Private ruling: Medicare Levy
Date of advice: 21 July 2016
Published: September 2016
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Were you a resident of Australia for income tax purposes for the relevant income year? | A1: Yes

Relevant facts and circumstances: You are an Australian citizen who left to work in the a foreign country in 20XX. You returned to Australia in 20XY. Your intention in leaving Australia was to live and work in country X. You did not have an intention to live overseas indefinitely as you planned to return within 2years. You were issued a visa by country X which was for a period of 2 years. This was arranged by you as part of your travel arrangements and hence was not arranged by your employer. You were employed in country X for no more than 2 years. You informed the Australian Electoral Commission that you would be overseas. You did not inform Medicare. While overseas you rented an apartment and then a home. These accommodations were arranged and paid by you; not by your employer. Before departing Australia you lived with your parents. When you departed Australia your household effects and personal effects stayed in your room which was maintained in your parent's house. Thus this room was available for you should you have needed to return to Australia unexpectedly. While overseas you maintained an Australian bank account. You also opened an account in another foreign country. You are single and have no children. Your immediate family remained in Australia when you travelled overseas.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 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: 1. The resides test (residence according to ordinary concepts) 2. The domicile test 3. The 183 day test 4. 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 the individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for income tax purposes if they meet the conditions of one of the other three tests. | Detailed Reasoning - 1. 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'. The Courts and the Tribunal have generally taken into account the following factors in considering whether an individual is an Australian resident according to ordinary concepts in an income year: • Physical presence in Australia; • 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 compare to the foreign country concerned; and • Maintenance of a place of abode. The weight to be given to each factor will vary with the individual circumstances and no single factor is necessarily decisive. Physical presence in Australia In Joachim v. Federal Commissioner of Taxation 2002 ATC 2088; AATA 610, 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 involuntarily, a person does not necessarily cease to be a 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. Frequency, regularity and duration of visits to Australia You did not return to Australia while overseas. Therefore you did not establish a regular pattern of visiting Australia. Family and business ties with Australia Your family remained in Australia while you were overseas. Thus you maintained strong family ties with Australia. Maintenance of a place of abode Although you established a place of abode in country X, you also maintained a place of abode in Australia by leaving household and personal effects in your room at your parent's house in Australia. Based on all the facts, it is considered that you maintained a continuity of association with Australia while you were overseas and were residing in Australia according to the ordinary meaning of the word. Therefore you are a resident under the resides test. 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 and permanent place of abode' test as an alternative argument. | Detailed Reasoning - 2. The domicile test: Under the domicile test, a person is a resident of Australia if their domicile is in Australia unless the Commissioner is satisfied they have a permanent place of abode outside of Australia. | Detailed Reasoning - Domicile: "Domicile" is a legal concept to be determined according to the Domicile Act 1982 and common law rules. A person's domicile is in their country of origin unless they acquire a different domicile of choice or operation of law. To obtain a different domicile of choice, a person must have the intention to make their home indefinitely in another country, usually done by obtaining a migration visa. The domicile of choice which a person has at any time continues until that person acquires a different domicile of choice. In your case, your domicile of origin is Australia and there is no evidence to suggest that you that you changed your domicile to any other country. Therefore your domicile was still Australia. | Detailed Reasoning - Permanent place of abode: A person's 'permanent place of abode' is a question of fact to be determined in the light of all the circumstances of each case. ( Applegate v. Federal Commissioner of Taxation 78 ATC 4051; 8 ATR 372 ( Applegate )) In Applegate , the court found that 'permanent' does not mean everlasting or forever but it is to be contrasted with temporary or transitory. The courts have considered 'place of abode' to refer to a person's residence, where he lives with his family and sleeps at night. Taxation Ruling IT 2650 Income Tax: Residency - Permanent place of abode outside Australia (IT 2650) provides a number factors which are used by the Commissioner in reaching a satisfaction as to an individual's permanent place of abode. These factors include: (a) the intended and actual length of the individual's stay in the overseas country; (b) any intention either to return to Australia at some definite point in time or to travel to another country; (c) the establishment of a home outside Australia; (d) the abandonment of any residence or place of abode the individual may have had in Australia; (e) the duration and continuity of the individual's presence in the overseas country; and (f) the durability of association that the individual has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments, place of education of the taxpayer's children, family ties. Paragraph 24 of IT 2650 states that the weight to be given to each factor will vary with individual circumstances of each case and no single factor is conclusive. Greater weight should be given to factors (c), (e) and (f) than to the remaining factors. 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 established a place of abode in a foreign country but also maintained a viable place of abode at your parent's house in Australia. Based on all the facts, the Commissioner is not satisfied that you maintained a permanent place of abode outside Australia. Therefore you are considered a resident of Australia under this test. | Detailed Reasoning - Residency status: As you satisfy two of the four tests of residency outlined in subsection 6(1) of the ITAA 1936, you are considered to be a resident of Australia for income tax purposes for the relevant year. Accordingly, you are required to pay the Medicare levy for this period.