Private ruling: Residence
Published: March 2012
Ruling period: Year ending 30 June 2011 | Year ending 30 June 2010
Date scheme commenced: 1 July 2009

Ruling: Questions and answers: | Are you a resident of Australia for tax purposes? | Yes | Is the income from your Australian investment property assessable in Australia for the period you were overseas? | Yes

Relevant facts and circumstances: You are an Australian citizen You departed Australia 2009 You are in the overseas country on a working holiday visa for two years. You intend to return to Australia in 2 years. Whilst in the overseas location, your took brief side trips to other countries in the region. You returned to Australia from the overseas country in June 2011 as your working holiday visa for the overseas country had ended. You then applied for a working holiday in another overseas country and departed Australia 2011. When in the overseas countries you lived in hostels for 15 months and rented accommodation for the remainder. When you are in Australia you live with your parents. You were employed while overseas and paid tax in the overseas country on your employment income. You have no assets outside of Australia. You own a unit in Australia which is being rented out. Your social connections in Australia include your family and friends. You social connections in the overseas country is made up of friends that you made whilst there.

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, and § the superannuation test. The first two tests are examined in detail in Taxation Ruling IT 2650. 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 may still be considered to be a resident of Australia for tax purposes 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. 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'. Although the question of whether a person resides in a particular country is a question of fact, the courts have referred to and taken into account various factors considered to be relevant. These are: § whether the person is physically present in that country at some time during the year of income § the history of the person's residence and movements § if the person is a visitor to the country, the frequency, regularity, duration and purpose of the visits § if the person is outside the country for part of the relevant income year, the purpose of the absences § the family and business ties which the person has with the particular country, and § whether a place of abode is maintained by the person in the relevant country or is available for his or her use while there. Taxation Ruling IT 2650 emphasises the intended and actual length of the individual's stay in an overseas country, any intention to return to Australia or travel elsewhere, the establishment or abandonment of any residence, and the durability of association that the individual maintains with a particular place in Australia as the main factors to be considered when determining the residency status of individuals leaving Australia. You were physically absent from Australia in the year of income for 11 months of each financial year. You maintained a continuous absence for the duration of your 2 year visa in the overseas country. The purpose of your absence from Australia was to go on a working holiday. You are not a resident of Australia under the resides test as you were outside Australia for a substantial period of time. | 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 a legal concept, determined according to the Domicile Act 1982 and common law rules established by private international law cases. Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence. You right to remain in the overseas country is granted by a 2 year working holiday visa, this does not demonstrate that you have established a new "domicile of choice. Your domicile is Australia because you are an Australian citizen who has not legally established a different domicile. 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 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: (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. In relation to the weight to be given to each of the above factors, paragraph 24 of IT 2650 states: The weight to be given to each factor will vary with the individual circumstances of each particular case and no single factor will be decisive… however… greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant. You length of stay in the overseas country was over 22 months. As a broad rule of thumb, a period of about 2 years or more would generally be regarded by the Commissioner as a substantial period. You remained in the overseas country for 22 months, returned to Australia for 3 and a half months and then proceeded onto another overseas country for another working holiday. Whilst in the overseas country you lived in hostel accommodation for 16 months which is considered temporary accommodation. You own a unit in Australia which is currently being rented, as such it has not been abandoned. You remained in the overseas location for the duration of your visa taking sojourns to neighbouring countries. Your durability of Australia is stronger than the overseas country as it is the place where your family resides and your investment (rental property). Your period of stay being less than 2 years is transitory in nature, you returned to Australia as a base location until you could establish a new working holiday visa, your time in the overseas location was spent in mostly temporary accommodation (hostels) and you have a demonstrated durability of association with Australia. Under this test you have not shown that you have a permanent place of abode outside of Australia, you are therefore a resident under this test. | Detailed Reasoning - The 183 day test: Under the 183 day test, a person is a resident of Australia if they are actually physically present in Australia for more than 183 days in an income year unless the Commissioner is satisfied that their usual permanent of abode is outside of Australia and they have no intention of taking up residence here. As you were not present in Australia for more than 183 days in any of the income years, you are not a resident under this test. | Detailed Reasoning - The superannuation test: A person will be considered a resident under the Commonwealth superannuation fund test if they currently contribute to certain superannuation funds for Commonwealth government employees. The eligible funds are funds: § established under the Superannuation Act 1976 (such as the Commonwealth Superannuation Scheme), or § established under the Superannuation Act 1990 (such as the Public Sector Superannuation Scheme), or § the spouse or child under 16 of a person covered by either of the above funds. You have never been a Commonwealth government employee and therefore you are not able to contribute to the abovementioned superannuation schemes. | Detailed Reasoning - Your residency status: As you meet the domicile test, you are a resident of Australia for tax purposes. As you are a resident of Australia, according to section 6-5 of the ITAA 1997, your assessable income includes income gained from all sources, whether in or out of Australia and will therefore include the income you receive from your Australian investment property and your employment in the overseas country.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.