Private ruling: Residency status
Published: June 2012
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: The scheme has not yet commenced.

Ruling: Q1: Will the taxpayer be a non-resident of Australia for the purposes of subsection 6(1) and paragraph 128B(1)(a) of the Income Tax Assessment Act 1936 (the ITAA 1936) and paragraph 6-5(3) and 6-10(5) of the Income Tax Assessment Act 1997 (the ITAA 1997) for the 2011, 2012 and 2013 income years? | A1: Yes. The taxpayer will be a non-resident of Australia for the purposes of subsection 6(1) and paragraph 128B(1)(a) of the ITAA 1936 and paragraph 6-5(3) and 6-10(5) of the ITAA 1997) for the 2011, 2012 and 2013 income years.

Relevant facts and circumstances: The taxpayer left Australia about eight years ago and moved to Country A. The taxpayer was treated as a Country A tax resident. The taxpayer moved to Country B with their family. The taxpayer has no current intention to return to Australia in the foreseeable future. The taxpayer has children. The taxpayer's spouse is on a fixed two year contract in Country B, however the spouse's intention is to stay longer. The taxpayer and spouse took all of their personal belongings with them to Country B. The taxpayer visits Australia once a year at the most for a few weeks to visit the taxpayer's family. The taxpayer and spouse stay with family on their visits to Australia. The taxpayer has a few bank accounts in Australia in order to facilitate the payment of rent and outgoings for the taxpayer's rental properties. Furthermore due to the value of the Australian dollar and relatively high interest rates in Australia, the taxpayer intends to keep funds deposited in Australia in order to accrue to the taxpayer's own personal wealth. The taxpayer also has a few bank accounts in Country A and Country B. The largest bank account balance is in the Country B bank account. The taxpayer owns a property in Australia and jointly owns with the taxpayer's spouse another property in Australia. Both properties are rented out to third parties at market rates on a revolving annual lease (which is standard for residential leases). The taxpayer and spouse rented a property whilst in Country A and are currently renting a property in Country B. The taxpayer holds shares listed on the Stock Exchange in Country A. The taxpayer and spouse are not eligible members of the Commonwealth Superannuation Scheme or the Public Service Superannuation Scheme. At an unspecified time in the future the taxpayer intends to return to Australia, however this is not in the immediate or foreseeable future.

Relevant legislative provisions: Income Tax Assessment Act 1936 , subsection 6(1) | Income Tax Assessment Act 1936 , paragraph 128B(1)(a) | Income Tax Assessment Act 1936 , paragraph 6-5(3) | Income Tax Assessment Act 1936 , paragraph 6-10(5)

Reasons for decision: Summary: Section 6-5 of the ITAA 1997 provides that where you are a resident of Australia for taxation purposes, your assessable income includes ordinary income gained from all sources, whether in or out of Australia (and similarly see section 6-10 of the ITAA 1997). 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 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 superannuation test. The resides test is explained in Taxation Ruling TR98/17 and the domicile test is explained in Taxation Ruling 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 resides (the resides test). 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, 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'. Although the question of whether a person resides in a particular country is a question of fact, the courts have referred to and taken into account various factors considered to be relevant. These are: Whether the person is physically present in that country; The taxpayer has been physically present in Country B since mid-2010. The taxpayer visited Australia for a few weeks just before mid-2010. The taxpayer stays with family during visits to Australia. The history of the taxpayer's residence and movements; The taxpayer was in Australia for three decades. The taxpayer has been in Country B from mid-2010 to the present date. If the person is a visitor to the country, the frequency, regularity, duration and purpose of the visits; The taxpayer is currently living in Country B on a permanent basis rather than visiting Country B. The taxpayer and family intend to reside in Country B and have no intention to return to Australia in the immediate future as the taxpayer's spouse has secured a permanent job in Country B. As stated above, the taxpayer visited Australia for a few weeks in 2010 and stayed with family while in Australia. The family and business ties which the person has with the particular country; The taxpayer lives with spouse and children in Country B. They have no family ties in Country B apart from each other. The taxpayer's spouse has recently taken up a permanent job in Country B and they all intend to stay for the immediate future. Whether a place of abode is maintained by the person in the relevant Country or is available for his or her use while there. The taxpayer has established a family home in Country B, their personal belongings have been relocated to Country B from Country A and they have a long-term lease on a property in Country B which is used as the family home. The properties owned by the taxpayer in Australia are leased to tenants and are not available for use as a family home by the taxpayer and family. In the present case the taxpayer has established a family home in Country B in a property which is being leased under a long-term lease. The taxpayer's spouse has secured a permanent job (currently under a two year work contract) in Country B. The taxpayer has been living outside Australia for about eight years. The properties owned by the taxpayer in Australia are leased to tenants so they are not currently available to be used as family homes. The taxpayer only visited Australia for a short period and stayed with family while in Australia. In these circumstances, Country B (not Australia) is the country where the taxpayer spends nearly all of their time, maintains a family home, eats, sleeps and works and where the spouse works. The taxpayer would, in ordinary parlance, be said to be residing in Country B and merely holidaying in Australia. Hence, it is considered that the taxpayer should not be regarded as residing in Australia within the ordinary meaning of the word 'reside'. | 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 acquires at birth a 'domicile of origin', being the Country of his or her father's birth (Henderson v. Henderson [1965] All ER 179) . The test for a domicile of choice is set out in section 10 of the Domicile Act 1962 which provides: The intention that a person must have in order to acquire a domicile of choice in a Country is the intention to make his home indefinitely in that Country. In the Estate of Fuld (No. 3) (1968) P. 675 it was explained that a person does not have an intention to acquire a domicile of choice overseas if the person intends to return to the land of their birth upon 'a clearly foreseen and reasonably anticipated contingency, example, the end of [their] job'. As the taxpayer intends to return to Australia one day, though not in the immediate future, it is considered that the taxpayer has maintained an Australian domicile and is prima facie an Australian resident unless the taxpayer's permanent place of abode is outside Australia. | Detailed Reasoning - Permanent place of abode: The Federal Court in FC of T v. Applegate 79 ATC 4307; (1979) 9 ATR 899 stated that a permanent place of abode does not have to be 'everlasting' or 'forever'. It should be contrasted with a temporary or transitory place of abode outside Australia. It connotes a more enduring relationship with the particular place of abode than that of a person who is ordinarily resident there or who has there his or her usual place of abode. An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a 'permanent place of abode' elsewhere. (See paragraph 14 of Taxation Ruling IT 2650). In Applegate's Case the Federal Court considered that the taxpayer's intention regarding the duration of his stay overseas was only one relevant factor to be taken into account. Of more importance is the nature and quality of use which the taxpayer makes of a particular place of abode overseas. In Applegate's Case the taxpayer, whose domicile was in Australia, had been sent by his employer to establish a branch office in New Hebrides. His absence was to be for an unspecified period but it was expected that it would be of a substantial length. It was also expected that later he would be recalled to Australia. In fact, he returned to Australia after 2 years, his stay being cut short by illness. The Court held that the taxpayer had a permanent place of abode outside Australia. In FC of T v Jenkins 82 ATC 4098; (1982) 12 ATR 745 a bank officer had been transferred to the New Hebrides for 3 years. He returned to Australia after only 18 months because of ill health. The taxpayer had tried to sell the family home before going overseas but was unable to find a buyer. The Australian home was eventually leased and the taxpayer retained a bank account in Australia. It was held that the taxpayer had a permanent place of abode outside Australia. It was considered that a stay of 3 years could not be regarded as 'temporary'. In addition, under normal circumstances, the taxpayer and his wife would have applied for an extension after the 3 years had lapsed. Paragraph 23 of IT 2650 sets out the following factors which are relevant in determining a taxpayer's permanent place of abode: (a) the intended and actual length of the taxpayer's stay in the overseas country; · The taxpayer and family have no definitive or intended fixed length of stay in Country B. They intend to reside in Country B and have no intention to return to Australia in the immediate future as the taxpayer's spouse has secured a permanent job in Country B under what is currently a two year work contract. (b) whether the taxpayer intended to stay in the overseas country only temporarily; · The taxpayer does not intend to stay in Country B temporarily, but rather intends to live in Country B for the foreseeable future. The taxpayer's stay in Country B is not transitory in nature. (c) whether the taxpayer has established a home outside Australia; · The taxpayer has established a home in Country B their family, their personal belongings have been relocated to Country B from Country A and they have a long-term lease on property in Country B. (d) whether a place of abode exists in Australia; · The taxpayer has not resided in Australia since X and as a result no residence or place of abode exists in Australia. The properties owned by the taxpayer in Australia are leased to tenants and are therefore not available for use by the taxpayer and family. (e) the duration and continuity of the taxpayer's presence in the overseas country; · The taxpayer and family have no plans to return to Australia and resume residency in the foreseeable future. Rather, they intend to reside in Country B for the immediate future. The taxpayer has been continuously in Country B since mid-2010 and has not returned to Australia during that time for a visit. (f) the durability of association that the person has with Australia. · The taxpayer maintains three bank accounts in Australia in order to facilitate the payment of rent and outgoings for the two properties that the taxpayer owns. Furthermore due to the value of the Australian dollar and relatively high interest rates in Australia, the taxpayer intends to keep funds deposited in Australia in order to accrue to the taxpayer's own personal wealth. The taxpayer's extended family resides in Australia. The taxpayer is not a member of any clubs or associations in Australia, Country A or Country B. In relation to the weight to be given to each of the above factors, paragraph 24 of IT 2650 states that 'greater weight should be given to factors (a), (e) and (f) than to the remaining factors'. In relation to the period of presence overseas (factor (a)), in Jenkins' Case it was considered that a 3 year period was not a temporary stay overseas. Taxation Ruling IT 2650 assumes that usually a 2 year absence is not a temporary stay overseas. However, it must be noted that the period is not in itself conclusive in determining whether the presence overseas was of a permanent or a temporary nature. The taxpayer has continued to live outside of Australia for a total of about eight years. The taxpayer has established a family home (under a long term lease) in Country B where the taxpayer intends to live for the foreseeable future. The taxpayer's spouse has permanent job in Country B (which is currently under a two year work contract with the intention to stay longer). The properties owned by the taxpayer in Australia are leased to tenants and cannot be regarded as the taxpayer's place of abode. The taxpayer only visits Australia for short periods and stays with family while in Australia. In those circumstances, the taxpayer has a place of abode in Country B and does not have a place of abode in Australia. The taxpayer's presence in Country B is not merely temporary having regard to the fact that the Country B family home is held under long-term lease and that the spouse's work contract is for a two year period and the intention is to stay longer and that the Australian properties have been rented out. In these circumstances, the taxpayer should be regarded as having a permanent place of abode outside Australia and, hence, is not a resident of Australia under the domicile test. | Detailed Reasoning - The 183 day test: Under the 183 day test, a person is a resident of Australia if they are actually physically present in Australia for more than 183 days in a financial year unless the Commissioner is satisfied that their usual permanent of abode is outside of Australia and they have no intention of taking up residence here. The taxpayer was not physically present in Australia for more than 183 days. Therefore, the taxpayer cannot be a resident of Australia under this test. | Detailed Reasoning - The superannuation test: The taxpayer and spouse are not eligible to contribute to a superannuation fund established under the Superannuation Act 1976 or the Superannuation Act 1990 . Therefore, the taxpayer cannot be a resident of Australia under the superannuation test. | Detailed Reasoning - The taxpayer's residency status: As the taxpayer does not meet any of the above tests, the taxpayer is not a resident of Australia for the purposes of sections 6-5 and 6-10 of the ITAA 1997 and paragraph 128B(1)(a) of the ITAA 1936. Accordingly, sections 6-5 and 6-10 of the ITAA 1997 will generally only include in the taxpayer's assessable income derived from sources in Australia. Further, because the taxpayer is not a resident, section 128D of the ITAA 1936 will generally exclude dividends from the taxpayer's assessable income.

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