Private ruling: Residency
Date of advice: 21 December 2016
Published: June 2017
Ruling period: Year ending 30 June 201X
Date scheme commenced: 1 July 201X

Ruling: Q1: Are you a resident of Australia for taxation purposes? | A1: No.

Relevant facts and circumstances: You are a citizen of Country Y. You are a citizen of Australia. You were working in Australia prior to leaving. You went to country Z in the 201X income year. You have accepted a work contract in Country Z. Your new employment is based on a 'permanent, open-ended local employment' contract. You have obtained an employment visa in Country Z which is valid for 24 months. You intend to renew your employment visa in 24 month increments until you are able to apply for permanent residency in Country Z. You are in a de-facto relationship with your partner. You intend to return to Australia annually for between 40-50 days a year for business purposes. You intend to return to Australia annually for between 40-50 days a year for personal purposes. You intend to return to Australia annually for approximately 10 days for holiday purposes. As part of your job you are expected to visit clients in Australia, with most visits based in City A. When the travel purposes are for business you will stay in hotel accommodation provided by your employer. The main purpose of your personal trips will be to visit your partner. When travelling for personal reasons you will stay in various locations, depending on work and flight schedules, and the location of your partner. These locations may be either hotel accommodation or your partner's leased property. Your extended family resides in Country Y. Your partner is a citizen of Country X and Australia. Your partner is a professional in Australia. Your partner works in various locations in Australia and will do so for a number of years. Your partner has a lease for a furnished room in a share house. Your partner will rent a furnished living space from their employer. Your partner intends to explore the possibility of relocating to Country Z in the future. You, or your partner, do not own a house in Australia. You have closed all of your bank accounts, except for one essential bank account, in Australia. You are in the process of liquidating your Australian share portfolio and you expect to close your account. You will terminate, upon or soon after your departure, your term deposit in Australia. You have one Australian superannuation account in Australia. You will terminate your private health insurance in Australia. You do not have any professional memberships or subscriptions in Australia. You will sign a 24 month lease for accommodation, in Country Y. You are responsible for your own housing costs in Country Y. Your and your partner's furniture, other household goods and personal effects will be shipped to Country Y. You intend to work and live in Country Y long term and do not have any immediate plans to return to Australia permanently. You will obtain private health insurance in Country Z. You are not a member of the Public Service Superannuation Scheme (PSS) or Commonwealth Superannuation Scheme (CSS) or a spouse of such a person, or a child under 16 of such a person.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1997 section 6-5 and | Income Tax Assessment Act 1997 section 995-1

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. Section 995-1 of the ITAA 1997 defines an Australian resident for tax purposes as 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. The tests are: ● the resides test, ● the domicile (and permanent place of abode) test, ● the 183 day test, and ● the superannuation test. If any one of these tests is met, an individual will be a resident of Australia for taxation purposes. The resides test is the primary test for determining the residency status of an individual for taxation purposes. If residency is established under the resides test, the remaining three tests do not need to be considered. However, if residency is not established under the resides test, an individual will still be a resident of Australia for taxation purposes if they meet the conditions of one of the other three tests. Relevant to your situation are the first two tests which are examined in detail in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia . In examining these tests, IT 2650 provides a number of factors which assist in assessing a taxpayer's situation against the tests. | Detailed Reasoning - The resides test: The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'. As the word 'reside' is not defined in Australian taxation law, it takes its ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936. The question of whether an individual 'resides' in a particular country is a question of fact and degree and not of law. The totality of the taxpayer's factual circumstances needs to be taken into account in arriving at a decision. 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 a place. Instead, the test is whether the person has retained a continuity of association with a 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). Generally the Commissioner considers that it is difficult for a taxpayer to demonstrate that they have ceased to be a resident of Australia where a place of residence remains available to them in Australia and/or where their spouse remains living in Australia. In these situations, it may be considered that the taxpayer meets the resides test as they have retained a continuity of association with Australia. Further, they may also meet the domicile test as the Commissioner may not be satisfied that they have a permanent place of abode outside Australia. Examples of decisions of this type can be found in Iyengar and Federal Commissioner of Taxation [2011] AATA 856 and Sneddon and Commissioner of Taxation [2012] AATA 516. In the more recent case of Shord and Federal Commissioner of Taxation [2015] ATC 355 ( Shord ) one of the factors leading to the conclusion that the taxpayer was a resident of Australia was the taxpayer's emotional connection to his spouse who resided in their house in Western Australia. It was considered that the taxpayer maintained a continuity of association with Australia mainly through his spouse and property in Australia. Shord contrasts with Case 9/2014 [2014] ATC 1-071, where the taxpayer also had a wife and family in Australia, living in a jointly owned property in Perth. In this case, the AAT found that the taxpayer's priority was his work and career in the oil industry, which in the relevant period took him to Oman, where he worked and lived and intended to remain for the duration of his employment contract. His work ties outweighed his family ties and accordingly he was found not to be resident in Australia. In your case the following circumstances are relevant: ● You are a citizen of Australia. ● You left Australia in the 201X income year to live and work in Country Y. ● You will return to Australia frequently for 40-50 days per year for business reasons, 40-50 days per year for personal reasons, with a further 10 days annually for holidays. ● When the travel purposes are for business you will stay in hotel accommodation provided by your employer. ● When travelling for personal reasons you will stay in various locations, depending on work and flight schedules, and the location of your partner. ● You will lease a property which you are responsible for in Country Z Based on the facts above we accept that you are residing in Country Z according to ordinary concepts and therefore do not meet the 'resides' test. | Detailed Reasoning - The domicile test: Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia. Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence. | 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'. A person may acquire a domicile of choice in another country if they have the intention of making their home indefinitely in that country. The intention needs to be demonstrated in a legal sense, for example, by way of obtaining a migration visa, becoming a permanent resident or becoming a citizen of the country concerned. In this regard paragraph 21 of IT 2650 states that: 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 e.g., through having obtained a migration visa. A working visa, even for a substantial period of time such as 2 years, would not be sufficient evidence of an intention to acquire a new domicile of choice. You were born in Country Y and your domicile of origin is Country Y. Your domicile of choice is Australia as you have obtained citizenship of Australia. | 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 Commissioner's view on what constitutes a permanent place of abode is contained in IT 2650. 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. In considering the weighting of the factors in your situation: ● You intend to spend more time in Country Z and have no immediate plans to return to Australia permanently. ● You intend to establish yourself in Country Z. ● You have established a home in Country Z which you are responsible for. ● You are spending a greater duration of the year and longer periods of time in Country Z than in Australia. ● You have cancelled your lease in Australia you own no residential property or other assets except your superfund and one essential bank account in Australia. ● You maintain a de-facto relationship with your partner and will spend up to a maximum of 50 days together with your partner with the potential for a further 10 days of holidays in Australia per year. The Commissioner is satisfied that you have a permanent place of abode outside Australia and you are, therefore, not a resident under the domicile test of residency during the period you are working in Country Z. | Detailed Reasoning - The 183 day test: When 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 spend more than 183 days in Australia during the 201X income 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 Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person. You are not a member of the PSS or CSS or a spouse of such a person, or a child under 16 of such a person. Therefore, you are not treated as a resident under this test. | Detailed Reasoning - Residency Status: You will not be a resident of Australia for taxation purposes for the 201X income year.