Private ruling: Residency for tax purposes
Published: March 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: Question and answer | Are you a resident of Australia for tax purposes? | Yes.

Relevant facts and circumstances: You were born in and are a citizen of Australia. You have not been granted permanent residency in any other country. You departed Australia in 2013 to take up an employment contract with Employer Y in Country X. According to your employment contract: • your employment is for a fixed period of three years • your employer provides your transfers from your point of hire, being Australia, to Country X at the start of your employment and back to the original home base at the end of your employment; this includes airfares, shipping and insurance • your employer is responsible for obtaining the necessary visas and work permits for you to enter, reside and work in Country X • in addition to your salary, you are entitled to a mobility premium allowance, a housing allowance, a car allowance and a petrol allowance • your employer will make superannuation contributions on your behalf into a complying superannuation fund • your employer is responsible for paying Country X tax on your behalf • your employer will exercise the 'tax equalisation policy' for your Australian tax and will bear the difference of the tax amount • you and your spouse are entitled to return travel to Australia once a year • your employer provides you with medical benefits • your employer will reimburse you for school fees paid at a recognised local international school Upon entry in Country X you were issued a 90 day visit pass. You hold a Country X visa which expires two years from the date of issue. The visa is issued on the condition that you work for Employer Y in Country X. Your spouse holds a dependant visa which expires two years from the date of issue. Your spouse is expressly prohibited from undertaking any form of employment in Country X under this visa. Your children also each hold a dependant visa. In accordance with the terms of your employment contract, the employment and dependant passes were organised by your employer. You intend to return to Australia in 2016. Since your departure, you have returned to Australia on two occasions for personal reasons. You lived in short term rental accommodation upon arrival in Country X, before obtaining a two year lease on a property. Your assets in Country X consist of a vehicle and bank accounts. Your assets in Australia consist of your home, bank accounts and shares. Your income from Australian sources consists of interest, dividends and a bonus from your employer. Your household effects were all shipped to Country X. Prior to departing Australia, you lived in the home that you owned. This property is being rented out while you are in Country X. Prior to departing Australia, you were an employee of Employer Y. Your previous position with Employer Y in Australia no longer exists. You do not have a job being held for you in Australia. You have extended family and friends in Australia. You have social connections in Country X and your children attend a school in Country X. In 2013 you voted in the Australian federal election at the Australian High Commission in Country X. You have advised your Australian financial institutions and companies with whom you have investments that you are a foreign resident so that non-resident withholding tax can be deducted. You have suspended your Australian private health insurance. You have not advised Medicare Australia to have your name, or your family's names, removed from their records. You are in the process of preparing your 2013 Country X income tax return. When completing the Australian immigration outgoing passenger card, you stated that you were an Australian resident departing permanently. You are unsure whether you had an I1 capital gains tax event when you left Australia. Neither you, nor your spouse, have ever been Commonwealth government employees. You do not currently have any further trips to Australia planned, however, you may holiday in Australia in late 2014 for a duration of less than two weeks.

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

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' and 'permanent place of abode' test, • the 183 day test, and • the Commonwealth superannuation fund test. If any one of these tests is met, an individual will be a resident of Australia for taxation purposes. The resides test is the primary test for determining the residency status of an individual for taxation purposes. If residency is established under the resides test, the remaining three tests do not need to be considered. However, if residency is not established under the resides test, an individual will still be a resident of Australia for taxation 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'. As the word 'reside' is not defined in Australian taxation law, it takes its ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936. 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 High Court of Australia, in Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 at page 99-100, per Latham CJ, noted the term 'reside' should be given a wide meaning for the purposes of section 6(1) of the ITAA 1936. Similarly, in Subrahmanyam v Commissioner of Taxation 2002 ATC 2303, Deputy President Forgie said at paragraphs 43 and 44 that the widest meaning should be attributed to the word 'reside'. 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 with Australia compared to the foreign country concerned, and (viii) maintenance of a place of abode. The weight given to each factor varies with individual circumstances and no single factor is necessarily decisive. In Shand v Federal Commissioner of Taxation 2003 ATC 2080, the Tribunal stated (at 35): Questions of residence, domicile, permanent place of abode, have frequently been found by the courts and tribunals to be difficult to assess on a factual level and not easy to define in concrete legal terms. To determine whether or not you are residing in Australia for taxation purposes, it is necessary for us to examine each of these factors in the context of your circumstances. (i) Physical presence in Australia It is important to note that a person does not necessarily cease to be a resident because he or she is physically absent from Australia. In Joachim v Federal Commissioner of Taxation 2002 ATC 2088 , the Tribunal stated (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. Further, in Iyengar v. Federal Commissioner of Taxation 2011 ATC 10-222, (2011) AATA, the Tribunal stated (at 62): Physical presence in a country for some period during a particular year of income is usually considered by the courts as necessary in order that a person should be resident in that country during that particular income year. However, there have been exceptions to this: Rogers v Inland Revenue Commissioners (1879) 1 TC 225 and Slater v Commissioner of Taxation (NZ) (1949) 9 ATD 1. In your case, you have travelled to Country X to take up a three year employment contract. Your family have accompanied you. Your contract includes annual return trips to Australia. You have returned to Australia twice since your initial departure. Your return trips were for personal reasons. You do not currently have any plans to return to Australia although you may return for a holiday at the end of 2014. Although you may spend a large part of your time outside of Australia, this does not preclude you from being an Australian resident as no one single factor is necessarily decisive, as mentioned above. (ii) Nationality In your case, you were born in Australia and are an Australian citizen. (iii) History of residence and movements In your case, you lived and worked in Australia prior to leaving the country in 2013 to travel to Country X. As stated above, your contract includes annual return trips to Australia. You do not currently have any plans to return to Australia although you may return for a holiday at the end of 2014. (iv) Habits and 'mode of life' You intend to live and work in Country X for three years and have established accommodation in that country. Your spouse and children have accompanied you. You have taken your personal belongings with you to Country X. You have established social connections in Country X. This is consistent with someone who is no longer residing in Australia. Your employer provides an allowance for your accommodation and pays for your children's' schooling. Your employer provides you with annual return trips to Australia and provides for your transport to and from Australia at the beginning and end of your contract. You have made two return trips to Australia since your initial departure, both times for personal reasons. Your visa in Country X is specifically dependant on your continuing employment with Employer Y. Although you have suspended your Australian private health insurance, according to your employment contract, your employer provides for your medical expenses. You have not advised Medicare Australia to have your name removed from their records. You voted in the 2013 Australian federal election. You intend to return to Australia at the completion of your employment contract. Overall, your circumstances are indicative of your continuing association with Australia; this is consistent with someone who is still residing in Australia. (v) Frequency, regularity and duration of visits to Australia As stated above, your contract includes annual return trips to Australia. You have already returned to Australia twice for personal reasons. You do not currently have any plans to return to Australia although you may return for a holiday at the end of 2014. (vi) Purpose of visits to and absence from Australia The purpose of your absence from Australia is to work as an employee for Employer Y in Country X for three years. (vii) Family, business and financial ties Family Your spouse and children have accompanied you to Country X. You have extended family in Australia. It is evident that you have stronger family ties to Country X than Australia for the period that you and your family are there. Business or economic As mentioned above, you have taken up an employment contract in Country X for a period of three years. Your employer continues to contribute to your Australian superannuation fund. You receive investment income from Australia. You received a bonus from your employer relating to a period of employment prior to your departure from Australia. Assets Your assets in Australia comprise of your family home, bank accounts, shares and superannuation. Your assets in Country X include a vehicle and bank accounts. It is evident that you have a higher value of assets in Australia than Country X. (viii) Maintenance of a place of abode in Australia You are living in a rental property in Country X with your family under a two year lease agreement. Your employer provides you with an accommodation allowance. You have maintained your family home in Australia, although it is being rented out. Summary of the resides test As mentioned above, the weight given to each factor varies with individual circumstances, no single factor is necessarily decisive and the term 'reside' should be given a wide meaning. In your case, although you intend to remain in Country X for three years, there are various factors that indicate that you have not ceased to be a resident of Australia. These are primarily: • your employment contract is for a three year period • your employer provides for your travel to and from Australia at the beginning and end of your contract • you intend to return to Australia at the end of your employment contract • your employer provides you with annual return trips to Australia • your employer provides you with an accommodation allowance • your employer organised your visa • your visa is dependent on your employment • you have maintained your home in Australia • you have stronger financial ties to Australia • you are maintaining Australian property and investments • you are working for the same employer as you did before you departed Australia • your employer continues to contribute to your Australian superannuation fund The above facts show that you will retain a continuity of association with Australia while you are overseas and will be residing in Australia according to the ordinary meaning of the word. Therefore, you are a resident of Australia under the 'resides' test of residency. 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 test as an alternative argument. | 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. 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, as you have not obtained a migration visa or become a permanent resident or a citizen of Country X, you have not established a new domicile of choice in that country. You were born in Australia and are an Australian citizen; therefore Australia remains being your 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 (paragraph 12 of IT 2650). A permanent place of abode does not have to be 'everlasting' or 'forever'. It does not mean an abode in which you intend to live for the rest your life. An intention to return to Australia in the foreseeable future to live does not prevent you in the meantime setting up a permanent place of abode elsewhere (paragraph 14 of IT 2650). 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. It is the Commissioner's view that an individual cannot have a permanent place of abode in a country where his or her presence is contingent on a visa or pass that is restrictive, such as yours which is contingent on your employment with Employer Y. The fact that you are only intending to be in Country X for the duration of your employment contract indicates that your primary intention for your absence from Australia is for employment, rather than to reside overseas. This is further supported by the fact that your employer provides for annual return trips to Australia as well as your transport to and from Country X at the beginning and end of your contract, as well as the fact that you continue to own your family home in Australia. Although you are living in an apartment in Country X with a two-year lease, this is supported by your employer though an accommodation allowance provided to you in your employment contract. Consequently, the Commissioner is not satisfied that you have established a permanent place of abode outside of Australia and therefore, you are a resident of Australia under the domicile test of residency. | Detailed Reasoning - Your residency status: As you meet the resides test and the domicile test, you are a resident of Australia for tax purposes. 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.