Private ruling: Residency
Date of advice: 14 December 2016
Published: May 2017
Ruling period: Year ending 30 June 20YY | Year ending 30 June 20ZZ
Date scheme commenced: 20XX

Ruling: Q1: Are you a resident of Australia for income tax purposes? | A1: Yes

Relevant facts and circumstances: You are an Australian citizen. You left Australia in mid 20XX to live and work in Country A. You have a Working Residential Employment Visa in Country A, which is valid for a two year period. You are on an assignment contract with your employer in Country A, for a period of two years. Your assignment contract can be extended by a further year by mutual agreement. Your employer is providing fully furnished apartment accommodation for your exclusive use for the duration of your assignment period. Your employer will provide you with a vehicle for your exclusive use in Country A. Your spouse resides in Australia in the family home with your adult children. You travel to Australia on a monthly basis for work purposes. The family home is available to you when you are required to be present in Australia. You intend to reside in Country A for a minimum period of two years. Your assets in Australia include: ● the family home ● household furniture and effects ● a managed investment fund You have no assets in Country A. You will be considered a resident of Country A and subject to tax in Country A at resident rates. Your remuneration is paid in two components, comprising: ● an amount paid in Country A's currency that is expected to be required in Country A, and ● the balance paid in Australian Dollars into an Australian bank account. You have a joint mortgage with your spouse on the family home in Australia. You hold a golf, gym, and yacht club membership in Country A. Your employer has provided you with international health insurance. You are a listed on the family private health insurance policy in Australia. You have registered for overseas voting on the Australian Electoral Roll.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 6(1); | Income Tax Assessment Act 1997 section 6-5; and | International Tax Agreements Act 1953 section 4.

Reasons for decision: Summary: You are an Australian resident for tax purposes under subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) | Detailed Reasoning - Detailed reasoning: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are an Australian resident 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 for taxation purposes, your assessable income includes only Australian sourced income. 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. These tests are: ● The resides test ● The domicile test ● The 183 day test ● The superannuation test The first two tests are examined in detail in Taxation Ruling IT 2650 Income tax: residency - permanent place of abode outside Australia . IT 2650 focuses on the first two tests, being the tests most widely applicable to persons who ordinarily reside in Australia, but who leave Australia temporarily and are not actually living in Australia during the year of income. Whilst 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, they may still be considered a resident of Australia for tax purposes if they satisfy the conditions of one of the three other tests. | Detailed Reasoning - The resides test: The ordinary meaning of the word resides, according to the Shorter Oxford English Dictionary, 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. The outcomes of several Administrative Appeals Tribunal (AAT) cases have determined that the word 'resides' should be given the widest meaning and there have been a number of factors identified which can assist in determining if a particular taxpayer is a resident of Australia under this test. 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 to be relevant in determining the residency status of individuals in IT 2650. 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 an Australian citizen. ● You left Australia in 20XX to live and work in Country A. ● Your spouse and adult children remain in Australia and live in the family home. ● You travel to Australia on a monthly basis for work purposes. ● The family home is available to you when you are in Australia. ● Your employer provides fully furnished apartment accommodation in Country A for your exclusive use. Based on these factors, we accept that you are not considered to be residing in Australia according to ordinary concepts. Therefore, you are not an Australian resident for tax purposes under this test. | Detailed Reasoning - The domicile test: If a person's domicile is Australia they will be considered an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia. | Detailed Reasoning - Domicile: IT 2650 provides that a person will retain their domicile of origin unless a domicile of choice has been adopted. A person's domicile of origin is generally their country of birth. In order to show that a domicile of choice has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country. In your case, your domicile of origin is Australia. You have not shown evidence that a domicile of choice has been adopted as you are not a permanent resident or citizen of Country A and your visa does not grant you permanent resident status during your stay in Country A. In addition, you have not shown your intention to make your home indefinitely in Country A. The duration of your stay in Country A will be determined by either the expiration of your visa or upon cessation of your employment, whichever comes first. | 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. 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. In your case, there is no evidence of the intention to remain in Country A for an indefinite period of time. In addition, your durability of association with Australia is considered to be more significant for the following reasons: ● You have joint ownership of the family home with your spouse, as well as a joint mortgage facility over the property ● The family home is available to you at all times and your spouse and adult children reside in the house whilst you are overseas ● You have a managed investment fund in Australia ● A portion of your remuneration is transferred into an Australian bank account to cover mortgage payments and living expenses for your family ● You are listed on your family's private health insurance policy Based on these facts, it is considered that you are a resident of Australia for tax purposes as you have retained your domicile in Australia and have a permanent place of abode in Australia. Therefore, you are an Australian resident for tax purposes under the domicile test. | Detailed Reasoning - The 183 day test: When a person is present in Australia for 183 days during an income year, that person may be considered a resident unless the Commissioner is satisfied that the person's usual place of abode is outside of Australia and the person does not intend to take up residence in Australia. Since departing in mid 20XX, you have not spent, nor do you intend to spend, 183 days or more in any one income year in Australia whilst you are living and working in Country A. | Detailed Reasoning - The superannuation test: An individual is 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, nor are you a spouse, or child under 16, of such a person. Therefore, you are not a resident under this test. | Detailed Reasoning - Your resident status: You are deemed to be a resident of Australia under the domicile test from the date you left Australia. | Detailed Reasoning - Double Tax Agreement: In determining liability to tax on your Australian sourced income, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act) Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and ITAA 1997 so that those Acts are read as one. Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country A Agreement is listed in section 5 of the Agreements Act. Article 4 of the Country A Agreement provides that an individual is a resident of Australia if they are resident of Australia for tax purposes. Article 4 also states that a person is a resident of Country A if they are resident in Country A for the purposes of its tax. The tiebreaker rules for residency are listed under Article 4(3), which ensure the individual is only treated as a resident of one country for the purposes of working out liability to tax under the Country A Agreement. Where an individual is both a Country A resident and an Australian resident in respect of taxes, they shall be treated as resident of the country in which they have a habitual abode. This is the tie breaker considered since you maintain a permanent home, which is available continuously for your use, in each country. A habitual abode primarily considers whether living in a particular country is normal or customary having regard to the taxpayer's circumstances. In your case, it is not normal or customary for you to live permanently in Country A. In addition, your family is not living with you in Country A due to security concerns. You would therefore be considered an Australian resident under the Country A Agreement. Article 15(1) of the Country A Agreement provides that employment income derived by an individual who is a resident of Australia shall be taxable only in Australia unless the employment is performed or exercised in Country A. If the employment is exercised or performed in Country A, remuneration derived from such employment may be taxed in Country A. Therefore, since your income is derived by employment exercised or performed in Country A, it will be taxed in Country A. | Detailed Reasoning - Assessability of income and foreign income tax offset: As you are an Australian resident for income tax purposes and you have assessable income from overseas, you must declare it in your Australian income tax return. Article 23 of the Country A Agreement provides relief from double taxation. As you may be taxed as a resident of Country A in respect of income derived in Country A, whilst remaining a resident of Australia under Australian tax laws, you will be entitled to a foreign income tax offset (FITO) against Australian tax payable in respect of your Country A sourced income.