Private ruling: Residency
Date of advice: 21 November 2018
Published: March 2019
Ruling period: Year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Are you a resident of Australia for tax purposes? | A1: No. | Q2: Is your employment income assessable in Australia? | A2: No.

Relevant facts and circumstances: Your country of origin, and that of your spouse, is country X and you are both citizens of country X. You and your spouse relocated to Australia and became residents of Australia for tax purposes. You both obtained Australian citizenship. You took up employment with an Australian employer and lived in rental accommodation. You returned to country X because one of your parents had a serious illness. You decided to remain in country X to provide care and support and have not returned to Australia since then. Your spouse initially remained in Australia and arranged to sell your household items so your spouse and children could also relocate to country X. Your spouse and children left Australia for country X and have not returned to Australia since then. The lease over your Australian rental accommodation was relinquished. You and your family initially lived in your parent’s home in country X but took up your own rental accommodation. You requested permission from your Australian employer to continue working remotely while in country X. Your request was approved and was recently extended. Your employer continues to pay your wages into your Australian bank account, withholds PAYG and pays superannuation. You intend to return to Australia to live and work but you are uncertain of when. This decision is dependent on the health of your parent. You will return to Australia when the condition of your parent is stable. You do not own any assets in Australia apart from your bank account and your superannuation fund account. The only asset that you have in country X is a vehicle. Neither you nor your spouse are members of a Commonwealth superannuation scheme.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | 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 (ITAA 1936). The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are: ● the resides test ● the domicile test ● the 183 day test ● the superannuation 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. However, where an individual does not reside in Australia according to ordinary concepts, they will be considered to be a resident of Australia if they meet the conditions of one of the other three tests. | Detailed Reasoning - The resides test: The ordinary meaning of the word 'reside', according to the Macquarie Dictionary , 2001, rev. 5 th edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; have 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: ● Physical presence in Australia; ● Nationality; ● History of residence and movements; ● Habits and ‘mode of life’; ● Frequency, regularity and duration of visits to Australia; ● Purpose of visits to or absences from Australia; ● Family and business ties to different countries; and ● Maintenance of a place of abode in Australia. In your case, there are various factors that indicate that you were not residing in Australia during the relevant income year. These are: ● You relocated to country X for an undetermined period of time; ● Although you were planning to return to Australia, you did not know when this would be; ● You relinquished the lease over your Australian rental accommodation; ● You disposed of your Australian household effects; ● Neither you nor your family have returned to Australia since your respective departures; ● You have your own rental accommodation in country X; ● You are carrying out your regular employment duties in country X; and ● Country X is your country of origin and your extended family lives in country X. Although you always intended to return to Australia to resume your life here, we consider that you were not residing in Australia according to the ordinary meaning of the word during the relevant income year. Therefore, you were not a resident of Australia under the resides test of residency. | Detailed Reasoning - Domicile: If a person is considered to have their domicile in Australia they will be considered an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia. 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. 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 your case, although your domicile of origin is country X, you changed your domicile to Australia after you relocated here and were granted Australian citizenship. Although you returned to your country of birth for a period of time, you intend to return to Australia at some time in the future, so your domicile is still considered to be 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 necessarily prevent the taxpayer in the meantime setting up a permanent place of abode outside Australia. Paragraph 23 of Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (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: ● the intended and actual length of the taxpayer's stay in the overseas country; ● 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; ● 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; ● whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence; ● the duration and continuity of the taxpayer's presence in the overseas country; and ● the durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments about leaving Australia, place of education of the taxpayer's children, family ties and so on. IT 2650 states that 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. However, a taxpayer who leaves Australia with an intention of returning to Australia at the end of a ‘transitory’ stay overseas would remain a resident of Australia for income tax purposes. It is the Commissioner’s view that an overseas stay in excess of two years may indicate that an individual can be considered to have a permanent place of abode overseas, subject to a consideration of all the other relevant circumstances applying to the taxpayer (paragraphs 25 and 27 of IT 2650). In your case, although you had only been absent from Australia for less than two years at the end of the ruling year, comparison of your circumstances to the factors listed above indicate that you had a permanent place of abode outside Australia Consequently, for the reasons also listed under the resides test of residency, the Commissioner is satisfied that you had a permanent place of abode outside Australia for the relevant income year. Therefore, you were not a resident of Australia under the domicile test of residency. | Detailed Reasoning - The 183-day test: In practice, this test is usually only applied to the circumstances of visitors or migrants to Australia. Nevertheless, you will not be treated as a resident under this test as you were not present in Australia continuously or intermittently for more than one-half of the income year in question. | 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 will not be treated as a resident under this test. | Detailed Reasoning - Your residency status: As you do not meet any of the above tests of residency, you are not an Australian resident for tax purposes for the relevant income year. | Detailed Reasoning - Assessability of employment income: As a non-resident for tax purposes, your assessable income includes only income derived from an Australian source. Although determination of the source of income can depend on where the contract is made, where the services are performed and where the remuneration is payable, the source of income from work done as an employee is generally where the services are performed ( Federal Commissioner of Taxation v French (1957) 98 CLR 398). In your case, you were carrying out your employment duties in country X; therefore, the source of this income is country X. This is so even though you were paid from Australia. Therefore, the employment income you derived is not assessable in Australia.