Private ruling: Residency
Published: September 2014
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: 1 July 2014

Ruling: Questions and answers | 1. Are you a resident of Australia for tax purposes? | Yes. | 2. Are you entitled to a deduction for work expenses such as accommodation while you are working in country X? | No.

Relevant facts and circumstances: You were born in country Y. You moved to Australia twenty years ago. You became an Australian citizen ten years ago. You have dual country X and Australian citizenship, as does all of your family. You have spent the last two years working on a project overseas and have included your income in your Australian tax returns. You have been offered a permanent contract in country X. You are starting as soon as possible and the contract is open ended with no end date. The contract requires that you reside permanently in country X. You will be taxed on your salary as a resident of country X. You will likely rent accommodation in country X, unless it is more cost effective to purchase a property and sell it again when you return to Australia. Your spouse and two children will remain in Australia until the children complete their schooling. At the conclusion of your children's schooling, your spouse and children will join you in country X, in approximately two years' time. You own a house in Australia that your family will continue to live in and will be rented out when your family join you in country X. Your other Australian assets include shares, bank accounts, household effects and superannuation. You do not have any assets overseas. You will have a bank account in country X to receive salary. You intend to retire in Australia. You expect that you will return to Australia permanently within the next ten years. You intend to return to Australia to see your family annually. This would be for a maximum time of 6-8 weeks. You will have 4 weeks of annual leave. You will notify Medicare that you are departing Australia. You will retain private health insurance as you have a family plan. Neither you nor your spouse are members of the Public Sector Superannuation Scheme or the Commonwealth Superannuation Scheme.

Relevant legislative provisions: Section 995-1(1) of the Income Tax Assessment Act 1997 | Subsection 6(1) of the Income Tax Assessment Act 1936 | Section 8-1 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: 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'. The outcomes of several Administrative Appeals Tribunal (AAT) cases have determined that the word 'resides' should be given the widest meaning and there have been a number of factors identified which can assist in determining if a particular taxpayer is a resident of Australia under this test. 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 with Australia compared to the foreign country concerned; and (viii) Maintenance of a place of abode. 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. 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 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. You are leaving Australia when you accept your employment contract in country X and will return to Australia for a period of 4 and 8 weeks annually to see your family. | Detailed Reasoning - (ii) Nationality: You were born in country Y and became a citizen of Australia ten years ago. You and your spouse and children have dual country X and Australian citizenship. | Detailed Reasoning - (iii) History of residence and movements: You have a house in Australia where your spouse and children will live while you are working in country X. Your spouse and children intend to join you in country X at the completion of their schooling. For the past two years you worked on a project in country X, you remained a resident of Australia during your overseas employment. You are about to accept an employment contract to work in country X for up to ten years. The contract is permanent and can be for an indefinite period of time. | Detailed Reasoning - (iv) Habits and 'mode of life': You are moving to country X for work purposes. You intend to return to Australia permanently within the next ten years and retire in Australia. | Detailed Reasoning - (v) Frequency, regularity and duration of visits to Australia: You plan to return to Australia for a period of between 4 and 8 weeks annually to see your family until they join you permanently when your children have completed their education. | Detailed Reasoning - (vi) Purpose of visits to and absence from Australia: You are leaving Australia to take up an employment offer in country X. You intend to be absent from Australia for at least seven years in total. You will return to Australia to visit your spouse and children and you stay at the family home. | Detailed Reasoning - Family: You are married and have two children, who are at university and high school. Your spouse and children will continue to live in Australia until they join you which is when your children complete their education. You will return to Australia to visit your spouse and children for period of 4 to 8 weeks annually. Your visits to Australia do no exceed 183 days in each financial year. It is evident that you have stronger family ties to Australia than country X. | Detailed Reasoning - Business or economic: You have worked overseas for the past two years while remaining an Australian resident. You are about to accept a contract to work in country X and intend to work there for up to ten years. | Detailed Reasoning - Assets: You do not have any assets overseas and will only have a bank account in country X to receive your salary. Your assets in Australia include a house you own, shares, superannuation, bank accounts, household effects. | Detailed Reasoning - (viii) Maintenance of a place of abode in Australia: You own a house in Australia with your spouse where you will stay when you return to Australia to visit your family. Your spouse and children will remain living in the house while you are working in country X. You plan to rent out the house when your family joins you in country X. | Detailed Reasoning - Summary of the resides test: 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, there are various factors that indicate that you will maintain your connection with Australia. These are primarily: • Your spouse and children reside in Australia. • You maintain a house in Australia you own which you return to when you visit your family. • You have not yet established a home in country X and are unsure if you will rent or purchase a property. • You will return to Australia annually for up to 8 weeks. • The main purpose of your presence in country X is to work however you will continue to return to Australia each year because of your association with Australia through your spouse and children living here. • All of your assets are in Australia. • You intend to return to Australia to retire. • Your association with Australia has been maintained as your children are educated in Australia and your spouse lives in Australia. Based on the above, your stronger ties to Australia reflects a degree of continuity, routine and habit that is consistent with residing here. Therefore, you are a resident of Australia under the 'resides' test of residency. It is therefore not necessary to consider the remaining tests. | Detailed Reasoning - Your residency status: You are a resident of Australia for taxation purposes. You are required to declare your income both in and out of Australia in your Australian tax return. Therefore, your foreign income is assessable in Australia and you are required to lodge a tax return in Australia. You may, however, be entitled to a foreign income tax offset for the foreign tax you paid overseas. Additionally, there is an International Taxation Agreement between Australia and the United Kingdom that may apply to limit the tax on your income earned in the United Kingdom. | Detailed Reasoning - Work related expenses: Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital nature, private or domestic nature or relate to the earning of exempt income. Overseas travel expenses are deductible under section 8-1 of the ITAA 1997 where they have a relevant connection to a taxpayer's current income earning activity. An example is where the taxpayer attends a work-related seminar. Travel expenses include the cost of fares, meals, accommodation and incidentals. In your case, you have accepted an employment offer to work in country X for an unlimited time period. You are changing your work base from Australia to country X as you are required to take up residence in the country X as a condition of your employment. Expenditure on expenses such as accommodation in the country X take the nature of a private expense and are precluded from being a deduction by section 8-1 of the ITAA 1997. Travel that you do within country X if you are travelling within the course of your employment may be deductible if the travel has sufficient connection to your work duties.