Australian domicile while you are in Country B, you will remain a resident of Australia for taxation purposes under this test unless the Commissioner is satisfied you have established a permanent place of abode outside Australia. The word 'permanent' in the context of this test of residency is not taken to mean everlasting or forever, but rather, is used in the sense of being contrasted with temporary or transitory. Taxation Ruling IT 2650 notes that generally speaking, an overseas stay for a period of less than two years is considered transitory and that a taxpayer who returns to Australia after a transitory stay overseas is likely to retain their Australian residency for taxation purposes during their absence from Australia. However, IT 2650 also notes that: • the length of a taxpayer's stay overseas is not conclusive in determining whether or not a permanent place of abode was established by the taxpayer in the overseas location, and • the fact that a taxpayer knows they will return to Australia at a definite point in time does not mean that they cannot establish a permanent place of abode outside Australia. To properly determine whether or not a taxpayer has (or will) establish a permanent place of abode overseas during their absence from Australia requires consideration of a number of factors that have been identified by the Courts and Boards of Review/Administrative Appeals Tribunal as being relevant in reaching a state of satisfaction as to a taxpayer's permanent place of abode. These factors are identified in IT 2650 as: (a) The intended and actual length of the taxpayer's stay in the overseas country. (b) 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. (c) 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. (d) Whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence. (e) The duration and continuity of the taxpayer's presence in the overseas country. (f) The durability of association that the person has with a particular place. Having considered the facts of your case, and noting that IT 2650 specifies that while no single factor is decisive, greater weight should be given to factors ( c), (e) and (f) than to the other factors identified above, the Commissioner is satisfied that you will establish a permanent place of abode outside of Australia during your study period in Country B. In particular we note that: 1. You will be away for two years, being the minimum period required for an overseas stay to not be considered transitory in nature as required by IT 2650. 2. For the following reasons, we consider your durability of association to be greater with Country B than it is with Australia: a. You will stay in only one accommodation in Country B. You have made a commitment to stay in Country B as your purpose is to engage in post graduate studies at a University in Country B. b. You do not own a home in Australia. You were living in rental accommodation prior to leaving Australia and are no longer in possession of your personal effects. c. Although you have a spouse in Australia, you will not see your spouse during your stay overseas. Thus it cannot be said that your emotional ties are with Australia. d. Your spouse will support themselves financially with casual employment and thus is not financially dependent on you. e. Your only asset in Australia is a bank account. Considering the above, you will not be a resident of Australia for taxation purposes under the domicile test for the duration of your stay overseas. | Detailed Reasoning - The 183 day test: Under the 183 day test, a person will be a resident of Australia if they are present in Australia for 183 days during the year of income, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia. As you will not have been present in Australia for more than 183 days during a year of income since you left Australia ion date X and the Commissioner is satisfied you do have a usual place of abode in Country B, outside Australia, you are not a resident of Australia under this test. | Detailed Reasoning - The superannuation test: An individual is still considered to be a resident of Australia if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) of the Commonwealth Service Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person. Generally Commonwealth Government employees are eligible to contribute to the PSS or CSS. As you and your spouse do not meet the above conditions you are not a resident under this test. | Detailed Reasoning - Conclusion: As you do not meet any of the above tests, you are not a resident of Australia for tax purposes for the duration of your stay overseas.