Private ruling: Residency and assessable income
Date of advice: 23 June 2017
Published: October 2017
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Are you a resident of Australia for tax purposes? | A1: Yes. | Q2: Are you a resident of Australia for the purposes of the double tax agreement between Australia and Country X? | A2: No. | Q3: Is the income you earned through your Company in Country X assessable in Australia? | A3: No. | Q4: Is the interest income you receive from Australia subject to a maximum tax rate of 10 per cent? | A4: Yes.

Relevant facts and circumstances: You are an Australian Citizen. Prior to your departure from Australia you stored your household effects at your family’s home. You had your own bedroom in your family’s home in Australia. You informed the Australian Electoral Commission you were departing Australia. You departed Australia for Country X in 201X. When you left Australia your intention was to return to Australia in 201X at the end of your 2 year working visa expiry period. You occupied rental accommodation in Country X while searching for work. You travelled while you searched for work. You kept your belongings and paid rent on your room in Country X while travelling. Your travels are typically for short periods of time, a weekend or a week. You have a Country X registered company that you use to contract work. You began working in Country X in 201X on a Tier 5 Working Holiday Visa. The same employer contracted your company. You moved to more suitable rental accommodation in Country X. You have not returned to Australia since you departed in 201X and you do not intend to return until your visa expires in 201X. You are a resident of Country X for tax purposes. You intend to lodge income tax returns in Country X as a resident of Country X for tax purposes. You have Country X bank accounts. You are a member of a number of Country X libraries, play social badminton and are registered in Country X electoral register. Your bedroom in your family’s home in Australia is available for you to stay in when you return if you choose to. You maintained Australian assets of bank accounts that earn interest income. Your immediate family lives in Australia. You have no family in Country X. You do not have Australian private health insurance.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1936 Subsection 6(1) | International Tax Agreements Act 1953

Reasons for decision: Detailed Reasoning - Residency: 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 superannuation test. 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 considered to be a resident of Australia for tax purposes if they meet the conditions of one of the other three tests. | Detailed Reasoning - 1. The resides test: In deciding cases of residency, the courts and tribunals have noted that a person does not necessarily cease to be a resident because he or she is physically absent from Australia. Instead, the test is whether the person has retained a continuity of association with a place in Australia, 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 ). In your case, you have a room available to you at your family’s home in Australia, you have intent to return to that place and an attitude that this place remains home. Therefore, you are considered to be a resident of Australia for taxation purposes under the resides test for the years ending 30 June 201X and 30 June 201X. Whilst it is not necessary to meet more than one test to determine residency for tax purposes (as we have already established that you are a resident under the 'resides’ test), we will also include a discussion of the 'domicile and permanent place of abode’ test as an alternative argument. | Detailed Reasoning - 2. 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. | Detailed Reasoning - Domicile: Domicile is a legal concept, determined according to the Domicile Act 1982 and common law rules established by private international law cases. 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 in another country, the person must be able to prove an intention to make his or her home indefinitely in that country. 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. In your case there is no evidence to show that you took any steps to establish a new domicile in Country X and you have maintained your Australian domicile. | Detailed Reasoning - Permanent place of abode: 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. The courts have considered a person’s 'place of abode’ is where they consider 'home’. In R v Hammond (1982) ER 1477, Lord Campbell CJ stated that “a man’s residence, where he lives with his family and sleeps at night, is always his place of abode in the full sense of that expression.” A place of abode must exhibit the attributes of a place of residence or a place to live, as contrasted with the overnight, weekly or monthly accommodation of a traveller. The Commissioner’s view on what constitutes a permanent place of abode is contained in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650). Clearly, the longer an individual stays in any one particular place, the more permanent in nature is likely to be the stay in that place of abode. An individual's intention regarding the duration of the overseas stay and the length of the actual stay are significant factors in deciding whether they have set up a permanent place of abode. Where a taxpayer leaves Australia for an unspecified or a substantial period and establishes a home in another country, that home may represent a permanent place of abode of the taxpayer outside Australia. However, a taxpayer who leaves Australia with an intention of returning to Australia at the end of a 'transitory’ stay overseas would remain a resident of Australia for income tax purposes. It is the Commissioner’s view that an overseas stay in excess of two years may indicate that an individual can be considered to have a permanent place of abode overseas, subject to a consideration of all the other relevant circumstances applying to the taxpayer (paragraphs 25 and 27 of IT 2650). In your case: ● you have a working visa set with an expiry in 201X as they have a nature of 2 year maximum validity ● you have occupied two rental dwellings during your time in Country X ● prior to your departure from Australia you stored your household effects at your family’s home where you had been living ● you maintained Australia bank accounts that earn interest income Based on these facts, it is considered that you will not be away for a long enough period to demonstrate that your have a permanent place of abode in Country X. Therefore, you are considered to be an Australian resident for taxation purposes under the domicile test for the years ending 30 June 201X and 30 June 201X. | Detailed Reasoning - Your residency status: As you meet the resides test and the domicile test for the years ending 30 June 201X and 30 June 201X, you are a resident of Australia for taxation 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. | Detailed Reasoning - Double tax agreement: In determining liability to Australian tax on foreign sourced income received by an Australian resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement enforceable under the International Tax Agreements Act 1953 (the Agreements Act). Section 4 of the Agreements Act incorporates that Act with the Australian ITAA 1936 and ITAA 1997 so that Acts are read as one. In the event of inconsistent provisions, the Agreements Act overrides the ITAA 1936 and ITAA 1997 except in some limited situations. An agreement between Country X and Australia operates to avoid the double taxation of income. An article of the agreement explains that for the purposes of this agreement a person is a resident of Country X if the person is a resident of Country X for the purposes of Country X tax. In your case, you are a tax resident of Country X for the purposes of Country X tax. | Detailed Reasoning - Assessability of income: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) states that if you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia during the income year However, the normal operation of Australian tax law is altered by the operation of a Double tax agreement as you are non-resident of Australia under the agreement this will limit your assessability in Australia on income from overseas and some Australian sources income. Various articles in the agreement operate to make income you earned through your Company in Country X not assessable in Australia and only taxable in Country X. An article of the agreement operates to make interest income received by a resident of Country X only be taxed at a rate no more than 10 per cent of the gross amount of the interest.