Private ruling: Residency and leaving Australia
Date of advice: 3 June 2016
Published: July 2016
Ruling period: Year ending 30 June 20YY | Year ending 30 June 20ZZ
Date scheme commenced: July 20YY

Ruling: Question and answer | Are you an Australian resident for income tax purposes? | Yes

Relevant facts and circumstances: You were born in Australia. You are a citizen of Australia. You left Australia in August 20XX to work and reside in Country X for a period of two years, working in your employer's office there. You obtained a Visa which allowed you to stay in Country X for a period of two years. This Visa was not supplied by your employer You left Australia with the intention of returning at the end of your two year Visa period. You have not returned to Australia for any period after first leaving. You have sought your own accommodation in Country X, and you have been paying rent since arriving. You have been paying tax on the salary you have earned in Country X, and you have been provided with an end of year certificate for the tax year ended for 20YY in that Country. You have also lodged a tax return in Country X, and you were only taxed on the income you have earned in that country. You are treated as a tax resident of the Country X whilst you are working and living there. You informed the Australian Electoral Commission that you were departing Australia. You did not inform Medicare that you were departing Australia. You put your Australian private health cover on hold. Before you left to work in Country X, you were living with your parent, and you will intend on living with them on your return to Australia. You have been living with your parent for the whole of your life. Your room in your parents residence was made available to you at all times during the time you have been in Country X. You have bank accounts held in your name in Australia which accrue interest. You have not made any investments in Australia since you arrived in Country X. You have left both your household effects and personal effects with your parent. You have not received any income from Australian sources since arriving in Country X. You have not advised any Australian financial institutions that you are a foreign resident. Since arriving in Country X, you have opened a bank account and acquired household effects. You do not have a spouse or any dependants. You have not maintained any professional, social or sporting connections with Australia. You have not obtained any overseas qualifications, such as a drivers licence, whilst in Country X. You have not maintained any professional or occupational memberships in Australia. You have never been employed by the Commonwealth of Australia. You are not a member of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990 . You are not the spouse of a person who is a member of the PSS or an eligible employee of the CSS. You do not have a job being held for you in Australia.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 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 offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the: • the resides test, • the domicile test, • the 183 day test, and • the superannuation test. The primary test for deciding the residency status of each individual is whether they reside in Australia according to the ordinary meaning of the word resides. If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established. Where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be an Australian resident if they meet the conditions of one of the other tests. | Detailed Reasoning - The resides (ordinary concepts) test: The outcomes of several Administrative Appeals Tribunal (AAT) cases have determined that the word ' resides' should be given the widest meaning and there have been a number of factors identified which can assist in determining if a particular taxpayer is a resident of Australia under this test. Recent case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the 'resides' test: 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 to different countries viii. Maintenance of place of abode. These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in IT 2650 and Taxation Ruling TR 98/ 17 Income tax: residency status of individuals entering Australia . It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances. 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 a place. Instead, the test is whether the person has retained a continuity of association with a place, 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 ). In your case: • You have been living and working in Country X since 20XX, with the intention of returning to Australia after a period of two years. • You have sought your own accommodation in Country X, and you have been paying rent since arriving. • You have not returned to Australia for any period after first leaving. • You do not have a spouse or any dependants; however your parent, whom you have lived with for all of your life, lives in Australia. • Your room at your parent's house has remained available to you had it been required during your time spent overseas. • You left all of your household and personal effects with your parent when you left for Country X. • You have established a bank account in Country X. You have economic ties to Country X by way of your employment for the proposed two year period and bank account. However your ties to Australia are slightly stronger, as you have had accommodation available to you in Australia whilst you have been overseas, your parent, whom you have lived with all of your life lives in Australia, and your household and personal effects have been left with your parent in Australia. Based on these facts, you are residing in Australia according to the ordinary meaning of the word. Therefore, you meet the 'resides test' and are a resident of Australia for tax purposes. 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: 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. | Detailed Reasoning - Domicile: Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence. In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country. This 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. Your domicile is Australia because your country of origin is Australia and you are still an Australian citizen, as you have not advised that you have gained permanent residency in Country X. Therefore, you will be a resident of Australia unless the Commissioner considers you have established a permanent place of abode outside of Australia. | Detailed Reasoning - Permanent place of abode: 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. 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 Taxation Ruling IT 2650 Residency - Permanent place of abode outside Australia 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: (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; and (f) 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. Clearly, 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 23, 25 and 27 of IT 2650). Taxation Ruling IT 2650 Residency - Permanent place of abode outside Australia lists some scenarios regarding residency status. Paragraph 31 outlines the following example: An Australian resident employee of a mining company was transferred overseas for a temporary work assignment for a period of 2 years and intended to return to Australia at the end of that period. The purpose of the assignment was for the employee to gain wider work experience. The employee was initially accompanied by his wife and children but the children returned to Australia to continue their schooling. The employee spent his annual holiday in Australia. During his absence from Australia he rented out his home and maintained bank accounts in Australia. He made no investments in the overseas country and remitted all money in excess of living requirements to Australia for investment. In those circumstances the taxpayer was not considered to be a resident of Australia under the ordinary meaning of the word "resident" but was considered to be a resident under the extended definition of that term. Result: resident. In your case it is considered that you have not established a permanent place of abode outside of Australia because: • Whilst you have lived and worked on a continuous basis in Country X since 20XX, you went with the definite intention of returning after a two year period. • You do not have a spouse or any dependants; however your parent, whom you have lived with for all of your life, lives in Australia. • Your room at your parent's house has remained available to you had it been required during your time spent overseas. • You left all of your household and personal effects with your parent when you left for Country X. • You maintained bank accounts in Australia. • The main reason you left for Country X was for work reasons, and whilst you have rented accommodation, you have not taken steps to set up an established home with family. • You have not advised Medicare that you were departing Australia. Therefore, you are a resident of Australia under this test. | Detailed Reasoning - Your residency status: As you meet the resides and domicile test of residency, you are a resident of Australia for income tax purposes under subsection 6(1) of the ITAA 1936.