Private ruling: Residency
Published: October 2014
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2011

Ruling: Questions and answers | 1. Are you a resident of Australia for taxation purposes? | Yes | 2. Is your pension assessable in Australia? | Yes


Relevant legislative provisions: Income Tax Assessment Act 1936 Section 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 have been working in Country B. Your spouse has returned to Country C. You visit Country C to see your family. You have returned to Australia on one occasion. | Detailed Reasoning - (iii) History of residence and movements: You have lived in Australia and you have Australian Citizenship. You left Australia and have employment in Country B. | Detailed Reasoning - (iv) Habits and "mode of life": You have commenced working in Country B. You are living in accommodation provided by your employer and your immediate family is living in Country C. | 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. You have returned to Australia once. You have not returned to Australia since. | Detailed Reasoning - (vi) Purpose of visits to or absences from Australia: The one visit you have made to Australia since commencing your employment in Country B was to visit. | Detailed Reasoning - Family: You are living in Country B in accommodation provided by your employer. Your spouse is living in Country C. | Detailed Reasoning - Business or economic ties: You do not have any business ties in Australia. | Detailed Reasoning - Assets: You have bank accounts, and a superannuation policy in Australia. You have household effects including furniture and clothing in Australia. | Detailed Reasoning - Maintenance of Place of abode in Australia: You do not own a property in Australia. | 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 continue to be a resident of Australia. Specifically: • You will work in Country B until circumstances change. • You intend to return to Australia at some point in the future. • Your spouse has returned to Country C while you work in Country B. • You have bank accounts, superannuation and household effects in Australia. • You are able to return to Australia to work on the family farm. • You are a citizen of Australia only. • You do not own property overseas. • You are employed by an Australian company working in Country B. 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 Australia. 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 for the relevant income tax years. | Detailed Reasoning - Domicile test: If you have your domicile in Australia you will be an Australian resident unless the Commissioner is satisfied that you have established a permanent place of abode outside Australia. Domicile Paragraph 8 of IT 2650 explains that you will retain your domicile of origin unless and until you acquire a domicile of choice in another country or until you acquire another domicile by operation of law. Paragraph 21 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 prove an intention to make his or her home indefinitely in that country e.g. through having obtained a migration visa.' You are an Australian citizen and your country of origin is Australia. Applying IT 2650 to your circumstances with regard to your domicile you have not sufficiently demonstrated an intention to acquire a new domicile of choice in Country C. Therefore, you have maintained your Australian domicile. 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. IT 2650 states in paragraph 14 that 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 prevent the taxpayer in the meantime setting up a permanent place of abode elsewhere. The Commissioner is not satisfied that you have established a permanent place of abode outside Australia for the reasons stated above. As your domicile is Australia and you have not established a permanent place of abode outside Australia you are resident of Australia. | Detailed Reasoning - The 183-day test: Where a person is present in Australia for 183 days during 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. You do not satisfy this test for the income years as you were not in Australia for more than 183 days. | 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. Generally this would include a permanent or temporary employee of the Australian Public Service (APS). As you are not nor have been a Commonwealth Government employee contributing to the PSS or CSS schemes, you are not considered to be a resident of Australia under the superannuation test. | Detailed Reasoning - Conclusion.: You are a resident of Australia for income tax purposes under section 6(1) of the ITAA 1936. | Detailed Reasoning - Assessability of pension: You have advised that the Country C tax authorities consider you to be a resident of Country C. In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements. Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations). 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 C Agreement is listed in section 5 of the Agreements Act. The Country C agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The Country C agreement operates to avoid the double taxation of income received by residents of Australia and Country C. Article 18 of the Country C agreement advises that pension paid to a resident of a contracting shall be taxable only in that state. In circumstances where both contracting states consider a person to be resident in that state there are tie breaker rules. Under the tiebreaker rules of the double tax agreement with Country C under Article 4 (1) For the purposes of this agreement, a person is a resident of a Contracting State if - (a) Where Australia is the Contracting State, the person is a resident of Australia for the purposes of Australian tax and is not - (i) By reason of his place of residence, not subject to Australian tax: or (ii) By that reason so subject only in relation to income from sources in Australia (b) Where the Country C is the Contracting State, the person is subject to unlimited tax liability in the Country C. (2) Where by reason of the provisions of paragraph (1) an individual is a resident of both contracting states, then his case shall be determined in accordance with the following rules: (a) He shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. (b) If he has a permanent home available to him in both Contracting States, or if he does not have a permanent home available to him in either of them, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode, or where he has such habitual abode in both Contracting States, or if he does not have such habitual abode in either of them, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closest. Given that you are renting a house for your spouse in Country C and have an abode in Australia, the question of residency falls to where you have your personal and economic relations are closest. We consider that your personal and economic relations are closest to Australia. You have bank accounts, a superannuation fund, family and friends and accommodation in Australia. You are intending to return to Australia to live in the future. You will be a resident of Australia for the purposes of the DTA. Consequently Australia has the taxing right over your pension. However, as you have advised that the pension is tax exempt you will not need to include it in your assessable income.

Your destination was in Country B where you are under contract to an Australian company. | You do not intend to reside overseas permanently you intend to return to Australia with your family at some point in the future. | You have decided to make your home outside of Australia indefinitely. Your spouse lives in Country C while you are working in Country B. | You do not have an exact return date you are considering moving back to Australia. | You have returned to Australia once while you are working overseas to look after a sick parent. | You rent a house in Country C for your spouse while you are living in Country B. | When you are in Country B you live in accommodation provided by your employer. | You visit Country C to visit your spouse. | You have basic household effects and a bank account in Country C. | Prior to departing for Country B you were living in Australia. | On your return to Australia you will be able to take up residence in the family home. Your furniture and the majority of your possessions are still at the property. You have a temporary resident / work visa for Country C. | You are employed on a contract basis by an Australian Company in Country B. | The employment contract is ongoing and the duration is not able to be determined as it is on a contract basis. | You receive an exempt pension in Australia.