Private ruling: Residency - departing Australia
Date of advice: 31 October 2017
Published: March 2018
Ruling period: Year ending 30 June 2018
Date scheme commenced: 9 October 2017

Ruling: Q2: Is the income you earned whilst carrying out the duties of your work for an Australian company whilst living in Country X assessable in Australia? No

Relevant facts and circumstances: You are an Australian citizen by birth. You left Australia to live and complete your Australian employment work duties on line in Country X in early 2016, with the intention of returning to Australia within one to two years, however on 9 October 2017 you decided to remain living in Country X for an indefinite and undetermined period. Our records indicate that you have made six trips to Australia in total during the 2016-17 financial year. These trips were for work purposes and to visit family and friends. You own a house in Australia which has been your usual residence and you have rented this property out whilst you will be staying in Country X. You and your family intend on living in this house if and when you return to Australia. Whilst you are living in Country X you are renting a house. You have personal property stored in a shed at your Australian residence. You have no Country X investments, employment or income sources. You have a bank account in Country X solely for the purpose of managing day to day expenses. Your employment income is paid into Australian bank accounts, and you also manage your financial affairs via these accounts. You maintain several Australian credit cards. You maintain an Australian mobile number, email address and postal address. During the time you will be in Country X you will be a resident of that country for tax purposes. Your spouse and two children have joined you in Country X for the period you intend on staying there. Your children attend school in Country X. You intend on returning to Australia from time to time to meet with your Australian employer and to also visit family and friends. Your spouse is not currently working. During the time you will be in Country X, you will remain working for an Australian company, and you were not sent to Country X by that company to work there. You will be working for the Australian company on line whilst you are in Country X, and you will be telecommuting with your employer via the internet on a daily basis to perform your duties. You will be speaking to the Australian company in relation to work matters on a weekly basis. Your spouse was previously employed by the Commonwealth of Australia and they took voluntary redundancy a few years back. Your spouse is a member of PSS and receives a pension income stream, but no longer contributes to the fund. You are not a member of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990. You are not an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS) which was established under the Superannuation Act 1976.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1997 subsection 995-1(1).

Reasons for decision: Summary: Are you an Australian resident for income tax purposes for the period 9 October 2017 to 30 June 2018? Section 995-1 of the Income tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936). The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the ITAA 1936. The definition offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the: ● the resides test, ● the domicile test, ● the 183 day test, and ● the superannuation test. The primary test for deciding the residency status of each individual is whether they reside in Australia according to the ordinary meaning of the word resides. If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established. Where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be an Australian resident if they meet the conditions of one of the other tests. | Detailed Reasoning - 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'. Recent case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the ‘resides’ test: (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. These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in IT 2650 and Taxation Ruling TR 98/ 17 Income tax: residency status of individuals entering Australia . It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances. In deciding cases of residency, the courts and tribunals have noted that a person does not necessarily cease to be a resident because he or she is physically absent from a place. Instead, the test is whether the person has retained a continuity of association with a place, together with an intention to return to that place and an attitude that the place remains home (Joachim v Federal Commissioner of Taxation [2002] ATC 2088 ). In your case: ● You have been living and working in Country X since January 2016, and you now intend on remaining there for an indefinite and undetermined period. ● You have made six trips to Australia in total during the 2016-17 financial year. These trips were for work purposes and to visit family and friends. ● Your spouse and two children have joined you in Country X for the period you intend on staying there. ● Your children attend school in Country X. You have strong personal ties to Country X by way of your spouse and children, and you now intend on living in Country X for an indefinite and undetermined period. Based on these facts, you are not residing in Australia according to the ordinary meaning of the word. Therefore, you are a non-resident of Australia under this test. | 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 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 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. This intention needs to be demonstrated in a legal sense, for example, by way of obtaining a migration visa, becoming a permanent resident or becoming a citizen of the country concerned. Therefore, as you have not taken any legal steps which would have proven an intention to change your domicile to Country X, you have retained your Australian domicile. Therefore, you will be a resident of Australia unless the Commissioner considers you have established a permanent place of abode outside of Australia. 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 place of abode must exhibit the attributes of a place of residence or a place to live, as contrasted with the overnight, weekly or monthly accommodation of a traveller. Paragraph 23 of Taxation Ruling IT 2650 Residency – Permanent place of abode outside Australia sets out the following factors which are used by 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. Clearly, the longer an individual stays in any one particular place, the more permanent in nature is likely to be the stay in that place of abode. An individual's intention regarding the duration of the overseas stay and the length of the actual stay are significant factors in deciding whether they have set up a permanent place of abode. Where a taxpayer leaves Australia for an unspecified or a substantial period and establishes a home in another country, that home may represent a permanent place of abode of the taxpayer outside Australia. However, a taxpayer who leaves Australia with an intention of returning to Australia at the end of a ‘transitory’ stay overseas would remain a resident of Australia for income tax purposes. It is the Commissioner’s view that an overseas stay in excess of two years may indicate that an individual can be considered to have a permanent place of abode overseas, subject to a consideration of all the other relevant circumstances applying to the taxpayer (paragraphs 23, 25 and 27 of IT 2650). In your case it is considered that you have established a permanent place of abode outside of Australia because: ● You have been living in Country X since January 2016, and you now intend on remaining there for an indefinite an undetermined period. ● Your spouse and two children have joined you in Country X for the period you intend on staying there. ● Your children attend school in Country X. ● You are living in a rental property in Country X. ● You plan on returning to Australia from time to time to meet with your Australian employer and to also visit family and friends. ● You have a property in Australia which you have rented out whilst you will be in Country X. Therefore, you are a non-resident of Australia under this test. | Detailed Reasoning - The 183 day test: Under the 183 day test, a person is a resident of Australia if they are actually physically present in Australia for more than 183 days in an income year unless the Commissioner is satisfied that their usual place of abode is outside of Australia and they have no intention of taking up residence here. As you were not physically present in Australia for more than 183 days during the specified period you are not a resident of Australia under this test. | 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. Your spouse was previously employed by the Commonwealth of Australia and they took a voluntary redundancy a few years ago. Your spouse is also a member of PSS and receives a pension income stream, however they no longer contribute to the fund. You will not be treated as a resident under this test as you are not a contributing member of the PSS or the CSS, a spouse of such a person, or a child under 16 of such a person. | Detailed Reasoning - Your residency status: As you do not meet any of the above tests, you are not a resident of Australia for tax purposes under subsection 6(1) of the ITAA 1936. | Detailed Reasoning - Question 2: Is the income you earned whilst carrying out the duties of your work for an Australian company whilst living in Country X assessable in Australia? | Detailed Reasoning - Detailed reasoning: 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 source of a taxpayer's income (derivation) is the place where the services are performed: French v. FC of T (1957) 98 CLR 398. In your case, the income you earn while carrying out the duties of your employment with the Australian company has a Country X source as you are physically present in Country X when you carry out your duties. As the income is sourced (derived) in Country X, along with the fact that you are a non-resident of Australia for taxation purposes, the income earned from your employment with the Australian company whilst living in Country X is not assessable under section 6-5 of the ITAA 1997.

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