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

Ruling: Question and answer: | Will you be a resident of Australia for income tax purposes while you are working overseas? | Yes.

Relevant facts and circumstances: Your country of origin is Australia and you are a citizen of Australia. You have lived and worked in Australia for your whole working life to date. You are taking up a secondment to country X with your Australian employer. The secondment is for a two year period with the option of a one year extension. Your spouse and children will accompany you to country X. You will have a working visa during your secondment in country X. The head office of the company you work for is based in country X. During your secondment you believe you will be paid from country X in the local currency. You are still negotiating your secondment package and waiting for your employer to provide it to you for signature. Your current position with your employer in Australia will be held open for you during your overseas secondment. You plan to return to Australia to live after your secondment in country X ends, either in two years or three years time. Your secondment in country X is likely to involve annual business trips of approximately one week each to Australia and other countries. You intend to visit Australia for separate periods of two weeks and one week during the current income tax year and for periods of one week, two weeks and one week in the next income tax year. You and your family will make a return visit to Australia each year; however, your family will not accompany you on your return business trips. Your spouse does not intend to visit Australia independently of you during your secondment. You intend to rent an apartment in country X for you and your family to live in. Your employer will pay you a housing allowance as part of your secondment package. Your Australian assets comprise of your residence, investment properties, a motor vehicle, household effects, a superannuation fund and bank accounts. You may sell your motor vehicle. Your Australian residence will be rented out at commercial rates while you are overseas. You will move back into your Australian residence on your return from country X. You have mortgage loans over your family home and your investment properties. Your investment properties are 'negatively geared'. You will remit funds from your salary to Australia to cover the shortfall in loan interest and other expenses for your family home and investment properties. The only Australian sourced income you will receive while you are overseas is rental income from your properties. Some of your household effects will be shipped to country X; however, the majority will remain in Australia. You do not intend to purchase a motor vehicle or any other assets of significance while you are in country X. You and your spouse have extended families that live in Australia. While you are in country X you intend to socialise with business colleagues and their families. You intend to have your name removed from the Australian electoral roll and Medicare records, and cancel your private health insurance after you sign the secondment package. You intend to advise the financial institutions you have accounts with that you will be a foreign resident after you sign the secondment package. Neither you nor your spouse has ever worked for the Australian commonwealth government.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 6(1). | Income tax Assessment Act 1997 Section 6-5.

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 may still 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 resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'. 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'. In considering the definition of 'reside', the courts have stated that the word ' reside' should be given the widest meaning. The question of whether an individual 'resides' in a particular country is a question of fact and degree and not of law. In deciding this question, the courts have consistently referred to and taken into account the following factors as being relevant: (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. It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances. | Detailed Reasoning - (i) Physical presence in Australia: A person does not necessarily cease to be a resident because he or she is physically absent from Australia. In Koitaki Para Rubber Estates Limited v Commissioner of Taxation [1941] HCA 13; 64 CLR 241, Williams J stated (at 64 CLR 241 at 249): 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 . You are taking up an employment secondment to country X for a period of two years with the possibility of an extension to three years. Although you will not be physically present in Australia for the majority of this period, you have a place in Australia you intend to return to and that you consider to be your home. | Detailed Reasoning - (ii) Nationality: Your country of origin is Australia and you are a citizen of Australia. | Detailed Reasoning - (iii) History of residence and movements: You have lived and worked in Australia for your whole working life before taking up the overseas secondment. | Detailed Reasoning - (iv) Habits and "mode of life": You are moving to country X with your family for work purposes for a minimum period of two years. You will establish accommodation for you and your family and will socialise with business colleagues and their families during your secondment. You will use your salary and housing allowance to pay for your living expenses and rent in country X. You will also remit funds to Australia to cover the shortfall in loan interest and other expenses for your family home and investment properties. | Detailed Reasoning - (v) Frequency, regularity and duration of visits to Australia: Case law has shown that a taxpayer can be a resident of a country even if they only spend a short period of time in that country. The Administrative Appeals Tribunal (AAT) found a taxpayer to reside in Australia despite the fact that he had only been present in Australia in the relevant income year for separate periods of only two weeks, three weeks and two and half weeks. A further decision found a taxpayer who 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 to be residing in Australia. You intend to visit Australia for separate periods of two weeks and one week during the current income tax year and for periods of one week, two weeks and one week in the next income tax year. | Detailed Reasoning - (vi) Purpose of visits to or absences from Australia: The purpose of your absence from Australia is to work in country X for a minimum period of two years. The purpose of your return visits to Australia will be for business and also for a family holiday each year. | Detailed Reasoning - Family: Your spouse and children will accompany you to country X. The extended families of you and your spouse live in Australia. You and your family will make a return visit to Australia over the Christmas period of each year of your secondment. | Detailed Reasoning - Business or economic ties: You have been working in Australia for your whole working life and are taking up a secondment with your current employer in country X. You will return to your current employment position in Australia following the completion of your secondment. You have significant economic ties to Australia through the income producing rental properties you own. | Detailed Reasoning - Assets: You have a home in Australia along with investment properties, a vehicle (which you may sell), a superannuation fund, bank accounts and household effects. Most of your household effects will remain in Australia pending your return here to live. You will ship some of your household effects to country X and you do not plan to purchase any assets of significance while you are living there. | Detailed Reasoning - Maintenance of Place of abode: You have a home in Australia which you will rent out for the duration of your secondment in country X. You will return to live in this home at the end of your secondment. You will establish family rental accommodation in country X with the assistance of a housing allowance from your employer. | Summary: As stated above, no one single factor is decisive, the weight given to each factor depends on individual circumstances, and the word 'reside' should be given the widest meaning. There are various factors outlined above which indicate that you will not cease to be a resident of Australia while you are overseas. Specifically; · you will work in country X for a specific period of time, that is, a minimum of two years and a maximum of three years, then return to Australia to live; · you will remit funds to Australia to cover the shortfall in loan interest and other expenses for your family home and investment properties; · you will make two return visits to Australia totalling three weeks this income tax year and three return visits totalling four weeks in the next income tax year; · you are an Australian citizen whose extended family lives in Australia; · you will be working in country X for your current employer; · your current employment position in Australia will be held open for you to return to at the end of your secondment; · you have greater economic ties to Australia through the assets you own than you have with country X; and · you have a family home in Australia in which you will return to live after the completion of your secondment. Based on a consideration of all of the factors outlined above, you will maintain a continuity of association with Australia while you are overseas. You intend to return to the place you have a home and you have an attitude that the place remains home. Therefore, you will be residing in Australia in accordance with the ordinary meaning of the word. You will be a resident under the resides test of residency for the relevant income tax year. As you are a resident under this test, it is not necessary to determine whether you meet the requirements of the other three tests of residency. 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.