Private ruling: Residency for tax purposes
Published: February 2014
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2013

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 are a principal in an international firm, Entity X, and a partner in its Australian partnership. You became a member of a Committee of Entity X in 20XX. Your term is due to expire in X years. You have agreed to relocate to Country Y in 20ZZ to facilitate your role as a member of this Committee. You have taken a leave of absence from Entity X Australia which also involves a suspension of your rights as a partner in the firm. Unless your term as a member of the Committee is extended, you expect to return to Australia in 20VV or early 20WW. You hold a Country Y Employment Pass and a Visit Pass. Both passes were issued in 20ZZ and will expire after two years. The applications for and issuing of the passes were organised for you by your employer. Your Employment Pass is issued to you on the condition that you remain employed by Entity X. You are not permitted to work in Country Y without a valid Employment Pass. You do not intend to acquire a domicile of choice in Country Y. Your spouse intends to move to Country Y with you. You intend to occupy a serviced apartment in Country Y for a brief period before entering into a lease of an apartment, which you expect to be for a two year period with an option to extend. The apartment will be leased privately by you and will not be paid for directly or indirectly by your employer. You will be physically present in Country Y for less than half of your time. When not in Country Y, you will be traveling to various places in order to fulfil your obligations as a member of the Committee. Your spouse will accompany you on longer trips. You will personally bear the cost of your spouse's travel. You have taken various personal items with you to Country Y, including furniture, home wares and other items. The remaining items you did not take to Country Y are in storage in Australia. You and your spouse have sold your cars in Australia. You have adult children, X of whom reside in Australia and the other who resides in another country. Your and your spouse's parents all reside in Australia. You and your spouse have recently sold your main residence in Australia. You and your spouse own rental properties in Australia. You will maintain your membership of the Australian Club. You and your spouse are directors of Entity Z, whose sole purpose is to act as trustee of your self-managed super fund. You and your spouse intend to resign as directors of Entity Z, and appoint two new directors. You intend to retain your Australian bank account and credit card. You intend to retain your Australian drivers licence. You will notify the Australian Electoral Commission to remove your name from the electoral role. You will notify Medicare of your change in status. You will continue to hold private health insurance. You are the sole trustee of a family discretionary trust. The trust's only assets are shares which you intend to sell before leaving Australia. You will open a bank account in Country Y. You will apply for entry into the Country Y taxation system. You will take out private health insurance in Country Y. Aside from returning to Australia from time to time to discharge your duties as a member of the Committee, you intend to visit Australia only on rare occasions and when you do return for private reasons you intend to stay at your club. Your spouse will return to Australia more often so that your spouse can spend time with your adult children who reside in Australia and to visit your spouse's parent. Your spouse will stay at their parent's home.

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 to consider 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 accepted an employment position in Country Y for a specified period. You intend to stay in Country Y until shortly after this position ends. You will be physically present in Country Y for less than half of your time. You will spend the remainder of your time travelling for work purposes. You only intend to return to Australia on rare occasions. Although you may not return to Australia regularly, and may not be physically present in Australia while you are working in Country Y, this does not preclude you from being an Australian resident as no one single factor is necessarily decisive, as mentioned above. (ii) Nationality You were born in Australia and are an Australian citizen. You do not intend on becoming a citizen of Country Y. (iii) History of residence and movements You lived and worked in Australia prior to your departure. As previously stated, you will be physically present in Country Y for less than half of your time. You will spend the remainder of your time travelling for work purposes. You only intend to return to Australia on rare occasions. (iv) Habits and 'mode of life' You intend to live and work in Country Y for a period of more than two years and will establish rental accommodation in Country Y. You intend to travel extensively as part of your employment duties. This is consistent with someone who is no longer residing in Australia. You recently sold your Australian main residence and your cars, you have relocated many of your personal items to Country Y and you will notify the Australian Electoral Commission to remove your name from the electoral role and will notify Medicare of your change in status. These actions are consistent with someone who is no longer residing in Australia. You intend to be employed as a member of the executive committee based in Country Y for X years. Your current Country Y Employment Pass and Visit Pass both expire after two years. Your Employment Pass is issued to you on the condition that you remain employed by Entity X and you are not permitted to work in Country Y without a valid Employment Pass. You intend to return to Australia at the completion of your employment in Country Y. You intend to retain your Australian bank accounts, drivers licence, private health insurance, rental properties, membership of the Australian Club and self-managed superannuation fund. Your decision to retain these, in addition to the fact that you relocated for employment purposes, you intend to return to Australia at the completion of your employment and you have only taken a leave of absence from your employment in Australia, indicates a continuing association with Australia and is consistent with someone who is still residing in Australia. (v) Frequency, regularity and duration of visits to Australia As mentioned above, you intend to visit Australia only on rare occasions while you are working in Country Y. (vi) Purpose of visits to and absence from Australia The purpose of your absence from Australia is to work Entity X as a member of the Committee based in Country Y for approximately X years and you currently hold an Employment Pass and a Visit Pass that allow you to live and work in Country Y for two years. (vii) Family, business and financial ties Family Your spouse will accompany you to Country Y. X of your adult children reside in Australia, as do you and your spouse's parents. Your other adult child resides in another country. Your spouse intends to return to Australia to visit your children and your spouse's parent. Therefore, although you have family ties to Country Y as your spouse has accompanied you, your family ties to Australia are stronger as your spouse is only in Country Y because your spouse has accompanied you, and your spouse will be travelling back to Australia to visit other family members, including X of your children. Business or economic As mentioned above, you have taken up an employment in Country Y for a period of greater than two years. You also have continuing business and economic ties in Australia as you are a partner at Entity X Australia. Assets Your assets in Australia comprise of two rental properties, a self-managed superannuation fund, bank accounts, a family discretionary trust, and numerous personal effects (including large items such as furniture) in storage. Your assets in Country Y comprise of numerous personal effects (including large items such as furniture) and a bank account. It is evident that you have a higher value of assets in Australia than in Country Y. Further, the retention of your rental properties, superannuation fund, family trust, savings accounts and storage of personal effects is consistent with someone who is still residing in Australia. (viii) Maintenance of a place of abode in Australia You intend to occupy a serviced apartment in Country Y for a brief period before entering into a leave of an apartment, which you expect to be for a two year period with an option to extend. Your circumstances are consistent with someone who is no longer residing in Australia. Conclusion 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 be physically absent from Australia for approximately X years, making only rare visits back to Australia, there are various factors that indicate that you have not ceased to be a resident of Australia. These are primarily: · you are an Australian citizen · your Employment Pass only allows you to work in Country Y while you are employed by Entity X · you have retained your position as a partner in Entity X Australia, although it is suspended while you are a member of the Entity X Committee · you have stronger family ties to Australia than to Country Y · you intend to return to Australia upon the completion of your position as a member of the Committee · you have stronger financial ties through your assets to Australia than to Country Y · you are maintaining Australian rental properties, a superannuation fund and family trust, private health insurance, bank accounts and have personal items stored in Australia Based on the above, 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 for tax purposes under the 'resides' test. As you are a resident under this test, it is not necessary to determine whether you meet the requirements of the three statutory tests of residency. However, for the sake of completeness, these tests 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. 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 your case, your domicile is Australia as you were born in Australia and you are an Australian citizen. Furthermore, you have stated that you do not intend to acquire a domicile of choice in Country Y and you consider that Australia continues to be your domicile while you are in Country Y. 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. In your case, the Commissioner is satisfied that you will have a permanent place of abode in Country Y as you will privately lease an apartment for X years with an option to extend the lease after this period. This apartment will be for your sole use and is not provided to you by your employer. Therefore, you are not a resident of Australia under the domicile 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 will not be physically present in Australia for more than 183 days in any of the years in question, you will not be a resident of Australia under this test. | Detailed Reasoning - The superannuation test: A person will be considered a resident under the Commonwealth superannuation fund test if they currently contribute to certain superannuation funds for Commonwealth government employees. The eligible funds are funds: · established under the Superannuation Act 1976 (such as the Commonwealth Superannuation Scheme), or · established under the Superannuation Act 1990 (such as the Public Sector Superannuation Scheme), or · the spouse or child under 16 of a person covered by either of the above funds. As neither you, nor your spouse, have ever been Commonwealth government employees and therefore you are not able to contribute to the abovementioned superannuation schemes and are not a resident of Australia under this test. | Detailed Reasoning - Your residency status: As you are meet the resides 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.