Private ruling: Residency
Published: September 2017
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Were you an Australian resident for tax purposes in the year ended 30 June 2016? | A1: No

Relevant facts and circumstances: You were born overseas. You migrated to Australia over 40 years ago and have resided in Australia since then. Your spouse, children and extended family reside in Australia. All are Australian citizens. Your income producing assets are rent producing real estate in Australia. All of your assets including your personal possessions, apart from some personal effects which you have with you, are in Australia. You are not an Australian citizen. In 20YY, you departed Australia for a short overseas holiday. It was your intention to return to Australia. For legal reasons, you have been unable to return to Australia. You do not have a fixed place of accommodation available to you overseas and you have no fixed address. You are not working and have not been looking for employment overseas. You only took enough money to meet your holiday expenses when you left Australia in 20YY. Your family has sent you money to enable you to live and are also funding your attempts to return to Australia. You were never a member of a superannuation scheme established by deed under the Superannuation Act 1990 or an eligible employee for the purposes of the Superannuation Act 1976 and were not present in Australia at all during the income year ending 30 June 2016.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 6 | Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 995-1 | Domicile Act 1982 section 7 | Domicile Act 1982 section 10

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. 'Australian resident', as defined in section 995-1 of the ITAA 97, means a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 36). The definition of 'resident' or 'resident of Australia' is in subsection 6(1) of the ITAA 1936 and offers the following four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes: ● residence according to ordinary concepts ● the domicile and permanent place of abode test ● the 183 day test; and ● the Commonwealth superannuation fund 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'. If an individual satisfies this test, the other tests in the definition do not require consideration: FC of T v. Applegate 79 ATC 4307; (1979) 9 ATR 899. The tests for residency for tax purposes are not the same as the tests for immigration purposes. This means a person can be a resident for Australian tax purposes, even though not a resident for immigration purposes. | Detailed Reasoning - Residence according to ordinary concepts: The ordinary meaning of the word 'resides' as used in section 6 of the ITAA 36 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.' As a person's liability to income tax is determined on a year by year basis, so too is a person's residency status for tax purposes. Although it is well settled that a person can reside in two or more places at once and hence that continuous physical presence in a particular place is not necessary to establish residency in that place, it is accepted that a person who is never physically present in a place during a year of income does not reside there, in accordance with the ordinary meaning of the word, in that income year. It is also well settled that whether a person resides in a place depends on an objective consideration of the relevant facts, including not just physical elements but also intention. In situations where it is necessary to determine whether a person's presence in Australia should be characterised as residence rather than as, for example, a temporary stay or a casual visit, subjective intention is only one factor among many to be taken into account. You have not been physically present in Australia for legal reasons since 20XX. This means you were not physically present in Australia at all during the 2016 income year and you are prohibited from returning to Australia for legal reasons. On no view of the objective facts would a court conclude that you resided in Australia during the 2016 income year. | Detailed Reasoning - The 183 day test and the Commonwealth superannuation fund test: You do not satisfy the 183 day test or the Commonwealth superannuation fund test in the definition of resident in subparagraphs 6(1)(a)(ii) and 6(1)(a)(iii) of the of the ITAA 36. | Detailed Reasoning - The domicile and permanent place of abode test: Under the definition of resident in subparagraph 6(1)(a)(i) of the ITAA 36, if a person's domicile is in Australia they will be an Australian resident for tax purposes unless the Commissioner is satisfied they have a permanent place of abode outside Australia. | Detailed Reasoning - Domicile: In Taxation Ruling IT 2650 Income Tax: residency - permanent place of abode outside Australia (IT 2650), the Commissioner gives the following guidance for determining whether an individual who has left Australia retains his or her domicile in Australia: 8. "Domicile" is a legal concept to be determined according to the Domicile Act 1982 and the common law rules which the courts have developed in the field of private international law. The primary common law rule is that a person acquires at birth a domicile of origin, being the country of his or her father's permanent home. This rule is subject to some exceptions. For example, a child takes the domicile of his or her mother if the father is deceased or his identity is unknown. A person retains the domicile of origin unless and until he or she acquires a domicile of choice in another country, or until he or she acquires another domicile by operation of law (Henderson v. Henderson [1965] 1 All E.R.179; Udny v. Udny [1869] L.R.1 Sc.& Div. 441; Bell v. Kennedy [1868] L.R.1 Sc.& Div. 307 (H.L.)) . 9. The common law test of domicile of choice has now been restated in section 10 of the Domicile Act which provides: "The intention that a person must have in order to acquire a domicile of choice in a country is the intention to make his home indefinitely in that country." In addition, that Act abolished the former common law rule whereby a married woman had at all times the domicile of her husband. 10. In determining a person's domicile for the purposes of the definition of "resident" in subsection 6(1), it is necessary to consider the person's intention as to the country in which he or she is to make his or her home indefinitely. Thus, a person with an Australian domicile but living outside Australia will retain that domicile if he or she intends to return to Australia on a clearly foreseen and reasonably anticipated contingency e.g., the end of his or her employment. On the other hand, if that person has in mind only a vague possibility of returning to Australia, such as making a fortune (a modern example might be winning a football pool) or some sentiment about dying in the land of his or her forebears, such a state of mind is consistent with the intention required by law to acquire a domicile of choice in the foreign country - see In the Estate of Fuld (No. 3)(1968) p. 675 per Scarman J at pp. 684-685 and Buswell v. I.R.C (1974) 2 All E.R. 520 at p. 526. You were born overseas making your country of birth your domicile of origin. You are not an Australian citizen but have lived in Australia since migrating here many years ago. You acquired Australia as your domicile of choice on or after coming to Australia. The question is whether your domicile has changed since being unable to return due to legal reasons or since exhausting all other avenues to return. A person's domicile of choice is extinguished once a deportation order is carried into effect if re-entry would be illegal. This proposition was established by a series of South African decisions, the most recent being Drakensbergpers BPK and Others v Sharpe [1963 (4)] 615. In the following passage, Henning J summarises the authorities supporting this proposition and gives his reasons for concluding that deportation deprived the respondent of his domicile of choice: According to Dicey Conflict of Laws , 7 th ed., at p.106m, 'Once a person has acquired a domicile of choice he does not lose it merely because a deportation order has been made against him; he only loses it when he is actually deported. Even a person who has been deported from a country, may continue to be domiciled in it if he intends to return to it an d if his re-entry into it is not illegal.' For the proposition that actual deportation deprives the person concerned of his domicile of choice, two South African cases are relied upon, namely, Ex parte Donnelly , 1915 WLD 29, and Ex parte Gordon, 1937 WLD 35, in both of which it was held that deportation deprives the deportee of his domicile of choice. In the more recent case of Ex parte Macleod, 1946 CPD 312, a Bench of three Judges held that the effect of the deportation of a person in terms of sec. 22 of Act 22 of 1913, as amended, was to extinguish a domicile of choice acquired by him in this country. For the statement in the last sentence of the passage quoted above from Dicey reference is made to the cases of Thiele v Thiele (1920) 150 LTJ 387, and Re Lloyd-Evans , 1947 Ch. 695, in both of which the persons concerned had the animus revertendi and were not prohibited from re-entering the country where each of them had established a domicile of choice. By way of contrast the learned author refers to McLeod's case, supra , where re-entry would have been illegal. It seems to me to be the law that where a person who has established a domicile of choice in the Republic of South Africa is deported therefrom pursuant to the provisions of sec. 22 of Act 22 of 1913, as amended, he loses his domicile of choice, although he may have the intention to return. The respondent was deported under the provisions of sec.22 of Act 22 of 1913, as amended by sec.7 of Act 52 of 1956. As he is a person who has been removed from the Republic he is, in terms of sec. 4(1)(i) of the 1913 Act, a prohibited immigrant unless he is in possession of a valid authority to return. Mr Tomlinson submitted that because the respondent might in the future obtain such authority he is not a prohibited immigrant. It seems to me quite clear, however, that the respondent is, and that he will remain a prohibited immigrant until he obtains a valid authority to return to the Republic. The carrying into effect of the deportation order made him a prohibited immigrant and extinguished his domicile of choice within the Republic. Once he obtains a valid authority to return, he will be in a position to re-establish a domicile of choice in the Republic.' In Drakensbergpers BPK and Others v Sharpe , the respondent was deported under provisions authorising the removal from South Africa of non-citizens deemed to be 'undesirable inhabitants'. Although you were not deported from Australia, being unable to return to Australia for legal reasons would have the same effect as the carrying into effect of a deportation order, thereby extinguishing your domicile of choice in Australia either immediately or, at the latest, once all other avenues were exhausted. At common law, your domicile of origin would have revived upon your domicile of choice in Australia being extinguished. However, if being deprived of a domicile of choice in such circumstances constitutes an abandonment of that domicile of choice, then section 7 of the Domicile Act 1982 (DA 1982) requires that Australia remain your domicile of choice until you acquire a new one. Although it is unclear whether or not such a loss would constitute abandonment for the purposes of the DA 1982, there is a strong case for concluding that your domicile of choice for the 2016 year was actually overseas. Under section 10 of the DA 1982, the intention a person must possess to acquire a new domicile of choice is the intention to make his or her home indefinitely in that country. The following factors support a conclusion that your intention during the 2016 income year was to make your home indefinitely overseas: ● Your strong connections overseas support the conclusion that you resided overseas during the 2016 income year despite not having a fixed place of accommodation available to you. You were born overseas and have friends there with whom you have been able to stay for extended periods. ● Your travel overseas was voluntary. Although your preference was to return to Australia you were not forced to remain in any country against your will. ● Despite your desire to return to Australia to be reunited with your family (or to move somewhere closer to Australia so as to be closer to your family) this cannot objectively be your intention because it was not a realistic, or even an available, option. This is consistent with the following observations made by De Villiers J (with whom Jones JP and Sutton J concurred) in the South African case of Ex parte Macleod, 1946 CPD 312: The expression of an intention to return in the future cannot in the case of a person deported from this country, unless it rests upon some legal foundation, carry the question of the continued retention of a domicile of choice any further: for such legal foundation cannot exist while the order of deportation is still operative. The effect of the order of removal is to terminate his further residence and at the same time to render vain any expression of intention to return during the operation of such an order which is unlimited in point of time. ● Based on an objective consideration of the facts, your intention during the 2016 income year was to make your home indefinitely overseas. You have no definite plans to move from your current location at a definite time in the foreseeable future. For these reasons, the Commissioner considers that your domicile was not in Australia for the 2016 income year and hence you were not a resident. Given that you will not be in a position to re-establish a domicile of choice in Australia until you are legally able to return, the Commissioner considers that you will remain a non-resident until, at the earliest, you are legally able to return to Australia and re-establish residency here.