Private ruling: Residency
Published: January 2014
Ruling period: Year ended 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you an Australian resident for taxation purposes for the period you are in Country A? | A1: Yes

Relevant facts and circumstances: You were born in Australia and are an Australian citizen. You have a spouse and X adult children who are living in Australia. Prior to your departure, you have lived in Australia for over a year. Before that you lived in Country B for a period. Whilst in Australia, you lived with your spouse in a property that is jointly owned. You departed Australia in mm/yyyy to work in Country A on an indefinite work contract with Company X. When you left Australia, you retained your property. Your spouse resides in this property and retains your household effects. Upon your departure from Australia, you stated in the immigration departure card that your reason for going overseas is "employment". You do not hold a return airline ticket. You have a single entry work visa in Country A, sponsored by Company X. You have an employer sponsored residency status in Country A. This allows you to stay in Country A while employed by Company X. Under Country A requirements, all residence permits are renewed on an annual basis. You intend to work in Country A until your retirement. This will be a minimum of 5 years. You formed your intention to remain in Country A when you were made redundant after returning to Australia from Country B and you found it difficult to find a new job in Australia. Since leaving Australia, you returned for 10 days to visit your spouse and children and complete your tax returns. Whilst you are in Country A, you purchased new household effects and rented a property within the compound owned by your employer. In Country A, you have a car, TV, stereo, lounge suite, pictures and sporting equipment. You also have a savings and credit card account. In Australia you have a house that is jointly owned with your spouse, commercial property that you independently own, investment properties, shares and a joint bank account with your spouse. You are receiving income from Australian sources whilst in Country A, through your commercial properties and investments. You do not have a position or job held for you in Australia. You are not a member of any sporting or social clubs in Australia. You have become a member of the sporting club in Country A. Your name is currently not on the Australian Electoral Role. Prior to your departure you cancelled your private health insurance cover in Australia. Your spouse now has a single cover. You and your spouse were not Commonwealth Government of Australia employees for superannuation purpose.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 995-1 | Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision: Detailed Reasoning - Residency: 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). An Australian resident is taxed in Australia on income from all sources; a non-resident is only taxed in Australia on income from Australian sources. The definition provides four tests to ascertain if an individual is a resident of Australia for income tax purposes. These tests are: 1. The resides test (residence according to ordinary concepts) 2. The domicile test 3. The 183 day test 4. 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 the individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for income tax purposes if they meet the conditions of one of the other three tests. | Detailed Reasoning - 1. The resides (ordinary concepts) 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'. Taxation Ruling IT 2650 provides guidelines for determining whether individuals who leave Australia temporarily to live overseas, for example, on temporary overseas work assignments or on overseas study leave, cease to be Australian residents for income tax purposes during their overseas stay. The principles and guidelines adopted in IT 2650 can also be used for individuals who intend to reside overseas indefinitely. Paragraph 19 of IT 2650 states: The first question to be asked in considering the residency status of a person temporarily leaving Australia is whether he or she can be considered to reside in Australia. If the test of residence according to ordinary concepts is satisfied, there is no need to go any further. The person is a resident of Australia for income tax purposes. Various court and Tribunal decisions have also considered the ordinary meaning of the word 'reside' with the recent being Pillay v. Commissioner of Taxation AATA 447; Sneddon v. Commissioner of Taxation [2012] ATC 10-264; [2012] AATA 516 ( Sneddon ), Iyengar v. Commissioner of Taxation [2011] ATC 10-222;[2011] AATA 856 ( Iyengar ). The Courts and the Tribunal have generally taken into account the following eight factors in considering whether an individual is an Australian resident according to ordinary concepts in an income year: · 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 with Australia compare to the foreign country concerned; and · Maintenance of a place of abode. These factors are similar to those set out in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia . Although no one single factor is decisive and the weight given to each factor depends on individual circumstances, 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. | Detailed Reasoning - Physical presence in Australia: A person does not necessarily cease to be a resident because he or she is physically absent from Australia. TR 98/17 considers physical presence or length of time by itself is not determinative of residency. An individual's behaviour as reflected by a degree of continuity, routine or habit that is consistent with residing here is relevant. In relation to this, the AAT stated in Joachim v Federal Commissioner of Taxation 2002 ATC 2088 (at 2090): Physical presence and intention will coincide for most of the time but few people are always at home. Once a person has established a home in a particular place, even involuntary, a person does not necessarily cease to be resident there because he or she is physically absent. The test is, whether the person has retained a continuity of association with the place, together with an intention to return to that place and an attitude that the place remains home. This view was confirmed in the more recent case Iyengar , indicating that there is a general requirement that you at least be physically present in Australia for part of an income year. In your case, you returned to Australia within 4 months of departing and stayed for 10 days to visit your spouse and children and complete you tax returns in mm/yyyy. Although you will not be physically present in Australia for the majority of each income year from when you commence working overseas, this does not preclude you from being an Australian resident as no one single factor is necessarily decisive, as mentioned above. | Detailed Reasoning - Nationality: The nationality of a person is rarely a decisive factor in deciding whether or not a person resides in a location, however it is one factor that is considered along with all of the circumstances of each case. You were born in Australia and are a citizen of Australia. | Detailed Reasoning - History of residence and movements: You were born in Australia. Prior to departing, you were in Australia for at least 1 year. Before that you have lived in Country B from 200X to 20XX. You intend to live in Country A to work until you retire. | Detailed Reasoning - Habits and 'mode of life': The Commissioner regards a person's habits and daily routines in regard to their domestic and business arrangements as strongly indicative of residency status. This is particularly relevant to determining the residency of a person who enters Australia, but is also relevant in assisting to determine the residency status of a person who leaves Australia. "Where the day to day behaviour of individuals, considered over time, is relatively similar to their behaviour before entering Australia, they are likely to be regarded as residing here. Even when their behaviour over time is different from their behaviour before entering Australia, they are likely to be regarded as residing here, when the facts of their presence indicate a routine establishing they are living in Australia." (TR 98/17, paragraph 43) Since your departure from Australia on dd/mm/yyyy you are working in Country A on an indefinite work contract with Company X. When you left Australia, you retained your property. Your spouse resides in this property and retains your household effects. Since leaving Australia, you have returned within 4 months, for 10 days to visit your spouse and children and complete your tax returns in mm/yyyy. Whilst in Country A, you purchased new household effects and rented a property within the compound owned by your employer. In Country A, you have a car, TV, stereo, lounge suite, pictures and sporting equipment. You also have a savings and credit card account. In Australia you have a house that is jointly owned with your spouse, commercial property that you independently own, investment properties, shares and a joint bank account with your spouse. You are receiving income from Australian sources whilst in Country A, through your commercial properties and investments. You are not a member of any sporting or social clubs in Australia. You have become a member of the sporting club in Country A. There is more weight in support of the view that you have maintained your residence of Australia. | Detailed Reasoning - Frequency, regularity and duration of visits to Australia: Where a person is living in a country and visits another, the frequency and regularity of their visits is an important factor to be considered in determining whether or not they are resident in that other country. In Lysaght v Inland Revenue Commissioners (1928) 13 TC 511 the Court noted that the mere fact that visits to a country are of short duration does not of itself exclude residence in that country. The taxpayer in Case 5/2013 ../../UA8PU$/imgview/Local Settings/Temporary Internet Files/Resident LRD Smith.doc - _ftn2#_ftn2#_ftn2#_ftn2 [2013] AAA 394; 2013 ATC 1-054 (Case 5/2013) was considered a resident of Australia despite only being present in Australia for five of the 52 weeks under consideration, as the Tribunal considered that his visits indicated that he retained a 'continuity of association' with Australia. Simarlily: · the taxpayer in Sneddon's case was considered to reside in Australia notwithstanding that he had only been present in Australia in the 2008-09 income year for separate periods of only two weeks, three weeks and two and half weeks; and · the taxpayer in Iyengar's case had only been present in Australia for two separate periods of two weeks and ten days during a period of two years and seven months. When you departed from Australia in mm/yyyy, you returned within 4 months to visit your spouse and children and prepare your tax returns. This indicates that Australia is your home base and represents a continuing association with Australia. | Detailed Reasoning - Purpose of visits to or absences from Australia.: The purpose of your absence from Australia is to work in Country A until your retirement. This will be a minimum of 5 years. This is on a single entry work visa in Country A, sponsored by Company X The purpose of your return visit has been to visit your spouse and children and prepare your tax return. | Detailed Reasoning - Family and business ties with Australia: Case law has established that the family or business ties that an individual retains with a country are relevant in determining whether an individual has remained or ceased to be a resident. The Macquarie Dictionary defines 'family' as: · parents and their children, whether dwelling together or not. · one's children collectively. · any group of persons closely related by blood, as parents, children, uncles, aunts, and cousins. Your tie in Country A is as a result of, and only for the purposes of your employment there. You have dependent family ties in Australia. | Detailed Reasoning - Assets: In Country A, you have a car, TV, stereo, lounge suite, pictures and sporting equipment. You also have a savings and credit card account. You purchased new household effects to furnish the property that you rented within the compound owned by your employer. In Australia you have a house that is jointly owned with your spouse, commercial property that you independently own, investment properties, shares and a joint bank account with your spouse. You are receiving income from Australian sources whilst in Country A, through your commercial properties and investments. | Detailed Reasoning - Maintenance of a place of abode in Australia: The maintenance of a place of abode in Australia is an important factor when considering the residency status of a taxpayer. Prior to leaving Australia, you lived in your own residence. When you left Australia, you retained your property. Your spouse resides in this property and retains your household effects. You are renting a property in the compound owned by your employer while you are employed indefinitely in Country A. These factors indicate that you are maintaining a place of abode in Australia. Application to your circumstance As stated above it is important that not one single factor is decisive and the weight given to each factor depends on individual circumstances. While you have settled into life in Country A it is only until you retire which is for a period of at least 5 years. You have not given up your residential property. Your spouse resides in this property and retains your household effects. You are renting a property in the compound owned by your employer while you are employed indefinitely in Country A. You have returned to Australia within 4 months of departing, to visit your spouse and children and prepare your tax returns Your tie in Country A is as a result of and only for the purpose of your employment there. You have a commercial property that you independently own, investment properties, shares and a joint bank account with your spouse. Based on a consideration of all of the factors outlined above you are a resident of Australia for the period you are working overseas according to the resides (ordinary concepts) test. Whilst it is not necessary to meet more than one test to determine residency for tax purposes (we have already established that you are a resident under the resides test), we will also include a discussion of the 'domicile' and 'permanent place of abode' test as an alternative argument. | 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 (section 10 of the Domicile Act 1982 ). In this regard, paragraph 21 of Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650) states that: 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 e.g., through having obtained a migration visa. A working visa, even for a substantial period of time such as 2 years, would not be sufficient evidence of an intention to acquire a new domicile of choice. In your case, you have a single entry work visa in Country A, sponsored by Company X. You have an employer sponsored residency status in Country A. This allows you to stay in Country A while employed by Company X. You residence permits are renewed on an annual basis. This indicates that you have not established a new domicile of choice in any other country. You were born in Australia and your domicile is Australia, accordingly you will be a resident of Australia for tax purposes 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. In its context in the resident definition, a 'permanent' place of abode does not have the meaning of everlasting or forever. Rather, it is used in the sense of being contrasted with a temporary or transitory place of abode outside Australia. The nature and quality of use which a taxpayer makes of a particular place of abode overseas is important ( FC of T v. Applegate 79 ATC 4307; (1979) 9 ATR 899). 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; i. the intended and actual length of the taxpayer's stay in the overseas country; ii. 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; iii. 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; iv. whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence; v. the duration and continuity of the taxpayer's presence in the overseas country; and vi. 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. 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. Application to your circumstances When you left Australia, you retained your property. Your spouse resides in this property and retains your household effects. Upon your departure from Australia, you stated in the immigration departure card that your reason for going overseas is "employment". You do not hold a return airline ticket. You have a single entry work visa in Country A, sponsored by Company X. You have an employer sponsored residency status in Country A. This allows you to stay in Country A while employed by Company X. Under Country A requirements, all residence permits are renewed on an annual basis. You intend to work in Country A until your retirement. This will be a minimum of 5 years. Whilst you are in Country A, you purchased new household effects and rented a property within the compound owned by your employer. In Country A, you have a car, TV, stereo, lounge suite, pictures and sporting equipment. You also have a savings and credit card account. In Australia you have a house that is jointly owned with your spouse, commercial property that you independently own, investment properties, shares and a joint bank account with your spouse. You are receiving income from Australian sources whilst in Country A, through your commercial properties and investments. You do not have a position or job held for you in Australia. You are not a member of any sporting or social clubs in Australia. You have become a member of the sporting club in Country A. Your name is currently not on the Australian Electoral Role. Prior to your departure you cancelled your private health insurance cover in Australia. Your spouse now has a single cover. The Commissioner is not satisfied that you have established a permanent place of abode outside of Australia. You are a resident of Australia under the domicile test. | Detailed Reasoning - 3. 183 Days Test: Where a person is present in Australia for more than half the year of income the person will be a resident, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia. Application to your circumstances As you are a resident under the first two tests, this test has not been considered. | Detailed Reasoning - 4. Superannuation Test: This test only applies to persons eligible to contribute to the Superannuation fund for Commonwealth government officers or their spouses or their children under the age of 16 years. Application to your circumstances As neither you nor your spouse, have ever been employed by the Commonwealth government, you are not a resident under this test. | Detailed Reasoning - Your residency status: As you meet at least one of the tests you are a resident of Australia for tax purposes during the time you were employed in the overseas country. | Detailed Reasoning - Foreign income: Subsection 6-5(2) of the Income Tax Assessment Act 1997 includes in the assessable income of an Australian [tax] resident "… ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year" As you are an Australian resident while you are working overseas, the income you derived while working overseas will be assessable income.