Private ruling: Residency status
Date of advice: 26 May 2016
Published: July 2016
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020
Date scheme commenced: 1 July 20XX

Ruling: Questions and answers | 1. Will you be a non-resident of Australia for tax purposes? | Yes | 2. Do you need to lodge a tax return in Australia declaring your Australian government superannuation pension? | Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are an Australian citizen residing in Country A. You are a resident of Country A for taxation purposes. You are working in a permanent position and will remain there for another 4-5 years. You are paid in local currency and have local tax withheld from your wages. You will return to Australia for holidays every year for about 3-4 weeks. You live in your own unit and provide your own meals. You sold your house in Australia before moving to Country A. You have a Country A bank account. You spent many years employed by the Australian government and now receive an Australian government superannuation pension. This is your only income in Australia. Your connections to Australia are: • a superannuation account that you continue to contribute to voluntarily • Australian bank account • Small amount of personal items in storage which were impractical to bring to Country A • Payments from your Australian government superannuation pension. At the end of your employment you plan to return to Australia to retire. You are not currently employed by the Commonwealth of Australia. You are a single person without dependants.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1936 Subsection 6(1) | Income Tax Assessment Act 1997 Subsection 995-1(1) | International Tax Agreements Act 1953 | Income Tax Rates Act 1986

Reasons for decision: Detailed Reasoning - A. Residency for taxation purposes: 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 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. | Detailed Reasoning - 1. 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. In Dempsey and Commissioner of Taxation [2014] AATA 335 (29 May 2014) the Administrative Appeals Tribunal noted that the settled position of the courts (at ultimate appellant level) as to the meaning of the word resides in the ITAA 1936 is that the word: bears its ordinary English meaning, which 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". Based on the facts of your case, the Commissioner accepts that you will not be residing in Australia according to the ordinary meaning of the word for the period 1 July 20XX to 30 June 20YY. | Detailed Reasoning - Other residency tests: Even where a taxpayer is not considered to 'reside' in Australia in accordance with the ordinary meaning of the term, the taxpayer will still be considered to be a resident of Australia for domestic taxation purposes where they meet one of the other three residency tests, being the domicile and permanent place of abode test, the 183 day test and superannuation fund test. | Detailed Reasoning - 2. The domicile and permanent place of abode test: If a person has their domicile in Australia they will be an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia. | Detailed Reasoning - Domicile: 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. Your domicile is Australia because your country of origin is Australia and you are an Australian citizen. Therefore you will be a resident of Australia unless the Commissioner is satisfied that you have a permanent place of abode outside of Australia. | Detailed Reasoning - Permanent place of abode: 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. 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. IT 2650 sets out a number of factors established by Court and Tribunal decisions which assist in determining 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. 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 Centrelink 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 not one single factor is decisive and the weight given to each factor depends on individual circumstances. Paragraph 24 of IT 2650 instructs that the weight of each factor will vary with individual circumstances and no single factor is decisive. However, 'greater weight should be given to factors (c) the establishment of a home outside 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 than to the remaining factors'. Weighing all the factors above in light of your individual circumstances, you have established a permanent place of abode outside Australia for the following reasons: • Your employment contract in Country A is for several years and you have a permanent position. • You have lived permanently in Country A for some time and you plan to live there for another 4-5 years. • You will return to Australia only for holidays for about 3-4 weeks each year. • You do not live in employer provided accommodation. You live in your own unit and provide your own meals. • You do not have substantial assets in Australia. You sold your house in Australia before leaving for Country A. You possess only a small amount of personal items in storage in Australia which were not practical to take to Country A. • You have a Country A bank account. • You are a single person without dependants in Australia. Weighing all the factors above in light of your individual circumstances, you have established a permanent place of abode outside Australia. Your connections with Country A are stronger than your connections with Australia. As the Commissioner is satisfied that you had a permanent place of abode outside Australia, you are not a resident of Australia for income tax purposes under this test for the period of this ruling. | Detailed Reasoning - 1. The 183-day test: Under this test, a person who is in Australia for 183 days (not necessarily consecutively) during an income year may be considered a resident of Australia for taxation purposes, unless the Commissioner is satisfied the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia. As you will not be in Australia for 183 days during any year of income for the period 1 July 20XX to 30 June 20YY, you are not a resident of Australia for income tax purposes under this test. | Detailed Reasoning - 2. Superannuation test: Based on the facts you have provided this test is not relevant in your situation as it only applies to persons eligible to contribute to the superannuation funds for Australian government officers, their spouses, or their children under the age of 16 years. | Detailed Reasoning - Conclusion - your residency status: Based on the facts you have provided, you will not satisfy any of the tests of residency outlined in subsection 6(1) of the ITAA 1936 between the period 1 July 20XX to 30 June 20YY. Accordingly, you will not be a resident of Australia for taxation purposes during that time. | Detailed Reasoning - A. Australian government superannuation pension: Assessable income for a non-resident of Australia includes ordinary income derived directly or indirectly from all Australian sources during the income year (subsection 6-5(3) of the ITAA 1997. The source of a pension is the location of the pension fund, and the source of an annuity is where the contract was made. If a pension or annuity has an Australian source, then it will be taxable in Australia unless it is overridden by a Double Tax Agreement (DTA). You are a resident of Country A for tax purposes. In the Country A and Australian DTA, any pension (NOT including government service pensions), or other similar payment or any annuity paid to a resident of Country A shall be taxable only in Country A (Article 17(1)). Article 18(2) 'Government Service' states that any pension paid by, or out of funds created by Australia or a political sub-division or local authority of Australia, to any individual in respect of services rendered to Australia or sub-division or local authority of Australia, shall be taxable in Australia. Article 18(3) goes on to say that 'the provisions of paragraphs 1 and 2 shall not apply to remuneration or pensions in respect of services rendered in connection with trade or business carried on by one of the contracting states or a political sub-division or local authority thereof. In such a case, the provisions of Articles 14, 15 and 17 shall apply'. As you were employed by the Australian government, you receive an Australian government superannuation pension in respect of services rendered to the Australian government. The pension is paid from a superannuation fund operated by the Australian government and you did not receive your pension as a result of services rendered in connection with a trade or business. Accordingly, as your pension is paid from the funds of the Australian government and is paid for government service your pension will be assessable in Australia. You will need to lodge a tax return in Australia declaring your Australian government superannuation pension. As you are a non-resident for Australian income tax purposes, we need to consider the rate of taxation applicable to you. | Detailed Reasoning - Rates of taxation: Tax is payable at rates set out in the various Rating Acts passed by Parliament. The rates applicable to individuals vary according to whether the person is a resident of Australia or a prescribed non-resident. A prescribed non-resident taxpayer as defined in section 3(1) of the Income Tax Rates Act 1986 (ITRA) means a person who, at all times during the year of income, is a non-resident, not being a person to whom, at any time during the year of income, a pension, allowance or benefit is payable under (a) the Veterans' Entitlements Act 1986 ; (b) subsection 4(6) of the Veterans' Entitlements (Transitional Provisions and Consequential Amendments) Act 1986 ; or (c) the Social Security Act 1991 ; As you are not in receipt of any of the above, you are a prescribed non-resident. Part II clause 1(b) of schedule 7 of the ITRA sets out the tax rates that apply to prescribed non-resident taxpayers. For the 20XX-ZZ income year, the rates outlined in the legislation that apply to prescribed non-residents are: 20XX-ZZ prescribed non-resident rates Taxable income Tax in this income $0 - $80,000 32.5cents for each $1 $80,000 - $180,000 $26,000 + 37 cents for each $1 over $80,000 $180,000 and over $63,000 + 47cents for each $1 over $180,000 | Detailed Reasoning - Conclusion: You will be a non-resident of Australia for income tax purposes for the duration of your stay in Country A. You will need to lodge a tax return in Australia declaring your Australian government superannuation pension. Please note that Country A may allow for you to claim a foreign tax offset/credit for part or all of the tax paid in Australia.