Private ruling: Residency
Published: November 2014
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 January 2014

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

Relevant facts and circumstances: You were granted permanent residency in Australia. You became an Australian citizen. Your country of origin is a foreign country. Prior to your departure, you will live with your spouse on a permanent basis. You own this dwelling jointly with your spouse. It will not be rented out while you are overseas. The date will you depart Australia is yet to be ascertained. You will enter a foreign country on a work visa. This visa will not allow you to stay permanently. You do not hold a return airline ticket. You currently hold no assets overseas. Your assets in Australia include your home with household effects and an investment property. Your spouse and a child will occupy the dwelling and utilize your household effects. Your employment overseas is with a company. The employment has a provisional period but can be extended upon satisfactory performance. Your intention is to work there several years. You have a proposed arrangement of spending several months in a foreign country and several months in Australia per year. This arrangement will only apply for a few years. Your employment contract is not yet available. Your employer will provide accommodation but this is not guaranteed for the subsequent years. If the employment continues you may need to rent accommodation. You previously held a position with a company in Australia for many years. You do not have a position or job being held for you in Australia. While in a foreign country the only income you will receive from Australia will be rental income. Your spouse and a child may accompany you in a foreign country during school holidays and will stay with you. Currently your spouse has a job in Australia and your children are working or studying. You will have no social and sporting connections with Australia while you are overseas. You have a large professional network in a foreign country including former supervisors, classmates and colleagues. You have a large extended family in a foreign country. You have not advised the Australian Electoral Office to have your name removed from the electoral roll. You are not immigrating. You will remain an Australian citizen. You will cast postal votes if appropriate. You have not advised any Australian financial institutions or companies with whom you have investments that you are a foreign resident so that non-resident withholding tax can be deducted. You will advise Medicare and/or health insurance provider to have your name removed from their records once your overseas employment is confirmed. You will have to pay income tax in a foreign country. You stated as the reason for going overseas when completing the Australian Immigration Outgoing passenger card that you are an Australian resident departing temporarily.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 6(1) | Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Subsection 995-1(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 test • the 183 day test • the superannuation test. The first two tests are examined in detail in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650) . 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 (ordinary concepts) test: 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: You have provided a copy of the new contract. (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. | 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 relation to this the AAT has 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 will live and work in a foreign country for several years. For an initial period of your employment, your employer has agreed to you spending several months in a foreign country and several months in Australia. | Detailed Reasoning - (ii) Nationality: The nationality of a person is rarely a decisive factor in deciding whether or not a person resides in a location, however it is one factor that is considered along with all of the circumstances of each case. You were born in a foreign country and you are now a citizen of Australia. | Detailed Reasoning - (iii) History of residence and movements: Your country of origin is a foreign country. You were granted permanent residency in Australia. You will move to a foreign country to live and work. For an initial period of your employment, your employer has agreed to you spending several months in a foreign country and several months in Australia. | Detailed Reasoning - (iv) Habits and "mode of life": The Commissioner regards a person's habits and daily routines in regard to their domestic and business arrangements as strongly indicative of residency status. This is particularly relevant to determining the residency of a person who enters Australia, but is also relevant in assisting to determine the residency status of a person who leaves Australia. You were granted permanent residency in Australia. You will move to a foreign country to live and work for several years. You will enter a foreign country on a work visa which does not allow you to stay permanently. Initially your employer will provide accommodation but later you may need to rent accommodation. Your spouse and a child will remain in your family home in Australia (with your personal effects). You will retain ownership (with your spouse) in an investment property in Australia from which you will derive rental income. | Detailed Reasoning - (v) Frequency, regularity and duration of visits to Australia: Where a person is living in a country and visits another, the frequency and regularity of their visits is an important factor to be considered in determining whether or not they are resident in that other country. 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, for example the 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 period of two years and seven months to be residing in Australia. You will live and work in a foreign country for several years. For an initial period of your employment, your employer has agreed to you spending several months in a foreign country and several months in Australia. | Detailed Reasoning - (vi) Purpose of visits to or absences from Australia: You will leave Australia to live and work in a foreign country. Initially, you will spend several months in a foreign country and several months in Australia. | Detailed Reasoning - (vii) Family and business ties to Australia and the overseas country or countries: Case law has established that the family or business ties that an individual retains with a country are relevant in determining whether an individual has remained or ceased to be a resident. | Detailed Reasoning - Family: Your spouse and a child will remain in your home in Australia but may join you in a foreign country during school holidays. Your spouse is still employed in Australia. You have a large extended family in a foreign country: two older sisters with their families, two sisters-in-law with their families and a younger brother with his family. | Detailed Reasoning - Business or economic: You part owner of a rental property in Australia. You will be employed in a foreign country. | Detailed Reasoning - Assets: You currently hold no assets overseas. Your assets in Australia include your home with household effects and an investment property, which you own jointly with your spouse | Detailed Reasoning - (viii) Maintenance of Place of abode: The maintenance of a place of abode in Australia is an important factor when considering the residency status of a taxpayer. You will retain ownership (with your spouse) of your family home in Australia while overseas. In a foreign country, you will live in accommodation initially supplied by your employer. Later, you may need to rent accommodation yourself. | Summary: As stated above it is important that not one single factor is decisive and the weight given to each factor depends on individual circumstances. There are several factors outlined above which indicate that you will not cease to be a resident of Australia. Specifically: • you will enter a foreign country on a work visa which does not allow you to stay permanently • you will live in rent accommodation in a foreign country • your spouse and a child will remain in your family home in Australia (with your personal effects) • you will retain ownership (with your spouse) in an investment property in Australia from which you will derive rental income • you have not advised the Australian Electoral Office to have your name removed from the electoral roll. You are not immigrating. You will cast postal votes • you stated as the reason for going overseas when completing the Australian Immigration Outgoing passenger card that you are an Australian resident departing temporarily. Based on a consideration of all of the factors outlined above, you will remain a resident of Australia according to ordinary concepts as you will maintain a continuity of association with Australia for the relevant period. Whilst it is not necessary to meet more than one test to determine residency for tax purposes (we have already established that you are a resident under the resides test), 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, you were born in a foreign country and moved to Australia and became a citizen of Australia. Therefore, your domicile of origin was a foreign country and you changed your domicile to Australia when you adopted Australian citizenship. Your domicile will still be Australia while you are working in a foreign country as you have not indicated that you will be taking any legal steps to change your domicile to that country. | 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 is not satisfied that you have set up a permanent place of abode outside Australia for the following reasons: • your work visa does not allow you to stay in a foreign country permanently • you will retain your home in Australia with your spouse and a child living in it • initially, you will have rented accommodation supplied by your employer in a foreign country after which you may need to rent accommodation yourself • you intend returning to Australia to live. Your accommodation in a foreign country is temporary in nature as your visa does not permit stay in a foreign country permanently. You will be in a foreign country while you are employed there and, therefore, your accommodation is contingent on your employment status. As you are a resident under the domicile and permanent place of abode test. As you are a resident under the resides and domicile tests it is not necessary to consider the 183 day and super tests. | Detailed Reasoning - Your residency status: As you are a resident of Australia under two of the tests of residency outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, you are considered to be an Australian resident for taxation purposes for the relevant period. Consequently, you will be taxed on your worldwide income in Australia under section 6-5 of the ITAA 1997. If you are considered to be a resident by both the Australian and a foreign country's taxation systems, the International Tax Agreements Act 1953 operates to avoid taxation of income in both countries by applying tie breaker rules to the income earned.