Private ruling: Residency for tax purposes
Published: February 2014
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019
Date scheme commenced: 1 July 2013

Ruling: Questions and answers | Are you a resident of Australia for tax purposes? | Yes.

Relevant facts and circumstances: You were born in Country Y. You arrived in Australia several years ago, and then later became an Australian citizenship, giving up your Country Y citizenship. You are not a citizen of any other country. You left Australia in 20XX and travelled to Country X to work. Between the time in which you arrived in Australia and your departure in 20XX, you lived and worked in Australia the whole time, except for a short period where you worked on an overseas project with your Australian employer. You started working in Country X in 20XX. You are employed full time in Country X by Entity Z working on a specific project. You travelled to Country X using your Australian passport. As a foreigner, you are not entitled to permanent residency in Country X. You have a 90 day multi entry business visa which allows you to live and work in Country X while your Country X work/residency permit is being processed. Until you have obtained your temporary work visa you cannot open a bank account, drive or buy a car, or possess a mobile phone. It may be up to 12 months before you are granted the work/residency permit. After receiving the work/residency permit, you will be required to renew it every one to two years. Your employer will assist you in the renewal process. In the meantime, your 90 day multi entry business visa is renewable every 30 days. You will be returning to Australia in 20YY to finalise the paperwork for your work/residency permit. This will be your last trip to Australia to finalise everything as originally planned. You will be staying in the family home while in Australia. After the 20YY trip you will have no plans to return to Australia for the next X years. Until your work/residency permit is granted, your salary is being paid to you in cash. You have a spouse and children. Prior to leaving Australia, you were living with your spouse and children in the family home in Australia. You intend to keep the family home. You will continue to repay the mortgage for this property. The mortgage is jointly held by you and your spouse. Your spouse intends to move to Country X with you in 20ZZ, after your youngest child has finished high school. Your spouse and children are still living in the family home and will stay there until your spouse joins you in Country X. When your spouse joins you in Country X your child will stay in Australia and get a job and you will either rent the family home to your child or you will rent it on the open market. You have stated that you had no choice but to leave your spouse and children in Australia because of the lack of suitable schooling available for your children in Country X. You do not intend to return to Australia to visit your spouse or children at all while you are in Country X. Your spouse has a full-time job that supports the children. You have no intention of returning to the family home. You have no bank accounts in your name in Australia. You intend to give your car in Australia to your child when your spouse leaves Australia in 20ZZ. You are currently in the process of transferring the car out of your name. You spouse is paying for all expenses relating to the car. Your Australian shares are being transferred to your child. After your spouse departs Australia, you intend to give any household effects of any value to your children, and donate the remainder. Any special items will be sent to Country X using the relocation allowance paid to you by your employer. You have advised Medicare that you are not entitled to Medicare benefits because you are not living in Australia. According to the copy of the contract you have supplied: · The commencement date of the contract was in 20XX. · The contract is for an unspecified period. · Entity Z acts as your sponsor and is fully responsible for assisting you in obtaining and maintaining your entry, residence, employment permits and visas as required by the Country X government authorities, as well as paying all applicable fees. · The contract can be concluded by either party giving the other party 30 calendar days' notice. Either party can waive the required period of notice if they choose to. · The contract can be concluded at any time by the employer upon the expiration and non-renewal of your work/residence permit. · The contract can be concluded at any time by the employer for various reasons including non-performance of your obligations under the contract and various infractions of Country X law and regulation. · The contract is expressly dependant on you meeting several conditions, one of which is that you must hold and continue to hold a valid residence visa and work permit. · Your remuneration in Country X includes your basic salary of a specified amount per month and a housing allowance of a specified amount per month. You intend to continue working on projects with Entity Z in the region after the completion of your current contract. You have not returned to Australia since leaving in 20XX. You are living in rented accommodation in Country X. You found this accommodation yourself and you are responsible for payment of all rent and outgoings such as electricity, gas, heating and telephone costs. You live by yourself in this rented accommodation. You have paid a total of 12 months' rent in advance as required by your rental agreement. You stated that work was the reason for going overseas when completing the Australian Immigration Outgoing passenger card.

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 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 its 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. In your case, you have taken up an open ended employment contract in Country X and currently have no plans to visit or return to Australia other than for a brief trip in 20YY. Although you may not return to Australia and may not be physically present here while you are working in Country X, this does not preclude you from being an Australian resident as no one single factor is necessarily decisive, as mentioned above. | Detailed Reasoning - (ii) Nationality: You were born in Country Y, but are a citizen of Australia only. You gave up your Country Y citizenship several years ago. | Detailed Reasoning - (iii) History of residence and movements: You lived and worked in Australia from your initial arrival until leaving the country in 20XX to take up employment in Country X. You will return to Australia briefly in 20YY. | Detailed Reasoning - (iv) Habits and 'mode of life': You intend to live and work in Country X for at least X years and have established accommodation in Country X. You have closed your Australian bank accounts, informed Medicare that you are now living overseas and intend to dispose of your car and shares. These actions are consistent with someone who is no longer residing in Australia. You intend to work for Entity Z in Country X for at least X years, until the completion of the project; however, this intention is dependent on future visa approvals and extensions. As your ability to live in Country X is subject to an employer sponsored residence visa/permit, it is evident that your stay in Country X is contingent on your ongoing employment with Entity Z. Should your employment cease, you will be required to leave the country. In this regard, your employment contract states that on termination of your employment, Entity Z will provide your repatriation by economy air tickets. The repatriation destination is not specified in the contract however, your point of origin is listed as Australia. Therefore, regardless of your future work and residency intentions, you will in effect be repatriated to Australia by Entity Z should your employment be terminated. This is indicative of your 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: As mentioned above, you currently have no plans to make any return visits to Australia other than a short return trip in 20YY. | Detailed Reasoning - (vi) Purpose of visits to and absence from Australia: The purpose of your absence from Australia is to work for Entity Z in Country X for an indefinite period of time, subject to the completion of the project, and future visa approvals and extensions. | Detailed Reasoning - (vii) Family, business and financial ties: Family Your spouse and children continue to reside in Australia. Your spouse intends to accompany you to Country X in 20ZZ after your youngest child finishes high school. Your children will remain in Australia. It is evident that you have stronger family ties to Australia than Country X. Business or economic As mentioned above, you have taken up an employment contract in Country X for a period of at least X years. Assets Your assets in Australia comprise of your family home and personal effects, as well as a car and shares that you intend to give to your child. You have no assets in Country X. Furthermore, until you have obtained the work/residency permit you cannot open a bank account, drive or buy a car, or possess a mobile phone. This may take up to 12 months. It is evident that you have a higher value of assets in Australia than Country X. Further, the retention of your family home is consistent with someone who is still residing in Australia. | Detailed Reasoning - (viii) Maintenance of a place of abode in Australia: You are leasing an apartment in Country X. You continue to own your family home with your spouse in Australia. Your spouse and children intend to continue living in the family home until your spouse departs Australia in 20ZZ, after this time, you will retain ownership of the property and your child will continue to live in it, or it will be rented out to a third party. As you are maintaining a place of abode in Australia, this is consistent with someone who is still residing in Australia. | 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 for at least X years, there are various factors that indicate that you have not ceased to be a resident of Australia. These are primarily: · You have a restrictive visa whereby your ability to live in Country X is dependent on your continuing employment with Entity Z. · Entity Z acts as your sponsor and is fully responsible for assisting you in obtaining and maintaining your entry, residence, employment permits and visas as required by the Country X government authorities, as well as paying all applicable fees. · You are an Australia citizen who will be repatriated by your employer should your employment cease. · You have stronger family ties to Australia than to Country X. · You have stronger financial ties through your assets to Australia than with Country X. · You are maintaining your family home in Australia. 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 have not obtained a migration visa or become a permanent resident or a citizen of Country X, you have not established a new domicile of choice in that country. You are an Australian citizen and 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 have retained your family home in Australia, where your spouse and children will continue to live until 20ZZ. · You stated that work was the reason for going overseas when completing the Australian Immigration Outgoing passenger card. · Your continuing presence in Country X is dependent on your employer sponsored residence permit; should your employment cease, you will be required to leave the country. · Although it is your intention to live and work in Country X indefinitely, the duration and continuity of your presence in Country X is contingent on your continued employment with Entity Z. It is the Commissioner's view that an individual cannot have a permanent place of abode in a country where his or her presence is contingent on restrictive visa or residence permit conditions of this type. · Your accommodation is indirectly paid for you by your employer in the form of a housing allowance under your contract of a specified amount per month. 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. We emphasise that while we took into account your spouse and children's circumstances in relation to staying in Australia, when determining your residency status, we have considered all of your facts and circumstances as a whole, and as explained above, no single factor is determinative. Furthermore, it is important to distinguish your circumstances to those in the case of Mayhew v FCT 2013 ATC 10-300. In that case, the taxpayer was a dual citizen of the UK and New Zealand and was not a citizen of Australia, he entered the United Arab Emirates with a visa issued on his UK passport, he nominated New Zealand as his preferred repatriation destination on his work contract and he obtained his own accommodation in the United Arab Emirates. In contrast, in your case, you are a citizen of Australia only, your employment contract does not indicate that you have nominated any country other than Australia as your preferred repatriation destination, and your employer provides you with an allowance to cover the cost of your accommodation. | Detailed Reasoning - Your residency status: As you meet the resides test and the domicile test, you are a resident of Australia for tax purposes. 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.