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

Ruling: Q1: Are you an Australian resident for taxation purposes during the period you are working overseas? | A1: Yes | Q2: If you are a non-resident of Australia for tax purpose, will you only be subject to tax on ordinary income derived from Australian sources? | A2: Not applicable

Relevant facts and circumstances: You are an Australian citizen You have retained an Australian domicile You departed Australia in month X to work in Country X. You have two adult children and are divorced. You own a property which you lived in for two years as your main residence prior to departing to Country X. You intend to work in Country X for at least two years and do not intend to move to another country or return to Australia during that time. Upon your departure from Australia, you completed the immigration departure card as an Australian resident departing permanently. You entered Country X on a particular visa which is valid until 2016. You are currently employed on a permanent basis by a company S that is incorporated and a tax resident of Country X. This company is a wholly owned subsidiary of an Australian incorporated and tax resident company, ABC Pty Ltd which is a wholly owned subsidiary of the XYZ Trust and the trustee of the XYZ is DEF Pty Ltd. XYZ is a discretionary trust and you are a discretionary beneficiary of the XYZ Trust. All shares in DEF are owned by you. You are a Director of several Australian companies associated with the XYZ Trust and are a Director of S Ltd. You have registered as an overseas elector with the Australian Electoral Commission. You have cancelled your membership in Australia with your sporting clubs. You have terminated your private health insurance cover in Australia. You sold one of your two cars and the second car is currently on the market for sale. You have leased your residence to third party tenants on a lease period of 15 months. You maintain one bank account in Australia to meet day to day expenses on your rental property. You have a credit card issued by an Australian financial institution. You have entered into a two year lease on a property in Country X. You have furnished this property with your personal belongings and effects shipped from Australia. You purchased a car and mobile phone in Country X. You opened a bank account and registered for health service in Country X You have taken up membership with sporting clubs in Country X Since departing Australia you have travelled for work and holiday purposes. After each trip, you returned to Country X. You returned to Australia for x weeks and stayed in a serviced apartment in a city during your visit. The reasons for the visit were work and personal. You intend to spend less than yy days in Australia in total in the 2014 calendar year and the split of work and holiday will be the same as above. The remainder of the year you will be working in Country X, travelling for work in other countries and holidaying outside of Country X. You have never been employed by the Commonwealth of Australia.

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 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 [2013] 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. 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 of Iyengar . You returned to Australia in X and stayed in a serviced apartment in a city during your visit. You intend to spend less than yy days in Australia in total in the 2014 calendar year. The remainder of the year you will be working in Country X, travelling for work in other countries and holidaying outside of Country X. 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 are a citizen of Australia. History of residence and movements You lived in Australia for at least 5 years prior to your departure to Country X 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) You lived and worked in Australia for at least 5 years prior to your departure to Country X. Prior to leaving Australia, you lived in your own residence. You cancelled your membership in Australia with the sporting clubs. You leased your property to third party tenants on a lease period of 15 months. You sold one of your two cars in Australia and the second one is currently on the market for sale. Upon your departure from Australia, you completed the immigration departure card as an Australian resident departing permanently. You departed Australia in month X to work in Country X for at least two years under an Investor visa. You have entered into a 2 year lease on a property in Country X. You shipped your belongings from Australia and have furnished the property in Country X. You maintained an Australian bank account whilst overseas. You returned to Australia from and stayed in a serviced apartment in the city during your visit. The reasons for the visit were work or personal.. You intend to spend less than yy days in Australia in total in the 2014 calendar year and the split of work and holiday will be the same as above. The remainder of the year you will be working in Country X, visiting travelling for work in other countries and holidaying outside of Country X. You have lodged plans with the local council to redevelop your residential/investment property in the future. These facts support the view that you have maintained your residence of Australia and your stay in Country X is only for two years. 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. 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, for example the 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. While you are employed overseas you will make several visits to Australia. Purpose of visits to or absences from Australia. Your intention is to be absent from Australia for a period of at least 2 years on a particular visa. You are currently employed on a permanent basis by a company that is incorporated and is a tax resident of Country X. You will only be away from Australia for a period of at least two years. 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 X is as a result of, and only for the purposes of, your employment there. The company you are employed by is a wholly owned subsidiary of an Australian incorporated and tax resident company. You do not have dependent family ties in Australia. Assets You have a bank account in Country X. You also have Australian bank account and have a credit card issued by an Australian financial institution. You shipped your belongings to Country X for a property you have leased for two years. You have a property in Australia that was your main residence prior to departing Australia. You have leased this property for a period of 15 months. You have submitted plans to the local council to redevelop the property at a future date yet to be determined. 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. You leased your property to third party tenants on a lease period of 15 months. You have entered into a 2 year lease on a property in Country X. You returned to Australia in the particular month and stayed in a serviced apartment in the city during your visit. The visit was for work and personal reasons.. You intend to spend less than yy days in Australia in total in the 2014 calendar year and the split of work and holiday will be the same as above. Whilst in Country X you will travel to other countries on holidays and for work purpose. You have lodged plans with the local council to redevelop your residential/investment property at a future date. 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 X it is only for a period of at least 2 years. You are unsure about what you will do after 2 years. You have leased a property in Country X for the two year period and have leased your main residence for a period of 15 months. You have returned to Australia in the 2013 year and will return to Australia on short visits in the 2014 year. Your tie in Country X is as a result of and only for the purpose of your employment there. The company you are employed by is a wholly owned subsidiary of an Australian incorporated and tax resident company. You have assets in Australia and you have plans to redevelop your main residence at a future date. 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 will also include a discussion of the 'domicile and permanent place of abode' test as an alternative argument. | Detailed Reasoning - Domicile and permanent place of abode: Under this test, a person whose domicile is in Australia is deemed to be a resident of Australia for tax purposes, unless the Commissioner is satisfied that their permanent place of abode is outside Australia. As you have retained your Australian domicile you will be a resident of Australia 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 You intend to work in Country X for at least two years Upon your departure from Australia, you completed the immigration departure card as an Australian resident departing permanently. You entered the overseas country on an investor visa which is valid until 2016. You have entered into a two year lease on a property in Country X. You have furnished this property with your personal belongings and effects shipped from Australia. You purchased a car and mobile phone in Country X. You opened a bank account and registered for health service in Country X In Australia, you have leased your main residence to third party tenants on a lease period of 15 months. You have registered as an overseas elector with the Australian Electoral Commission. You have lodged plans with the local council to redevelop the property at a future date yet to be determined. You maintain a bank account in Australia to meet day to day expenses on your rental property You have a credit card issued by Australian financial institution. 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 will not be present in Australia for more than half the year of income during the period you are working in Country X, you are not a resident under this test for that period. | 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 you have never 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 worked overseas, the income you derived while working overseas will be assessable income.