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

Ruling: Question and answer: | Are you a resident of Australia for income tax purposes? | Yes.

Relevant facts and circumstances: You are an Australian citizen. You have a spouse and children. You left Australia to take up a full-time employment contract in country X. You have committed to a minimum employment period of several years. You intend to extend your employment contract if possible and intend to remain in country X indefinitely. You have been issued with a residency permit to allow you to live in country X. Your family did not accompany you to country X. Your spouse and one of your children have remained living in the family home. Your spouse and children intend to join you in country X at a later time. Your family home in Australia will be leased and unavailable to the family following the intended relocation of your spouse and children. You anticipate that you will not need to travel to Australia for work purposes during your time in country X. However, you intend to return to Australia to visit your family several times a year. You will spend no more than 40 days per year in Australia. You have been provided with family accommodation in country X for the duration of your employment contract. You are leasing your accommodation in country X and have had the utility bills transferred into your name. Your wife and child will visit you in country X on a regular basis until their intended relocation in 20XX. Your Australian assets include the family home and an investment property jointly owned with your spouse. You have a mortgage over both properties. Your other Australian assets include bank accounts, a listed shareholding and shares in an employee share scheme arrangement. Your country X employment salary is paid into an Australian bank account in joint names with your spouse. You have opened a bank account in country X and are arranging for part of your salary to be paid into it. Your country X employment salary is required to pay the mortgage on the family home, mortgage on the investment property, support your spouse and children in Australia and cover your personal living expenses in country X. Your spouse does not earn sufficient income to support the family by themself. You have cancelled all your social and professional memberships in Australia. You are arranging to remove yourself from the Australian electoral role. You have retained your Australian drivers licence and family health insurance cover. You have obtained an international drivers licence and taken out international health insurance cover for you and your family. You do not have any family ties to country X. Neither you nor your spouse is a contributing member of a Commonwealth superannuation scheme.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1997 s ection 6-5 | Domicile Act 1982

Reasons for decision: Detailed Reasoning - Residency: 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. Relevant to your situation are the first two tests which are examined in detail in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650) . In examining these tests, IT 2650 provides a number of factors which assist in assessing a taxpayer's situation against the 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'. In considering residency cases, the courts and tribunals have stated that the ordinary meaning of the word 'reside' should be given the widest possible meaning. The question of whether a person resides in Australia is a question of fact and degree, and the courts have taken into account various factors considered to be relevant. These are: · physical presence in Australia; · nationality; · history of residence and movements; · habits and 'mode of life'; · purpose, frequency, regularity and duration of visits to Australia; · family and business ties with Australia compared to the foreign country concerned; and · maintenance of a place of abode. In Iyengar and Commissioner of Taxation (2011) AATA 856 ( Iyengar case), a taxpayer whose domicile was in Australia worked in Dubai under an employment contract for a period of approximately two and a half years. The taxpayer and his wife jointly owned assets in Australia which included the family home, household items, furnishings and two vehicles. His wife and children remained living in the Australian family home. The taxpayer stayed in employer provided accommodation in Dubai and transferred funds from his salary to Australia to pay off his home loan. Despite his absence from the country, the tribunal found that the taxpayer retained a 'continuity of association' with Australia and was deemed to be an Australian resident for taxation purposes under the resides test. In your case, you intend to spend a minimum of several years living and working in country X and you have established accommodation in which you will live for the duration of your employment contract. However, from early 20YY to 30 June 20XX you will have a significant association with Australia as evidenced by the following: · Your family has remained in Australia. · Your spouse and one of your children will remain living in the family home. · The family home will be available to you to stay in on your return visits. · You intend to visit your family in Australia several times a year. · All your family ties are in Australia. · You have substantial assets in Australia as opposed to country X. · The bulk of your salary is paid into an Australian bank account in joint names with your spouse to cover your mortgage repayments and the living expenses of your family. · You have retained your Australian drivers licence and family health insurance. Based on the above, you will retain a continuity of association with Australia during your absence and will be residing in Australia according to the ordinary meaning of the word. Therefore, you will be a resident under the resides test of residency for the relevant income tax years. As you are a resident under this test, it is not necessary to determine whether you meet the requirements of the domicile test of residency. However, for the sake of completeness, this test will also be considered. | 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. | Detailed Reasoning - 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. In regard to acquiring a new domicile, paragraph 21 of IT 2650 states that: Generally speaking, persons leaving Australia temporarily would be considered to have maintained their Australian domicile unless it is established that they have acquired a different domicile of choice or by operation of law. 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 two years, would not be sufficient evidence of an intention to acquire a new domicile of choice. In your case, your domicile is Australia because you are an Australian citizen. There is no evidence to show that you have taken any steps to establish a new domicile in country X by becoming a permanent resident or citizen of that country. | Detailed Reasoning - 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 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. Paragraph 23 of IT 2650 sets out the following factors which are used by the courts and 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. Paragraph 25 of IT 2650 states that where a taxpayer leaves Australia for an unspecified or a substantial period and establishes a home in another country, that home will represent a permanent place of abode outside Australia, subject to a consideration of the other factors mentioned above. As a broad rule of thumb, a substantial period of time for the purposes of a person's stay in another country is considered to be two years or more. In regard to case law, one of the leading cases on whether a permanent place of abode is outside Australia is Federal Commissioner of Taxation v Applegate 79 ATC 4307; (1979) 9 ATR 899 ( Applegate case). In this case the taxpayer, whose domicile was in Australia, was sent to the New Hebrides by his employer for an indefinite period, however he returned to Australia after two years. The taxpayer's wife accompanied him to the New Hebrides and he had no assets in Australia apart from a life policy. He was deemed to have a permanent place of abode overseas and was found to be a non-resident by the court. The non-resident decision in the Applegate case contrasts with the Iyengar case where the taxpayer was found to be a resident under the resides test, as previously stated, and also the domicile test. Some significant differences in these cases are that in the Applegate case, the taxpayer's wife accompanied him overseas and he had minimal assets in Australia. Whereas, in the Iyengar case, the taxpayer's family remained living in the Australian family home and he had substantial assets in Australia. In your case, you intend to spend a minimum of several years living and working in country X, have established accommodation in which you will live for the duration of your employment contract, have cancelled social and professional memberships in Australia and are arranging to remove yourself from the Australian electoral role. However, from early 20YY to 30 June 20XX you will have a stronger association with Australia than country X as evidenced by the following: · Your family has remained in Australia. · Your spouse and one of your children will remain living in the family home. · The family home will be available to you to stay in on your return visits. · You intend to visit your family in Australia several times a year. · All your family ties are in Australia. · You have substantial assets in Australia as opposed to country X. · The bulk of your salary is paid into an Australian bank account in joint names with your spouse to cover your mortgage repayments and the living expenses of your family. · You have retained your Australian drivers licence and family health insurance. Based on the above, you have not abandoned your residence in Australia and will have an enduring association with Australia while you are working overseas. The Commissioner is not satisfied you have a permanent place of abode outside of Australia. Therefore, you will be a resident under the domicile test of residency for the relevant income tax years. | Detailed Reasoning - Your residency status: As you are an Australian resident for income tax purposes under both the resides and domicile tests of residency, you are an Australian resident for taxation purposes under subsection 6(1) of the ITAA 1936 for the relevant income tax years.