Private ruling: Residency
Published: October 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Question and answer | Were you a resident of Australia for taxation purposes? | Yes.

Relevant facts and circumstances: You were born in Australia. You are a citizen of both Australia and country Y. You went to country X to live with your country X partner. While you were in country X, you undertook consultancy work on a casual basis for an Australian based company. The company withheld Australian tax from the payments it made to you. All instructions for clients came to you directly in country X and you were responsible for all costs associated with acting for the clients such as internet, telephone and stationery. You entered country X under a visa which was valid for six months. You returned to Australia for three days in order to renew your country X visa. You were required to leave country X to do this. You stated that you were leaving Australia permanently on the Australian Immigration outgoing passenger card when you left for country X. You subsequently decided to return to Australia so you could apply for a pension as you were not getting enough consultancy work. You only returned to Australia as you have to live here for two years before you can receive the pension. You did not intend to apply for the Australian pension when you originally left for country X. You returned to Australia within 13 months. It is your intention to return to country X to live when you have completed two years residency in Australia as required by the social security regulations. Until you went to country X, you had spent your entire working life in Australia apart from one period overseas. You have adult children who live in Australia. You rented a house in country X under a one year lease. After the one year lease had expired you rented another house on a monthly basis. Your partner is living in this house and you have household effects in the house. You and your country X partner are renting a car. You sold some shares to assist you with your living expenses while you were in country X. You separated from your former spouse and the Australian house you formerly lived in and owned together was sold while you were in country X. Your Australian assets comprise of personal effects in storage, a bank account and your superannuation fund. You took some personal effects with you to country X. You have not completed a country X tax return. You did not have any other employment position or job being held open for you while you were in country X. You advised your Australian employer that you were a non-resident for taxation purposes; however, they withheld tax at normal resident rates. You advised your bank and superannuation fund that you were a non-resident and cancelled your Australian private health insurance when you went to country X. You did not have your name removed from the Australian electoral roll or have your name removed from Medicare records when you went to country X. You were employed by the Australian commonwealth government some years ago. Neither your current partner nor your former spouse has ever been employed by the Australia Commonwealth government.

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

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 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 considering the definition of 'reside', the courts have stated that the word ' reside' should be given the widest meaning. 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 to different countries (viii) Maintenance of Place of abode. No single factor is necessarily decisive and some are interrelated. The weight given to each factor varies depending 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 Koitaki Para Rubber Estates Limited v Commissioner of Taxation [1941] HCA 13; 64 CLR 241, it was stated that: 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 spent an entire income year in country X apart from one return visit to Australia of three days duration. You returned to Australia in order to renew your visa and returned to country X after it was renewed. While you were in country X you eventually formed an intention to return to Australia to live for at least two years as you wanted to apply for a pension. | Detailed Reasoning - (ii) Nationality: Your country of origin is Australia and you are a citizen of both Australia and country Y. | Detailed Reasoning - (iii) History of residence and movements: Until you went to country X, you had spent your entire working life in Australia apart from one period overseas. | Detailed Reasoning - (iv) Habits and "mode of life": You spent an income year in country X, and: · lived with your country X partner in accommodation you leased; · rented a car with your partner; · undertook consultancy work on a casual basis for an Australian based company and advised them that you were a non-resident; · entered country X under a visa which was valid for six months; · returned to Australia on one occasion for a period of three days to renew your country X visa; · stated that you were leaving Australia permanently on the Australian Immigration outgoing passenger card when you left for country X; · advised your bank and superannuation fund that you were a non-resident and cancelled your Australian private health insurance; · did not have your name removed from the Australian electoral roll or have your name removed from Medicare records; and · decided to return to live in Australia when you realised your income from the consultancy work was insufficient and you needed to apply for a pension. | Detailed Reasoning - (v) Frequency, regularity and duration of visits to Australia: Case law has shown that a taxpayer can be a resident of a country even if they only spend a short period of time in that country. The Administrative Appeals Tribunal (AAT) found a taxpayer to reside in Australia despite the fact that he had only been present in Australia in the relevant income year for separate periods of only two weeks, three weeks and two and half weeks. A further decision found a taxpayer who had only been present in Australia for two separate periods of two weeks and ten days during a period of two years and seven months to be residing in Australia. The only return visit you made to Australia was for three days. | Detailed Reasoning - (vi) Purpose of visits to or absences from Australia: The purpose of your absence from Australia was to live with your country X partner in country X. The purpose of your return visit to Australia was to renew your country X visa. | Detailed Reasoning - Family: You separated from your former spouse and you have adult children who live in Australia. You have a partner who lives in country X. | Detailed Reasoning - Business or economic ties: While you were in country X, you undertook consultancy work on a casual basis for an Australian based company. Australian tax was withheld from the payments made to you. You leased accommodation in country X for you and your partner and you rented a car together. | Detailed Reasoning - Assets: Your Australian assets comprised of personal effects in storage, a bank account and your superannuation fund. The house you owned with your former spouse was sold while you were in country X. Your assets in country X comprised of household effects. | Detailed Reasoning - (viii) Maintenance of Place of abode: Your former place of abode in Australia was sold while you were in country X. You rented a house in country X under a one year lease. After the one year lease had expired you rented another house on a monthly basis. Your partner is still living in this house and you have household effects in the house. | Summary: As stated above, no one single factor is decisive, the weight given to each factor depends on individual circumstances, and the word 'reside' should be given the widest meaning. In your situation, you spent the income year in country X with your partner. You lived in rental accommodation in country X. However, there are various factors outlined above which indicate that you maintained a continuity of association with Australia and did not cease to be a resident. Specifically, you: · formed an intention to return to Australia to live and apply for an Australian pension while you were in country X; · could only stay in country X for six months at a time under your visa; · had family ties to Australia through your adult children; · had an employment relationship with an Australian based company; · had personal effects in storage in Australia; · had a superannuation fund and operated a bank account in Australia; and · did not have your name removed from the Australian electoral roll or have your name removed from Medicare records; Despite your absence from the country during the year in question, you maintained a continuity of association with Australia and were residing in Australia in accordance with the ordinary meaning of the word. Therefore, you were a resident of Australia under the resides test of residency. As you were a resident under this test, it is not necessary to determine whether you meet the requirements of the other three tests of residency. However, for the sake of completeness, your residency status under the domicile test of residency 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. | Detailed Reasoning - Domicile: Domicile is a legal concept, determined according to the Domicile Act 1982 and common law rules established by private international law cases. Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence. A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. In order to show that a domicile in another country has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country. Although you are a citizen of country Y, you were born in Australia, are a citizen of Australia, and have not taken any steps to become a permanent resident of any other country. Therefore, your domicile is Australia. | Detailed Reasoning - 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. Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650) provides a number of factors to be considered in reaching a state of satisfaction as to a taxpayer's permanent place of abode: · the intended and actual length of the individual's stay in an overseas country; · any intention to return to Australia or travel elsewhere; · the establishment or abandonment of any residence; · the duration and continuity of the taxpayer's presence in the overseas country; and · the durability of association that the individual maintains with a particular place in Australia. IT 2650 states that where a taxpayer leaves Australia for an unspecified or a substantial period and establishes a home in another country, that home will represent a permanent place of abode outside Australia, subject to a consideration of the other factors mentioned above. As a broad rule of thumb, a substantial period of time for the purposes of a person's stay in another country is considered to be two years or more. In your situation, you spent the income year in country X with your partner. You lived in rental accommodation in country X. However, there are various factors outlined above which indicate that you did not have a permanent place of abode outside of Australia. Specifically, you: · formed an intention to return to Australia to live and returned to Australia within 13 months of your departure; · could only stay in country X for six months at a time under your visa; · had family ties to Australia through your adult children; · had financial ties to Australia through your employment relationship, your personal effects in storage, superannuation fund and bank account; and · did not have your name removed from the Australian electoral roll or have your name removed from Medicare records; You were not living in country X for a long enough period of time to demonstrate that you had a 'permanent place of abode' outside of Australia and it was also difficult to demonstrate this when your presence in that country was limited by a restrictive visa. Therefore, the Commissioner is not satisfied that you had a permanent place of abode outside of Australia. You were a resident of Australia under the domicile test of residency. | Detailed Reasoning - Your residency status: As you meet the resides and domicile tests, you were a resident of Australia for taxation purposes for the relevant year. As you are a resident of Australia, your assessable income includes income gained from all sources, whether in or out of Australia, and is taxed at the usual rates of taxation applying to Australian residents.