Private ruling: Residency
Published: November 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Question and answer | Were you a resident of Australia for income tax purposes during the period you were working in country X? | No.

Relevant facts and circumstances: You are an Australian citizen. You resigned from your Australian employment and accepted a role in country X with a different business. Your length of employment in country X was not specified but was anticipated to be a substantial length of time. Your intention was to stay in country X indefinitely. You were granted a country X work permit which allowed you to live and work in country X for up to three years. You subsequently applied for a permit for your spouse and child allowing them to live in country X. You secured accommodation in country X with a two year lease. Your spouse resigned from their employment. You packed your family belongings in a container to send to country X. You placed your home with a real estate agent to be rented out. You sold your family motor vehicle. You maintained an Australian bank account solely to collect rental income and transfer funds from country X to Australia to cover the mortgage on properties you owned. While in country X, you were contacted by an Australian company offering an employment role which you felt was too good to pass up. You packed your family belongings in a container to send back to Australia. You returned to Australia after spending less than 6 months in country X. You returned to live in your family home. You were considered to be a tax resident of country X during the period you worked there. Neither you nor your spouse has ever been employed by the Australian Commonwealth government.

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 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 may still be considered to be a resident of Australia for tax purposes 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. 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 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 ). In your case, there are several factors that indicate that you were not residing in Australia during the period you were in country X. Specifically: • you left Australia to take up a permanent employment position in country X; • the length of your employment contract was open ended and at the time you had no intention of returning to Australia to live in the foreseeable future; • your spouse resigned from their Australian employment: • your spouse and child accompanied you to country X; • you shipped your household possessions to country X; and • you did not have an Australian residence available for you to stay in during that period. At the time you left Australia, you intended to stay in country X indefinitely and the actions you took were consistent with this intention. Therefore, you were not residing in Australia during the period you were in country X and were not a resident of Australia under this test. | 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. | Detailed Reasoning - 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. 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 are an Australian citizen so your domicile is Australia. You did not take any steps to change your legal domicile to any other country. Therefore, your domicile was still Australia during the period you were in country X. | 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. 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 establishing that they have set up a permanent place of abode elsewhere. The Commissioner's view on what constitutes a permanent place of abode is contained in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650). Generally, 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. One of the leading cases on whether a permanent place of abode is outside of Australia is Federal Commissioner of Taxation v Applegate (79 ATC 4307;(1979)9 ATR 899) ( Applegate's case ). In this case, the taxpayer took up an employment position outside Australia and his absence was to be for an indefinite period in the sense that the period was not specified or defined, but it was expected to be of a substantial length. Although the taxpayer subsequently returned to Australia after a period of two years, the court found that he had established a permanent place of abode outside Australia. In your case, the period of time you ultimately spent in country X was considerably shorter than in Applegate's case . However, your circumstances are consistent with Applegate's case in that you left Australia for an indefinite period and the actions you took were consistent with relocating overseas for a substantial period as opposed to merely relocating overseas for a transitory period of time. Therefore, the Commissioner is satisfied you had permanent place of abode outside of Australia during the period you were in country X and you were not a resident of Australia under this test. | Detailed Reasoning - The 183 day test: Under the 183 day test, a person is a resident of Australia if they are physically present in Australia for more than 183 days in an income year unless the Commissioner is satisfied that their usual place of abode is outside of Australia and they have no intention of taking up residence here. Although you were physically present in Australia for more than 183 days in the income year, the Commissioner is satisfied that during the period in question you had a permanent place of abode in country X and you had no intention of taking up residence in Australia again in the foreseeable future. Therefore, you were not a resident of Australia under this test. | Detailed Reasoning - The superannuation test: A person will be considered to be a resident under this test if they are currently eligible to contribute to certain superannuation funds for Australian Commonwealth government employees. You will not be treated as a resident under this test as neither you, nor your spouse, are Australian Commonwealth government employees who are eligible to contribute to the relevant Commonwealth government superannuation schemes. | Detailed Reasoning - Your residency status: As you did not meet any of the above tests of residency for the period of time you were in country X, you were not a resident of Australia for tax purposes during that period. As you were not a resident of Australia, according to section 6-5 of the ITAA 1997, your assessable income for that period only included income gained from sources in Australia.