Private ruling: Residency
Date of advice: 4 July 2016
Published: August 2016
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 2 March 2016

Ruling: Question and answer | Are you a resident of Australia for taxation purposes? | No. | Are you required to declare your business income derived in Country Y in an Australian tax return? | No.

Relevant facts and circumstances: You were born in Australia. You are a citizen of Australia. You have been granted a residence card for Country Y. You have gone to Country Y to live permanently. Your spouse and child have gone to Country Y with you. Your spouse is a Country Y national. You have started a business in Country Y and you will pay tax to the Japanese government. You sold your home in Australia. You took personal belongings to Country Y with you and sold items which you could not take. You live with your in-laws in Country Y. You have bank accounts and a term deposit in Australia and tax is being withheld from these accounts. You have a bank account and personal affects in Country Y. You will return to Australia in a few years for a holiday to visit your family. You and your spouse are not eligible to contribute to the relevant Commonwealth Government Superannuation funds.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 995-1(1). | 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 . The definition offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the: ● resides test ● domicile and permanent place of abode test ● 183 day test and ● Commonwealth superannuation fund test. The primary test for deciding the residency status of each individual is whether they reside in Australia according to the ordinary meaning of the word resides. If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established. | Detailed Reasoning - The resides (ordinary concepts) test: The outcomes of several Administrative Appeals Tribunal (AAT) cases have determined that the word ' resides' should be given the widest meaning and there have been a number of factors identified which can assist in determining if a particular taxpayer is a resident of Australia under this test. Recent case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the ‘resides’ test: (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. These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in IT 2650 and Taxation Ruling TR 98/ 17 Income tax: residency status of individuals entering Australia . It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances. You have gone to Country Y to live permanently. Your spouse and child has also gone to Country Y to live. You have sold your family home in Australia. You have started a business in Country y. Based on the facts above you will not maintain a connection with Australia for the period you are in country Y. You are not a resident under this test. | Detailed Reasoning - The domicile test: If a person’s domicile is Australia they will be 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 to prove an intention to make his or her home indefinitely in that country. Your domicile of origin is Australia. 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 a person intends to live for the rest of his or her life. 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. The Commissioner is satisfied that you have set up a permanent place of abode outside Australia for the following reasons: ● You live with family in Country Y ● Your spouse and child has accompanied your to Country Y ● You have started a business in Country Y ● You have sold your family home in Australia You are not a resident under this test. | Detailed Reasoning - The 183-day test: Where a person is present in Australia for 183 days during the year of income the person will be a resident, unless the Commissioner is satisfied that the person’s usual place of abode is outside Australia and the person does not intend to take up residence in Australia. You will not be in Australia for more than 183 days in any financial year. You are not a resident under this test. | Detailed Reasoning - The superannuation test: An individual is still considered to be a resident if that person is eligible to contribute to the PSS or the CSS, or that person is the spouse or child under 16 of such a person. To be eligible to contribute to those schemes, you must be or have been a Commonwealth Government employee. You and your spouse are not eligible to contribute to the relevant Commonwealth super fund. | Detailed Reasoning - Your residency status: You are not a resident of Australia for taxation purposes. As a non-resident of Australia you are only required to declare your Australian derived income such as income from salary and wages and investments etc. in your Australian tax return. The source of a taxpayer's income is the place where the services are performed: French v. FC of T (1957) 98 CLR 398. In your case you are living in Country Y and you have started a business which you carry out from your home in Country Y. The source of the business income is Country Y. 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 Income Tax Assessment Act 1936 (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 Y Agreement is listed in section 5 of the Agreements Act. The agreement between Australia and Country Y operates to avoid the double taxation of income received by residents of Australia and Country Y. Article 7 of the DTA between Australia and Country Y considers business profits. It states: 1. The profits of an enterprise of a Contracting State shall be taxable only in that Contracting State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in that other Contracting State but only so much of them as is attributable to that permanent establishment. Your business is located in Country Y and you carry out all the work in Country Y. You do not have a permanent establishment in Australia. The income from your business is not assessable in Australia and is not required to be declared in your Australian tax return. If you do not have any Australian sourced income then you will not need to lodge a tax return in Australia for the 2017 income year. 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