Private ruling: Residency
Date of advice: 11 July 2016
Published: September 2016
Ruling period: Year ending 30 June 20YY | Year ending 30 June 20ZZ
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you a foreign resident of Australia for income tax purposes? | A1: No

Relevant facts and circumstances: You are an Australian citizen. You left Australia in 20WW to live and work in Country Z. You work in Country Z and receive your salary in Country Z Dollars. You lease an apartment in Country Z. Your spouse and children lived with you in Country Z until January 20XX, when they returned to live in your family home in Australia. You travel periodically to Australia to visit your family and you often work from your employer's Australian office while you are visiting. You intend to return permanently to Australia in 20ZZ. Your assets in Australia include two properties, household effects and two bank accounts. You have credit card and mortgage facilities in Australia. You will be remitting funds from your salary in Country Z to Australia to support your family and pay your mortgages. Your assets in Country Z include two motor vehicles, bank accounts and household furniture. You are a member of a club in Country Z. You lodge income tax returns and pay tax in Country Z. Neither you nor your spouse is an employee of the Australian commonwealth government.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 6(1); | Income Tax Assessment Act 1997 section 6-5; and | International Tax Agreements Act 1953 section 4.

Reasons for decision: Detailed Reasoning - Residency: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are an Australian resident for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are foreign resident for taxation purposes, your assessable income includes only income 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 an Australian resident 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. 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 considered to be an Australian resident for tax purposes if they satisfy the conditions of one of the three other tests. | Detailed Reasoning - The resides 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: (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. You are an Australian citizen. You left Australia in 20WW to live and work in Country Z. Your family returned to Australian in January 20XX to live in the family home. You often return to Australia to visit your family and you work from your employer's Australian office while in Australia. You stay in the family home when you visit your family in Australia. You maintain a home in Country Z. Based on these factors we accept that you are residing in Country Z under ordinary concepts and therefore do not meet the 'resides' test. | Detailed Reasoning - The domicile test: If a person is considered to have their domicile in Australia they will be considered an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia. | Detailed Reasoning - Domicile: If a person's domicile is Australia they will be an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia. 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 an individual's domicile of choice has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country. Your domicile of origin is Australia. You have not changed your domicile of choice to Country Z as you are not a permanent resident or citizen of Country Z. | Detailed Reasoning - Permanent place of abode: A permanent place of abode does not have to be everlasting or forever. It does not mean an abode in which a person intends to live for the rest of his or her life. An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a permanent place of abode elsewhere. In your case, as there is no evidence of intention to make your home indefinitely outside of Australia, you are considered to have maintained your Australian domicile. In addition, although you have been working overseas for a number of years, your association with Australia is considered to be more significant for the following reasons; • your home in Australia is available to you at all times and your spouse and children reside in the house while you are overseas • you own an investment property in Australia • you do not own any assets outside of Australia, other than motor vehicles, household furniture and bank accounts. • you return to Australia regularly to visit your spouse and children. Based on these facts, it is considered that you are not a foreign resident of Australia as your permanent place of abode is in Australia. You will therefore be considered to be a resident of Australia for tax purposes under the domicile test. | Detailed Reasoning - The 183 day test: When a person is present in Australia for 183 days during the year of income the person will be a resident, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia. You do not satisfy this test as you have not spent 183 days in Australia during the income year. | Detailed Reasoning - The Superannuation test: An individual is still considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person. You are not a member of the PSS or CSS or a spouse of such a person, or a child under 16 of such a person. Therefore, you are not treated as a resident under this test. | Detailed Reasoning - Your resident status: You are deemed to be a resident under the domicile test from the date your spouse and children returned to live in Australia. | Detailed Reasoning - Double Tax Agreement: In determining liability to tax on Australian sourced income, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act). Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and ITAA 1997 so that those Acts are read as one. Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Agreement between the Government of the Commonwealth of Australia and the Government of the Republic of Country Z for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (Country Z Agreement) is listed in section 5 of the Agreements Act. Article 3 of the Country Z Agreement provides that where an individual is both a Country Z resident and an Australian resident they shall be treated as a resident of the country to which their personal and economic relations are closest. In your case you are considered to be solely a resident of Australia and your personal and economic ties are to Australia. Article 11(1) of the Country Z Agreement provides that remuneration derived by an individual who is a resident of Australia in respect of personal (including professional) services shall be subject to tax only in Australia unless the services are performed or exercised in Country Z. If the services are performed in Country Z the remuneration derived shall be deemed to have a source in and may be taxed in Country Z. Therefore you will be taxed on your salary received in Country Z, by Country Z. | Detailed Reasoning - Assessability of income and foreign income tax offset: As you are an Australian resident for income tax purposes and you have assessable income from overseas, you must declare it in your Australian income tax return. If you have paid foreign tax in Country Z, you may be entitled to an Australian foreign income tax offset, which provides relief from double taxation.