Private ruling: Residency and leaving Australia
Date of advice: 1 March 2017
Published: April 2017
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 21 December 2016

Ruling: Q2: Is the income you earned whilst carrying out the duties of your work for an overseas employer on a vessel assessable in Australia? Yes

Relevant facts and circumstances: Your country of origin is Australia and you are a citizen of Australia. You left Australia to work on a vessel for your overseas employer. The vessel is used only for the owner’s personal use, and it does not charter. Prior to commencing this employment you considered that you were a resident of Australia for taxation purposes. You will be part of the crew on the vessel, and your position is ongoing and long term. You intend on residing overseas on the vessel for an indefinite period, wherever the vessel is based. You have cruised to various overseas countries on the vessel. You will spend approximately ten months per year working aboard the vessel. You will be travelling to Australia for no longer than eight weeks per year for holidays. You have not been granted permanent residency by any other country. You have been granted a visa for Country X and you have not been required to apply for a visa to visit other countries you will be visiting as part of your employment duties. You are not a resident of Country X for taxation purposes, and you do not pay tax or have to lodge an income tax return in that country. You have a bank account in Country X. The only assets you have in Australia are bank accounts which you intend to close and hold all earnings off shore. You intend on opening an investment account in Australia and you plan to invest in Australian property and shares in the future. You have requested that your name be removed from the Australian electoral roll. Your parents and siblings remain in Australia. You do not have any social and sporting connections with Australia or any other countries you will be visiting during your time working aboard the vessel. You are not eligible to contribute to the Commonwealth Superannuation Scheme (CSS) or the Public Sector Superannuation Scheme (PSS).

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

Reasons for decision: Detailed Reasoning - Detailed reasoning: Section 995-1 of the Income tax Assessment Act 1997 (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 offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the: ● the resides test, ● the domicile test, ● the 183 day test, and ● the superannuation 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. Where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be an Australian resident if they meet the conditions of one of the other tests. | Detailed Reasoning - The resides (ordinary concepts) test: The ordinary meaning of the word 'reside', according to the Macquarie Dictionary , 2001, rev. 3 rd 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'. 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. In your case: ● You are a citizen of Australia. ● You lived in Australia prior to commencing employment on the vessel. ● You have a continuing connection with Australia through your parents and siblings and your proposed return trips for holidays. ● You have not established a residence in any other country. ● You have not obtained for applied for permanent residency in any overseas country. ● You will not be spending any significant amount of time in any other country. Based on these facts, it is considered that you have not established enough of a connection with any other country to establish that you are residing in any other country. Consequently you are residing in Australia according to the ordinary meaning of the word. Therefore, you meet the ‘resides test’ and are a resident of Australia for tax purposes. 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 - The domicile test: Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia, unless the Commissioner is satisfied that their permanent place of abode is outside of Australia. Domicile Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence. In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country. This 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. Therefore, as you are an Australian citizen and you have not taken any legal steps which would have proven an intention to change your domicile to any other country, you have retained your Australian domicile. Therefore, you will be a resident of Australia unless the Commissioner considers you have established a permanent place of abode outside of Australia. 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. Paragraph 23 of Taxation Ruling IT 2650 Residency – Permanent place of abode outside Australia 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. As with the factors under the resides test no one single factor is decisive and the weight given to each factor depends on the individual circumstances. 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. If an individual has no fixed or habitual place of abode overseas but moves from one country to another, any association with a particular place overseas would be purely temporary or transitory and he or she would not be considered to have adopted an alternative domicile of choice or permanent place of abode outside Australia. In such a case, if the person could not be said to have acquired a domicile of choice or permanent place of abode outside Australia, the taxpayer would be considered to remain a resident of Australia. In your case, the Commissioner is not satisfied that you have a permanent place of abode outside of Australia based on the following: ● You live on a vessel which visits various overseas countries. ● You have not established a residence in any other country. Therefore, as your domicile is Australia and the Commissioner is not satisfied that you have established a permanent place of abode outside of Australia, you are a resident of Australia under the domicile test of residency. | Detailed Reasoning - Your residency status: As you will be a resident under the ‘resides’ and ‘domicile test’ there is no need to consider the remaining two tests, and you are a resident of Australia for income tax purposes under subsection 6(1) of the ITAA 1936. | Detailed Reasoning - Assessability of your income: 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. You may, however, be entitled to a foreign income tax offset for the foreign tax you paid overseas. Please refer to our website www.ato.gov.au for further information regarding foreign income tax offset.

Question 1: Are you an Australian resident for income tax purposes?