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

Ruling: Question and answer | Are you an Australian resident for taxation purposes? | Yes.

Relevant facts and circumstances: You are a citizen of Australia and country B. Your spouse and child are citizens of Australia and country B. Prior to your departure to country A you lived in a rental property. You departed Australia on # to live and work in country A. You entered country A on a work visa which your employer applied for on your behalf. This visa does not allow you to stay permanently. You are employed on a 3 year contract and may be extended for a further 3 year period. If your contract is not extended you intend returning to Australia. Since your departure you have returned to Australia on the following occasions: • 4 days: To complete citizens test at the Department of Immigration. • 9 days: To attend to personal matter and see your children. • 13 days: To attend citizenship ceremony and holiday. Your spouse and child accompanied you to live in country A and you're other children stayed in Australia where they study. You live in accommodation provided by your employer. You have moved your household effects to country A. In Australia your assets include: • a motor vehicle which your child uses, • bank and credit card accounts; and • superannuation. In the event that your employment was terminated you would return to Australia if you can find employment, otherwise you would return to country B where your parents reside. You did not advise Medicare or your private health fund that you are a foreign resident as your children in Australia are still covered by your private health insurance. On the Australian Immigration Outgoing passenger card you believe that you stated the reason for going overseas was for 'employment/work'. Assumptions None.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 995-1(1). | Income Tax Assessment Act 1936 Subsection 6(1). Further issues for you to consider | N/A | Anti-avoidance rules

Reasons for decision: Summary: Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident as a person who is a resident of Australia for the purpose 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. These tests are: 1. the resides test 2. the domicile test 3. the 183 day test 4. the superannuation test The first two tests are examined in detail in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650) . 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. However, where an individual does not reside in Australia according to ordinary concepts, they will be an Australian resident for tax purposes if they satisfy the conditions of one of the three other tests. | Detailed Reasoning - The resides test: The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3rd 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'. 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 the recent case of Iyengar v Federal Commissioner of Taxation [2011] AATA 856; (2011) 2011 ATC 10-222 ( Iyengar's case ) 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. The fact that the taxpayer's visits to Australia in the relevant income years were relatively short in duration compared to the time spent abroad in those years, did not preclude him from being an Australian "resident" in those income years. The taxpayer's intention was to go to Dubai (and later Doha) and work for an oil company for as long as it took to complete his contract and then to return to Australia, which he did. His motivation for doing so was to use the money he earned under the contract to pay down the mortgage on the family home as soon as possible. Such an intention (and motive) was indicative that the taxpayer was an Australian "resident" in the relevant period. The taxpayer's conduct subsequent to the period he spent in the Middle East, taken together with his continuity of association with Australia and his intention to return to Australia upon completion of the contract, was consistent with him being a "resident" of Australia. In the recent case of Pillay v FCT [2013] the Administrative Appeals Tribunal held that the taxpayer was a resident of Australia even though his spouse accompanied him overseas to live and work. The taxpayer was born in South Africa and was an Australian citizen. He was a doctor who had been working in East Timor since 2006. Since then, he was physically present in East Timor for between 9 and 11 months each year, and between 6 to 8 weeks in Australia each year. When in East Timor, the taxpayer stayed in a self-contained apartment supplied by his employer. Together with his wife, he purchased a property in Bali which they called home. They also owned a property in Sapphire Beach in Australia, which was left vacant for most of the time and appeared to be occupied only during the few weeks of the year when the taxpayer was visiting Australia. During his visits to Australia, the taxpayer divided his time between the Sapphire Beach property and visiting his children and grandchild. The taxpayer had Australian bank accounts which he used to meet his living expenses. Further, there were circumstances to indicate that he intended to divide his time between Bali and Australia when his employment in East Timor ends. What was significant in this matter was the "continuity of association" that the taxpayer had retained with Australia. Although he had been working for an extensive period in East Timor, and although he had an apartment to stay in while he had been working there, he did not seem to have brought himself to regard East Timor as home. Indeed, he and his wife regarded the Bali property as home, despite the fact that they had little time to spend there together. His connection with East Timor appeared to be one based almost entirely on his employment arrangement. He did not express an intention to remain in East Timor after his employment ends. Rather, he expressed an intention to divide his time between Bali and Sapphire Beach - hardly an indication that his ties with Australia had been broken. Factors relevant to the question of whether the taxpayer resided in Australia included his; • physical presence in Australia; • his nationality, • history of residence and movements, • habits and "mode of life", • frequency, regularity and duration of visits to Australia, • purpose of visits to or absences from Australia, • family and business ties with Australia, and • maintenance of a place of abode in Australia. The Commissioner submitted that the taxpayer maintained a continuity of association with Australia in the relevant years despite being physically absent for significant periods. On the other hand, the taxpayer submitted that he had a permanent place of abode in East Timor and that he was a non-resident of Australia. | 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. In recent court cases taxpayers were found to be residents of Australia for income tax purposes even though they had only spent a minimal period in Australia. In Iyengar's case , it was indicated that there is a requirement that you at least be physically present in Australia for part of an income year. Further in this case it was considered that the taxpayer remained a resident of Australia for income tax purposes even though during the period he was working overseas (2 years and 7 months) he had only returned to Australia for a two week period and for a 10 day period. You are living and working in country A for a period of at least 3 years and you have returned to Australia 3 times since your departure for the following reasons: • 4 days: To complete citizens test at the Department of Immigration. • 9 days: To attend to personal matter and see your children. • 13 days: To attend citizenship ceremony and holiday. You entered country A on a work visa which your employer applied for on your behalf. This visa does not allow you to stay permanently. | Detailed Reasoning - (ii) Nationality: The nationality of a person is rarely a decisive factor in deciding whether or not a person resides in a location, however it is one factor that is considered along with all of the circumstances of each case. You are a citizen of Australia and country B is your country of origin. | Detailed Reasoning - (iii) History of residence and movement: You lived and worked in Australia prior to your departure to country A | 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. From # you have lived and worked in country A and plan to stay there for a period of at least 3 years. Your spouse and one of your children will be living with you and you have relocated your household goods to country A. You will maintain assets including a motor vehicle, bank accounts and superannuation in Australia while you are living and working overseas. | Detailed Reasoning - (v) Frequency, regularity and duration of visits to Australia: Where a person is living in a country and visits another, the frequency and regularity of their visits is an important factor to be considered in determining whether or not they are resident in that other country. Case law has shown that a taxpayer can be a resident of a country even if they only spend a short period of time in that country, for example the AAT found a taxpayer to reside in Australia despite the fact that he had only been present in Australia in the relevant income year for separate periods of only two weeks, three weeks and two and half weeks. A further decision found a taxpayer who had only been present in Australia for two separate periods of two weeks and ten days during a period of two years and seven months to be residing in Australia. When considering the issue of return visits to Australia by a taxpayer who was living and working overseas, the Tribunal in Iyengar's case also noted that the brevity of a visit to a particular country compared to length of time spent abroad does not of itself exclude an individual from being a resident in the country visited. Further, the taxpayer in Iyengar had only been present in Australia for two separate periods of two weeks and ten days during a period of two years and seven months and was also considered to be a resident of Australia for income tax purposes. You have returned to Australia on three occasions since your departure. | Detailed Reasoning - (vi) Purpose of visits to or absences from Australia: It is your intention to return to Australia at the end of your employment overseas On your Australian Immigration outgoing passenger card you stated your reason for going overseas was 'Australian resident departing temporarily and the main reason for overseas travel is employment.' You have returned to Australia to attend to personal matters, visit family and vacation. | Detailed Reasoning - (vii) Family and business ties to Australia and the overseas country or countries: Case law has established that the family or business ties that an individual retains with a country are relevant in determining whether an individual has remained or ceased to be a resident. | Detailed Reasoning - Family: The Macquarie Dictionary defines 'family' as: • parents and their children, whether dwelling together or not. • one's children collectively. • any group of persons closely related by blood, as parents, children, uncles, aunts, and cousins. Consistent with the findings in Case 5/2013 and Iyengar , and the definition of family provided by the Macquarie Dictionary, part of your family remain in Australia, you have returned to Australia to visit them during your employment overseas. | Detailed Reasoning - Business or economic ties: You do not have a job being held for you in Australia. | Detailed Reasoning - Assets and liabilities: In Australia your assets include: • a motor vehicle which your daughter uses, • bank and credit card accounts; and • superannuation. | Detailed Reasoning - (viii) Maintenance of Place of abode: The maintenance of a place of abode in Australia is an important factor when considering the residency status of a taxpayer. You retain ownership of Australian assets, including a motor vehicle, bank and credit card accounts, superannuation, and you have maintained ongoing private health cover for your family. You have moved your household effects to country A. | Summary: As stated above it is important that not one single factor is decisive and the weight given to each factor depends on individual circumstances. There are several factors outlined above which indicate that you have not ceased to be a resident of Australia. Specifically; • While you are working overseas you have family and assets that remain in Australia, • your absence from Australia is work related, • You entered country A on a work visa which your employer applied for on your behalf. This visa does not allow you to stay permanently. • you have visited Australia regularly since your departure; and • It is your intention to return to Australia if your contract is not extended. Although you will have a limited physical presence in Australia it is your intention to return Australia to live permanently. The Commissioner is not satisfied that given a consideration of all of the factors outlined above, that you severed your family, economic, and legal ties with Australia. The Commissioner is of the opinion, that the driving motivation for your travel overseas is to pursue career prospects and to meet liabilities in Australia, rather than to establish a new home. Based on a consideration of all of the factors outlined above, you are a resident of Australia according to ordinary concepts as you maintained a continuity of association with Australia for the relevant period.

Does Part IVA or any other anti-avoidance provision apply to this ruling?: The application of Part IVA of the ITAA 1936 has not been considered as this topic is in the MEI low risk PART IVA list as specified in ORCLA.