Private ruling: Residency status
Published: April 2014
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2012

Ruling: Question and answer: | Are you a resident of Australia for income tax purposes? | Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You were born in Country D. You moved to Australia and became an Australian citizen. You are single with no dependants. You are a professional. You worked in Country C for a brief period at which point you decided that you wished to live in Country C permanently. Shortly thereafter you accepted an employment position in Country C. You left Australia to commence employment in Country C. You had previously been seconded to Country F and Country G for various periods by your employer. You arrived in Country C on a Country C Employment Pass that allowed you to live and work in Country C for a number of years. This pass was provided to you by your employer. On arrival in Country C you stayed in a hotel from mm/yyyy to mm/yyyy. When you arrived in Country C you received food and transportation costs from your employer. This became a flat allowance. After a number of months you began leasing a fully furnished apartment. You had phone and internet services connected to this apartment and were responsible for all expenses relating to this apartment. Over a period of time you began accumulating personal possessions in Country C. While you were employed in Country C, your employer continued to remunerate you into your Australian bank account and deduct Australian PAYG withholding tax from your salary and wages. You transferred funds from your Australian bank account to a Country C bank account to pay for your everyday living expenses. Your employer continued to make Australian superannuation contributions on your behalf. You made no voluntary superannuation contributions during this period. You maintained your Australia bank account while living in Country C due to you having an outstanding mortgage at the time that you left Australia. Prior to departing Australia you lived with your parents in a home that you had purchased prior to your departure. Your parents continued to live in this home rent free, while you were living in Country C. You did not take any personal possessions with you to Country C with the exception of your clothes. Your household possessions remained in your Australian home with your parents. During the period that you lived in Country C you returned to Australia after a number of months for brief periods. During these visits to Australia you stayed in your Australian family home. During periods of leave you travelled to international destinations other than an Australian city. The start and finish destination of these trips was Country C. During the period that you were living and working in Country C you were visited by your family. During the period that you that you were living and working in Country C you paid tax to the Country C authorities on the income that was derived. Further you were treated as a resident of Country C for income tax purposes by the Country C Authorities. Your assets in Australia consisted of you home, motor vehicle (which was used and maintained by family members) and a bank account. You derived interest income from this bank account. Your assets in Country C consisted of a managed fund, bank account, personal possessions and sporting equipment that were accumulated while in Country C. Your social and sporting ties in Australia consisted of family and the occasional sporting engagement. Your social and sporting ties in Country C consisted of membership as a player to a Country C club, gym memberships and network of friends who you became close to. Prior to departing Australia you removed yourself from the Australian electoral role. You did not inform Medicare or your Australian health insurance health provider that you were departing Australia indefinitely. You attained a Country C driver's licence. On your outgoing immigration card you ticked the Australian resident departing temporarily box. You did so because although you planned to live in Country C for an indefinite period you always felt that at some stage you may return to Australia. When departing Australia, you had no definite plans of returning to Australia and believed that your employment term in Country C at that point of time was indefinite. However your circumstances changed due to a highly attractive work position. You returned after a number of years.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 995-1 | Income Tax Assessment Act 1936 Subsection 6(1) | Income Tax Assessment Act 1997 Subsection 6-5(2) | International Tax Agreements Act 1953 Section 4. | International Tax Agreements Act 1953 Schedule Sch5. | International Tax Agreements Act 1953 Sch5-Art3. | International Tax Agreements Act 1953 Sch5-Art11.

Reasons for decision: Detailed Reasoning - Residency: An Australian resident for tax purposes is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to be a person who is a resident of Australia for the purposes 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: • the resides test • the domicile test • the 183 day test • the superannuation test. The first two tests are examined in detail in TAXATION RULING NO. IT 2650 INCOME TAX: Residency - Permanent Place Of Abode Outside Australia . 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 a resident of Australia for tax purposes if they satisfy the conditions of one of the other three tests. | Detailed Reasoning - The resides test: In FC of T v Miller (1946) 73 CLR 93 at page 99-100 and Subrahmanyam v FC Of T [2002] AATA 1298; 2002 ATC 2303; ( 2002) 51 ATR 1173 at paragraph 43-44 , it was determined that the word ' resides' should be given the widest meaning. Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia , identifies a number of factors which assist in determining the residency status of a taxpayer. Although Tax Ruling TR 98/17, discusses the Commissioners view on the residency status of individuals entering Australia, the same principles can be applied to determine whether individuals leaving Australia remained residents of Australia for income tax purposes. According to paragraph 20 of TR 98/17 factors to be considered in determining residency in Australia are: • intention or purpose of presence; • family and business/employment ties; • maintenance and location of assets; and • social and living arrangements. Paragraph 21 of TR 98/17 further states that: No single factor is necessarily decisive and many are interrelated. The weight given to each factor varies depending on individual circumstances. Recent case law decisions have expanded on the list of factors identified in TR 98/17. Case 5/2013 and Sneddon v FC of T (Sneddons Case) , for example, considered the following factors in relation to whether the taxpayer resided in Australia: (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. Each of these factors will be considered in turn, with reference, where relevant, to recent Australian case law decisions in which the taxpayer was determined to be a resident of Australia in accordance with subsection 6(1). | Detailed Reasoning - Physical presence in Australia: A person does not necessarily cease to be a resident of a particular place just 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 ( Joachim v Federal Commissioner of Taxation 2002 ATC 2088, at 2090). 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 v. Federal Commissioner of Taxation 2011 ATC 10-222, (2011) AATA 856 ( 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. In your case, you migrated to Australia and became an Australian citizen. You left Australia for an indefinite period to live and work in Country C. While living in Country C, you returned to Australia consistently after a number of months for brief periods for the purpose of visiting family. | Detailed Reasoning - Nationality: In Iyengar's Case , it was noted that in most cases, the nationality of a person would not be a factor to be taken into account along with other circumstances in determining where his or her residence is. However, in cases that could go either way, the citizenship of a person may not be completely irrelevant in the conclusion to be drawn from all the relevant facts In your case, you were born in Country D before moving to Australia and becoming and Australia citizen. While you lived and worked in Country C you were supplied by your employer with a Country C Employment Pass that allowed you to remain in Country C. | Detailed Reasoning - History of residence and movements: In Iyengar's Case , the Tribunal noted that both past and subsequent history of a person's residence may be relevant in determining whether that person is ordinarily resident (for taxation purposes) in a country in a particular income year. Significant in Iyengar's Case is that when he fulfilled a long term overseas employment opportunity he would return to his home in Australia for a break before leaving Australia and taking on another overseas employment opportunity. In your case, while living and working in Australia you had been seconded to overseas countries including Country F and Country G by your employer for various periods. More recently you moved to Country C while continuing to be employed by your Australian employer. Your employment history demonstrates a pattern of traveling overseas for a period before returning to your home in Australia. | Detailed Reasoning - (iv) Habits and "mode of life": In recent cases a taxpayer's habits and mode of life in the country where they are/had been living were considered when determining whether a taxpayer continued to be a residence of Australia for income tax purposes. On arrival in Country C you stayed in hotel, before leasing an apartment. In Sneddon v FC of T 2012 ATC 10-264 (Sneddon's Case), the taxpayer was found to be a resident of Australia for income tax purposes. With regards to the taxpayers 'habits and mode of life', the judge presiding over this case highlighted a number of factors, one of which was that the taxpayer was being remunerated for his services by his employer into his Australian bank account. Further the salary and wages were used to service his Australia expenses including his mortgage. In your case, while you were living in Country C your Australian employer continued to deduct PAYG withholding tax from your salary and wages and remunerated you for your services into your Australian bank account. Further salary and wages were used to pay your Australian mortgage. With regards to social and sporting ties, in Iyengar's Case, the taxpayer stated he was a member of several overseas sporting and recreational associations in the overseas country where he employed. However the court held that these activities were considered normal pursuits for most normal expatriate persons who are employed abroad. While living in Country C you established a number of social and sporting ties. However consistent with the principles established in Iyengar's Case, these activities are normal pursuits for most normal expatriate persons who are employed abroad and therefore do not add any weight in determining your residency status for income tax purposes. | Detailed Reasoning - (v) Frequency, regularity and duration of visits to Australia: In Lysaght v Inland Revenue Commissioners (1928) 13 TC 511 ( Lysaght's Case ) the Court noted that mere fact that visits to a country are of short duration does not of itself exclude residence in that country. As previously discussed, 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's Case 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 a resident of Australia for income tax purposes. In your case, after departing Australia, you consistently returned after a number of months for brief periods to visit family and friends. | Detailed Reasoning - (vi) Purpose of visits to or absences from Australia: In considering the purpose of your absence from Australia, you have stated that your absence from Australia was to live indefinitely in Country C. On your immigration outgoing card you stated that you were an Australian resident departing temporarily. Although your intension was to reside in Country C indefinitely, this intension changed when a highly attractive work position presented itself. As previously discussed, while living in Country C you returned to your family home in Australia on a number of occasions to visit family and friends. | Detailed Reasoning - (vii) Family, assets, business ties to Australia and the overseas country or countries: In Iyengar's Case, the court held that family or business ties with a country are an important factor to be taken into account in determining whether or not a person has ceased to be resident in a particular country. In Australia, it would appear that family ties will outweigh business ties where the two are in conflict . Further, the location of an individual's family can be decisive. Family While you were living in Country C your family continued to reside in Australia. You had no family in Country C. Business or economic Your only economic tie that you had in Country C was your employment. Assets Your assets in Australia comprise of your family home, bank account, personal effects and a motor vehicle. Your assets in Country C consisted of a managed fund, bank account, personal possessions and sporting equipment. | Detailed Reasoning - Maintenance of Place of abode: In Iyengar's Case , the court held that another important factor in determining whether or not a person has ceased to be resident in a particular country is whether the person maintains a 'place of abode' in that country, whether owned by them or not, when they are absent from that country. In Australia, the maintenance of a home in a particular place has usually arisen in relation to the question whether the taxpayer had a "permanent place of abode" outside Australia within the meaning of the first statutory test (the domicile test) in section 6(1)(a)(i) of the ITAA 1936. In your case, it is acknowledge that evicting your parents from your home in Australia would not have been a practical decision. However the fact remains that when you returned to Australia you stayed in your family home and that it was readily available to you. This is consistent with someone who is maintaining a place of abode in Australia. | Detailed Reasoning - Conclusion: It is acknowledged that you lived in Country C for a number of years. Further you lived in long term rental accommodation and had accumulated household possessions. It is also acknowledged that evicting your parents from your home in Australia would have been inconsistent with your customs and beliefs. With regards to the remaining factors and the findings in recent case's including Sneddon's Case, Iyengar's Case and c ase 5/2013 , all of whom were found to be residents of Australia for income tax purposes the following are significant for the period that you lived and worked in Country C. You returned to Australia on a number of occasions for brief periods. When you returned to Australia you stayed with your family in your family home. You have a history of being employed overseas before returning to your home in Australia. You were supplied with a Country C Employment Pass by your Australian employer who also continued to deduct PAYG instalments and remunerate you into your Australian bank account. You stated on your immigration outgoing card that you were an Australian resident departing temporarily. Your family continued to reside in Australia, and your Australian assets were far more substantial in Australia than in Country C. You maintained a place of abode in Australia that was readily available to you during the period that you lived and worked in Country C. In consideration of all of the factors outlined above, it is concluded that you continued to be a resident of Australia under the 'resides test' for income tax purposes during the income years that are included in this ruling. | Detailed Reasoning - The domicile test: If a person is considered to have their domicile in Australia they will be considered an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia. A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. In order to show that an individual's domicile of choice has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country. In your case, as you were born in Country D your domicile of origin is Country D. You then migrated to Australia and became an Australian citizen, therefore electing Australia as your domicile of choice. From the information that you have provided did not take any steps to become a citizen or permanent resident of Country C, therefore your Australian domicile of choice remains unchanged. 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. 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 23 of IT 2650 sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode: a) the intended and actual length of the taxpayer's stay in the overseas country; b) whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time; c) whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia; d) whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence; e) the duration and continuity of the taxpayer's presence in the overseas country; and f) the durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on. In relation to the weight to be given to each of the above factors, paragraph 24 of IT 2650 states: The weight to be given to each factor will vary with the individual circumstances of each particular case and no single factor will be decisive… however… greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant. Your circumstances are as follows: • you left Australia to live and work in Country C for an indefinite period; • on arrival in Country C you initially lived in a hotel before leasing an apartment after a number of months; • your assets in Australia consists of a home, bank account and motor vehicle; • your home continued to be occupied by your parents rent free and was readily available to you while you were living and working in Country C; • when you returned to Australia you stayed in your Australian family home; • you took minimal personal items with to Country C; • you accumulated personal items whilst in Country C; • other than the Australian Electoral Commission you did inform any State or Federal authorities that you were departing Australia indefinitely; • you maintained your private health insurance; • you did not inform any financial institutions that you were departing Australia indefinitely; • you were remunerated by your employer into your Australian bank account; and • when you departed Australia the reason you put on your outgoing immigration card is employment. You did so because although you planned to live in Country C for an indefinite period, you always felt that that at some stage you would return to Australia. Based on these facts and the greater weight applied against factors (c), (e) and (f), your pattern of behaviour is not consistent with someone establishing a permanent place of abode outside of Australia. Accordingly, as your Australian domicile remained unchanged and the Commissioner is not satisfied that you had established a permanent place of abode outside of Australia, you continued to be a resident of Australia for income tax purposes in the years that you were living and working in Country C under the 'domicile test'. | Detailed Reasoning - Conclusion: As it has been established that you continued to be a resident of Australia for income tax purposes under both the 'resides' test and the 'domicile' test, there is no need to consider the remaining 2 tests. Therefore you continued to be a resident of Australia for income tax purposes for the income years included in this ruling under subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997. | Detailed Reasoning - Assessability of your foreign sourced in come: Subsection 6-5(2) advises that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Salary and wages is income according to ordinary concepts and therefore assessable under section 6-5(2) of the ITAA 1997. Accordingly, as it has been determined that you were an Australian resident for income tax purposes, the salary and wages that you derived in Country C is assessable in Australia under section 6-5(2) of the ITAA 1997. | Detailed Reasoning - DTA Country C Agreement: In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements. Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations). Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country C Agreement is listed in section 5 of the Agreements Act. The Country C Agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The Country C Agreement operates to avoid the double taxation of income received by residents of Australia and Country C. | Detailed Reasoning - Country C Agreement Article 3(2): Article 3(2) of the Country C Agreement examines a taxpayers residency status and explains that where an individual is both a Country C resident and an Australian resident: (a) they will be treated solely as a Country C resident - i. if they have a permanent home available to them in Country C and has not a permanent home available to them in Australia; ii. if subparagraph (a)i of this paragraph is not applicable but he has an habitual abode in Country C and has not got an habitual abode in Australia; iii. if neither sub-paragraph (a)i nor subparagraph (a)ii of this paragraph is applicable but the contracting state with which their personal ties personal and economic relations are closest is Country C. (b) they shall be treated solely as an Australian resident - i. if they have a permanent home available to them in Australia and has not a permanent home available to them in Country C; ii. if subparagraph (b)i of this paragraph is not applicable but they have a habitual abode in Australia and has not got an habitual abode in Country C; iii. if neither sub-paragraph (a)i nor subparagraph (a)ii of this paragraph is applicable but the contracting state with which their personal ties personal and economic relations are closest is Australia. In your case, while you lived and worked in Country C, you had a permanent home in Australia that was available to you and which you return to when visiting Australia. You did not have a permanent home in Country C. While it is acknowledged that it could be argued that you had a habitual home in both Australia and Country C, from the information that you have provided your personal and economic ties are closest to Australia than Country C. Therefore, Article 3(2) of the Country C agreement operates to make you solely a resident of Australia. | Detailed Reasoning - Country C Agreement Article 11(1): Article 11 of the Country C agreement advises that remuneration or other income derived by an individual who is a resident of Australia in respect of personal (including professional) services shall be subject to tax only in Australia unless the services are performed or exercised in Country C. If the services are so performed or exercised in Country C, such remuneration or other income may be taxed in Country C. As it has been determined that you are a resident of Australia for tax purposes under Article 3(2) of the Country C Agreement, Article 11(1) of the Country C Agreement operates to make the income that you derived in Country C assessable in Australia. | Summary: Under section 995-1 of the ITAA 1997 and subsection 6(1) of the ITAA 1997, you were a resident of Australia for income tax purposes while you were living and working in Country C. As you were a resident of Australia for income tax purposes any salary and wages that were derived from your employment in Country C is assessable in Australia under subsection 6-5(1) of the ITAA 1997. Article 3(2) of the Country C Agreement operates to make you a resident of Australia for income tax purposes. Article 11(1) of the Country C Agreement operates to make any income derived in Country C assessable in Australia. | Detailed Reasoning - Note: If the income that you derived while living and working in Country C is also assessable in Country C you may be entitled to a foreign income tax offset.