Private ruling: Residency
Published: March 2015
Ruling period: Year ending 31 December 2015
Date scheme commenced: 1 February 2015

Ruling: Question and answer | Are you a resident of Australia for taxation purposes? | Yes. | Are you assessable on your foreign sourced income in Australia? | Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You were born in Country Y. You have been in Australia for many years. You are a citizen of both country Y and Australia. You have worked overseas for a number of years before returning to live and work in Australia. You have previously had permanent residency of Country X. You departed Australia in early 2015 to take up a permanent role in Country X. You intend on being in Country X for an indefinite period of time and you do not intend on working in Australia. The authorities in Country X consider you to be a resident of Country X for taxation purposes. You may return to Australia at the end of your working life in about 10 years. You will work for an organisation in Country X under a local agreement. You are terminating your current Australian contract with the organisation. The contract in Country X is for a minimum of 2 years You intend to apply for permanent residency in Country X. You have taken up a 2 year lease on a property in Country X. Your family will live in this property when they join you in Country X. Your spouse and children will not join you permanently in Country X during the 2015 calendar year. Your spouse and children will remain in the family home in Australia. You expect to have a number of business trips to Australia during the 2015 calendar year. You will include a few days of annual leave on to the business trips to spend with your family in Australia. You will stay with your family in the family home when you are in Australia. You will not spend more than 50 days in Australia on business trips and family trips. You will spend some of your annual leave outside Country X and Australia with trips already planned in the 2015 calendar year to other countries. You will take all your personal items to Country X with you. You will maintain a bank account in Australia which you will transfer funds to support your family in Australia. You will have your name removed from the electoral roll. You will notify your health insurance company that you are relocating to Country X. You and your spouse have a self-managed super fund which you are taking steps to have rolled over into another fund. You currently have two cars registered in your name in Australia. Neither you nor your spouse are eligible to contribute to the relevant superannuation 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. 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 it's 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. You have gone to Country X to live and work. Your family will remain in Australia during the 2015 calendar year. You will return to Australia for approximately 50 days a year for business and to see your family. | Detailed Reasoning - (ii) Nationality: You were born in Country Y and you are a citizen of both the X and Australia. Your citizenship adds to the continuation of association with Australia. | Detailed Reasoning - (iii) History of residence and movements: You lived and worked in Australia prior to taking up the work contract in Country X. You have also lived and worked in other foreign countries. Your family will remain in Australia for at least the 2015 calendar year. The fact that you were living in Australia immediately before you went to Country X in 2015 and had been living in Australia for approximately 12 years indicates you have not broken your connection with Australia. | Detailed Reasoning - (iv) Habits and 'mode of life': You have gone to Country X to live and work. You will return a number of times during the 2015 calendar year for work purposes and to visit with your family. You intend on being in Country X for at least the next 2 years. You intend on returning to Australia when you retire in about 10 years. You are renting a property in Country X. It is considered that you still have a 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: You will make a number of trips back to Australia and you will spend annual leave during these trips in Australia to spend with your family. You will spend no more than 50 days in Australia. This behaviour is consistent with someone who is still residing in Australia. | Detailed Reasoning - (vi) Purpose of visits to and absence from Australia: The purpose of your visit back to Australia will be for work and to visit with your family. Your absence from Australia is for work purposes. You are continuing to have an association with Australia through your return trips back to Australia. You are choosing to work outside Australia. | Detailed Reasoning - Family: None of your family will accompany you to Country X in the 2015 calendar year. Your family will remain in Australia in the family home. | Detailed Reasoning - Business or economic: As mentioned above you have taken up a work contract in Country X. | Detailed Reasoning - Assets: In Australia you have; • a superannuation fund. • bank account • cars in Australia. You do not have any assets in Country X. Your family and financial ties are closer with Australia than Country X. | Detailed Reasoning - (viii) Maintenance of a place of abode in Australia: Your family will remain in the home in Australia, which you will return to each time you visit Australia. In the recent case of Iyengar v FCT 2011 ATC 10-222, the Administrative Appeals Tribunal held that the taxpayer was a resident of Australia, even though he was working overseas. The taxpayer's family ties, his intention (to complete his contract) and motive (to pay off his mortgage), and his maintaining an Australian place of abode while working overseas, were all indicative that he was an Australian resident during the relevant period. | 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, there are various factors that indicate that you have not ceased to be a resident of Australia. These are primarily: • you are an Australian citizen; • you will return to Australia for work purposes and to visit your family • your family will remain in Australia during the 2015 calendar year • you will be funding your family home in Australia; • you will be supporting your family; • your main financial assets are in Australia 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 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. A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. In order to show that an individual's domicile of choice has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country. A domicile of choice is adopted when you become a citizen of a new country or apply for permanent residency in a new country. Your domicile of origin is Country Y and your domicile of choice is Australia. You have not changed your domicile so we must consider your '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 prevent the taxpayer in the meantime setting up a permanent place of abode elsewhere. The Commissioner is not satisfied that you have set up a permanent place of abode outside Australia for the following reasons: • you are going to Country X to work • Your family will remain in Australia in the family home for the time being. You are a resident under this test. As you meet the resides and domicile tests of residency, you are a resident of Australia for tax purposes for the 2015 calendar year. As a resident of Australia for taxation purposes you are required to include your worldwide income in your Australian tax return. Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Salary and wages are ordinary income assessable under subsection 6-5(2) of the ITAA 1997. In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements. Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Tax Assessment Act 1936 (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). Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country X Agreement is listed in section 5 of the Agreements Act. The agreement operates to avoid the double taxation of income received by residents of Australia and Country X. Article 3 considers residence. '2. Where by reason of the provisions of paragraph 1 of this Article an individual is both a Country X resident and an Australian resident- (a) he shall be treated solely as a Country X resident: (i) if he has a permanent home available to him in Country X and has not a permanent home available to him in Australia; (ii) if sub-paragraph (a)(i) of this paragraph is not applicable but he has an habitual abode in Country X and has not an habitual abode in Australia; (iii) if neither sub-paragraph (a)(i) nor sub-paragraph (a)(ii) of this paragraph is applicable but the Contracting State with which his personal and economic relations are closest is Country X; (b) he shall be treated solely as an Australian resident- (i) if he has a permanent home available to him in Australia and has not a permanent home available to him in Country X; (ii) if sub-paragraph (b)(i) of this paragraph is not applicable but he has an habitual abode in Australia and has not an habitual abode in Country X; (iii) if neither sub-paragraph (b)(i) nor sub-paragraph (b)(ii) of this paragraph is applicable but the Contracting State with which his personal and economic relations are closest is Australia.' In interpreting the wording of the tax treaty, the Commissioner accepts in Taxation Ruling TR 2001/13 that it is appropriate to have reference to the OECD Commentary on the Model Tax Convention on Income and Capital (the OECD Model Commentary). The OECD Commentary provides that in relation to a 'permanent home': a) for a home to be permanent, an individual must have arranged and retained it for his or her permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be of short duration. The dwelling has to be available at all times continuously and not occasionally for the purposes of a stay, which owing to the reasons for it is necessarily of short duration (eg travel for pleasure, business travel, attending a course etc.) b) any form of home may be taken into account, including a house or apartment belonging to or rented by the individual and a rented furnished room. You have a permanent home available to you in both Country X and Australia. Your family home in Australia is being maintained while you are in Country X and will be maintained until your spouse joins you in Country X and is available to you at all times. In relation to a habitual abode, the OECD Commentary states that all stays in each country, regardless of the purpose for the stays, must be considered in order to assign a preference to a particular country. Further, the comparison must be made over a sufficient length of time for it to be possible to determine whether the presence in each country is habitual and to also determine the intervals at which the stays take place. The notion of an habitual abode is not simply a test of where a person stays more frequently but also looks to whether living in a particular country is normal or customary having regard to the taxpayer's circumstances. As it is usual or customary for the taxpayer to spend time in both countries, the taxpayer has a habitual abode in both countries. You spend time in both Australia and Country X. You have homes available to you in both Country X and Australia. Your family remain in Australia and you return to the family home to spend time with your family on a regular basis. You have a habitual abode in both Australia and Country X. In relation to a taxpayer's personal and economic relations, the OECD Commentary states that regard should be had to factors such as family and social relations, occupation, political, cultural or other activities and place of business. Your family and economic ties are closer with Australia than Country X as your family remains in Australia and you have more assets in Australia than Country X. You will be treated as a resident of Australia for the purposes of applying the provisions of the Country X Convention to income earned by you during the period of your dual residency. The Country X Convention provides that salaries, wages and similar remuneration derived by an individual who is a resident of Australia in respect of personal (including professional services) shall be taxable only in Australia unless the services are performed or exercised in Country X. If the employment is exercised in Country X, the income may also be taxed in Country X. In your case you are a resident of Australia and the income you earn in Country X will be taxed in Australia and is required to be declared in your Australian tax return.