Private ruling: Residency
Date of advice: 17 July 2017
Published: November 2017
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: XXX 2016

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

Relevant facts and circumstances: You were born in the Country X and are a Country X citizen. You lived in Australia from the year ended 30 June 2012 to the year ended 30 June 2016, while your were on a four year assignment for your Country X employer. You entered Australia on a subclass 457 temporary work (skilled) visa sponsored by the Australian subsidiary of your employer. You served as the CFO of the Australian subsidiary. Your spouse and two children came to live with you in Australia during the year ended 30 June 2012. Upon completion of your assignment in Australia, you were repatriated to Country X during the year ended 30 June 2016 to continue your employment with your Country X employer in a two to three year permanent position. Your spouse and two children returned to live with you in Country X during the year ended 30 June 2016. You lived in your family home in Country X for nine months during the years ended 30 June 2016 and 30 June 2017. Your spouse secured their own subclass 457 temporary work visa during the year ended 30 June 2017 and subsequently relocated to Australia with your two children. Your spouse has leased a property in Australia and the lease agreement does not feature your name. One child has enrolled at a university in Australia to continue their studies and the other, who has been diagnosed with a medical condition has been re-enrolled in their previous school in Australia as this school was the best equipped to support them with their ongoing education needs. While in Country X, your employer offered you a four year work assignment to Country Y which you accepted. You commenced your employment in Country Y as a director of several entities in Country Y and Country Z in the year ending 30 June 2017. Your spouse was unable to accompany you to Country Y due to work and language barriers preventing them from practicing their profession in the country and therefore decided to return to Australia. You have returned to Australia five times since leaving the country in the year ended 30 June 2016 to visit your family and stayed onshore for a total of 44 days. You expect to spend a maximum of 60 days per year in Australia visiting your family. Your spouse applied for a subclass 186 permanent resident visa including your children and yourself as secondary and dependent applicants in the year ended 30 June 2017. The subclass 186 permanent resident visa was granted to the whole family in the year ended 30 June 2017. You are not registered with Medicare as you are not entitled to register as an overseas resident. You hold an international private health insurance policy. You are currently a director of several entities in Country Y and Country Z. You have been issued a work permit together with a four year resident visa allowing you to live and work in Country Y for the duration of your assignment. You will be considered a resident of Country Y for taxation purposes and your income will be subject to tax in Country Y. Your salary will be deposited into a Country X bank account with amounts transferred to Country Y as required. You have opened a bank account in Country Y. You are currently residing in an apartment in Country Y, with a 12 month lease arranged between your company and the landlord. This arrangement is customary in Country Y, due to financial restrictions on foreign citizens and company taxation benefits. You have relocated the family cat to live with you in Country Y. You have hired a local housekeeper. You have become a member of a sports club, a member of the City X Branch of a university alumni association and joined a church in Country Y. You have commenced cultural and language training in Country Y. You do not hold a Country Y driving license and accordingly have access to a company vehicle and driver. You maintain joint bank accounts with your wife both in Country X and in Australia. You currently hold less than $10,000 worth of assets in Australia and Country Y and higher amounts of holdings in country X. You will stay with your family when visiting Australia. Your family will visit you in Country Y occasionally and the family unit will spend time in Country X for holidays each year. You are not member of any Commonwealth government superannuation scheme or eligible to contribute to any such scheme.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 995-1 | 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 derived 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. This includes employment income, rental income, Australian pensions and annuities and capital gains on Australian assets. Section 995-1 of the ITAA 1997 defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936). The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the ITAA 1936. The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the ITAA 1936. The definition offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the: ● resides test ● domicile test ● 183 day test and ● Commonwealth superannuation fund test. The primary test for deciding the residency status of each individual is whether they reside in Australia according to the ordinary meaning of the word resides. If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established. Relevant to your situation are the first two tests which are examined in detail in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia . In examining these tests, IT 2650 provides a number of factors which assist in assessing a taxpayer's situation against the tests. | Detailed Reasoning - The resides (ordinary concepts) 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. 3rd 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'. The question of whether an individual 'resides' in a particular country is a question of fact and degree and all the circumstances of the taxpayer are taken into account in arriving at a decision. We accept that you are not residing in Australia according to the ordinary meaning of the word. However the extended definition of “resident” contained in subparagraph (a)(i) of the IT 2650 is an alternative to the ordinary meaning of the term “resides”. The definition provides that a person who resides in Australia includes a person whose domicile is in Australia, unless the Commissioner is satisfied that his permanent place of abode is outside Australia. | 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. 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 or acquire another domicile by operation of law. Paragraph 21 of IT 2650 states that in order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able prove an intention to make his or her 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. A working visa, even for a substantial period of time such as 2 years, would not be sufficient evidence of an intention to acquire a new domicile of choice. In your case, you were born in Country X and therefore your domicile of origin is Country X. In addition, you have obtained a new domicile of choice in Australia as you have taken legal steps to become a permanent resident of Australia, which would prove an intention to change your domicile to Australia. This is supported by the fact that you hold a subclass 186 permanent resident visa of Australia since the year ended 2017. Therefore, you will be a resident of Australia unless the Commissioner considers you have established a permanent place of abode outside of Australia. 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 circumstances of each case. The courts have considered a person's 'place of abode' is where they consider 'home'. In R v Hammond (1982) ER 1477, Lord Campbell CJ stated that "a man's residence, where he lives with his family and sleeps at night, is always his place of abode in the full sense of that expression." The Commissioner's view on what constitutes a permanent place of abode is contained in IT 2650. Paragraph 23 IT 2650 sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode: (a) the intended and actual length of the taxpayer's stay in the overseas country; (b) whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time; (c) whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia; (d) whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence; (e) the duration and continuity of the taxpayer's presence in the overseas country; and (f) the durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on. In relation to the weight to be given to each of the above factors, paragraph 24 of IT 2650 states: The weight to be given to each factor will vary with the individual circumstances of each particular case and no single factor will be decisive… however… greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant. In your case it is considered that you have established a permanent place of abode outside of Australia because: ● For the most part, you were not physically present in Australia nor did you intend to live in Australia in the relevant periods. ● You spent 44 days in Australia and 409 days overseas since departing Australia. ● You lived in the family home and worked in Country X for nine months before moving to Country Y. ● You have been living and working in County Y since the year ended 30 June 2017 and your intention is to continue to work and live in Country Y for the duration of your four year assignment. ● You have been issued a work permit together with a four year resident visa allowing you to live and work in Country Y for the duration of your assignment ● You have established yourself in Country Y, including by relocating the family cat, renting an apartment, hiring a housekeeper and having routines which involves partaking in social and sporting activities as well as undertaking cultural and language training. The Commissioner is satisfied you have established a permanent place of abode outside of Australia. Therefore, you will not be a resident of Australia under the domicile test. | Detailed Reasoning - The 183-day test: Under the 183 day test you are considered a resident of Australia if you are present in Australia for a total period of more than half of the year of income, that is 183 days, unless the Commissioner is satisfied that your usual place of abode is outside Australia and you do not intend to take up residence in Australia. You were not present in Australia for a total period of more than half of a year of income. Therefore you will not be a resident of Australia under the 183-day test. | Detailed Reasoning - The superannuation test: An individual is considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Service Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person. To be eligible to contribute to those schemes, you must be or have been a Commonwealth Government employee. You are not a member of the PSS or CSS, nor are you eligible to contribute to either of them. Further, you are more than 16 years of age. Therefore, you are not a resident of Australia under the superannuation test. | Detailed Reasoning - Your residency status: As you are not a resident of Australia under any 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 not considered to be an Australian resident for taxation purposes.