Private ruling: Residency
Published: August 2014
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you a resident of Australia for tax purposes? | A1: Yes

Relevant facts and circumstances: You are a citizen of Australia. You are leaving Australia to move to country X on a youth mobility visa which expires in two years. You intend to be overseas for two years and then return to Australia. You may return to Australia for a visit during your time away. You will be working in country X on short term contracts. You also intend to do some travelling while you are away in country X.

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

Reasons for decision: Detailed Reasoning - Residency: 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 . The definition offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the: • 'resides' test (ordinary concepts test) • domicile and permanent place of abode test; • 183 day test; and • Commonwealth superannuation fund 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. Where it is determined that a taxpayer 'resides in Australia' in accordance with the first test, there is no requirement to consider the other tests. The other three tests operate to broaden the definition of resident beyond the resides test. | 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. It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances. | Detailed Reasoning - (i) Physical presence in Australia: A person does not necessarily cease to be a resident because he or she is physically absent from Australia. In relation to this the AAT has stated that: 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. You departed Australia to move to country X to work on short term contracts. You intend to be in country X for two years. You will return to Australia when you finish working in country X. | Detailed Reasoning - (ii) Nationality: You are a citizen of Australia. | Detailed Reasoning - (iii) History of residence: You lived in Australia before moving to country X. | Detailed Reasoning - (iv) Habits and "mode of life": The Commissioner regards a person's habits and daily routines in regard to their domestic and business arrangements as strongly indicative of residency status. This is particularly relevant to determining the residency of a person who enters Australia, but is also relevant in assisting to determine the residency status of a person who leaves Australia. You are going to country X for work purposes. You will be working for various employees on short term contracts. You also intend to do some travelling while you are away. | Detailed Reasoning - (v) Frequency, regularity and duration of visits to Australia: You plan to visit Australia on one occasion during the time you are away overseas. | Detailed Reasoning - (vi) Purpose of visits to or absences from Australia: You will return to Australia for a visit. You moved to country X as a working holiday. | Detailed Reasoning - Summary - 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. Although you will be away from Australia for two years while on a working holiday in country X, there are several factors which indicate that you have not ceased to be a resident of Australia. Specifically: • You only intend to be in country X for a period of two years • The purpose of you moving to country X is to work and travel • You will be working on short term contracts • You intend to return to Australia in two years time 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 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: 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 are an Australian citizen your domicile remains Australia. | Detailed Reasoning - 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, the Commissioner is not satisfied that you have established a permanent place of abode outside of Australia for the following reasons: • You intend to remain in country X for no more than two years • Your visa expires in two years • You will be returning to Australia when your visa expires • You will be working for various employers in country X on short term contracts • You also intend to travel during your time overseas Therefore, as your domicile is Australia and the Commissioner is not satisfied that you have established a permanent place of abode outside of Australia, you are a resident of Australia under the domicile test of residency. | Detailed Reasoning - Your residency status: As you are a resident of Australia, according to section 6-5 of the ITAA 1997, your assessable income includes income gained from all sources, whether in or out of Australia. You may, however, be entitled to a foreign income tax offset for the foreign tax you paid overseas. Please refer to our website www.ato.gov.au for further information regarding foreign income tax offset.