Private ruling: Residency
Date of advice: 14 December 2016
Published: May 2017
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Question and answer | Did you remain a resident of Australia for tax purposes while you were working in Country X? | Yes.

Relevant facts and circumstances: Your country of origin is Australia and you are an Australian citizen. You and your partner left Australia to take up work in Country X. At the time you left Australia, your intention was to spend a minimum of one year and a maximum of two years in Country X. You terminated your Australian rental accommodation before you left for Country X. You rented your own furnished apartment while you were in Country X and also purchased some smaller household items while you were there. Your employment income was paid into a Country X bank account. The account was closed and funds transferred to your Australian account when you left Country X. You left various household items and personal effects at your parent's home while you were in Country X. You retained your Australian bank account and credit card while you were in Country X and notified your bank that you were leaving Australia. You retained your name on the Australian electoral roll while you were in Country X. During the period you were in Country X, you returned to Australia for a period of one week. You worked in Country X for approximately 14 months before returning to Australia. You initially lived with your parents on returning to Australia. Neither you nor your partner was a member of an Australian Commonwealth government superannuation scheme during the relevant period.

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 ● 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 an individual does not reside in Australia according to ordinary concepts, they may still be a resident of Australia for tax purposes if they meet the conditions of one of the other three 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 determining where an individual resides, it should be noted that a person does not necessarily cease to be a resident because he or she is physically absent from Australia. Instead, the test is whether the person has retained a continuity of association with a place in Australia, 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 ). The Commissioner may make reference to the following factors in determining whether a taxpayer is 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. In your case, there are various factors that indicate that you were still 'residing' in Australia during the relevant period: ● You left Australia with an intention of staying overseas for no more than two years and ultimately returned after a period of just over 14 months; ● You retained various household items, personal possessions, bank account and credit card while you were in Country X; ● You remained on the Australian electoral roll; ● You had family in Australia. Although you established your own accommodation in Country X, we do not consider that you were overseas long enough to break your connection with Australia. You retained a continuity of association with a place in Australia, together with an intention to return to that place and an attitude that the place remained home. Therefore, you were still residing in Australia and remained a resident under the resides test of residency during the period you were in Country X. 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 - The domicile and permanent place of abode 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: 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. The 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. In your case, your domicile of origin is Australia and there is no evidence to suggest that you changed your domicile to Country X while you were present in that country. Therefore, you retained your Australian domicile during the period you were in Country X. | 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. 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. The Commissioner's view on what constitutes a permanent place of abode is contained in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650). 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 25 and 27 of IT 2650). In your case, you went to Country X with an intention of spending no more than two years in that country and ultimately returned to Australia in just over 14 months. Consequently, we do not consider that you were away from Australia long enough to establish that you had a permanent place of abode outside Australia. The Commissioner is not satisfied that you had a permanent place of abode outside of Australia and therefore, you remained a resident under this test. | Detailed Reasoning - Your residency status: You continued to be a resident of Australia for tax purposes during the period you were in Country X and your assessable income for that period includes income gained from all sources, whether in or out of Australia.