Private ruling: residency
Published: November 2011
Ruling period: Date A to date B | Date C to date D
Date scheme commenced: Date A

Ruling: Questions and answers: | 1. Were you a resident of Australia for taxation purposes from date A to date B? | No. | 2. Are you a resident of Australia for taxation purposes from date C to date D? | No. | 3. Were you liable to pay the Medicare levy surcharge from date A to date B? | No. | 4. Are you liable to pay the Medicare levy surcharge from date C to date D? | No.

Relevant facts and circumstances: You are an Australia citizen. You do not have any other citizenship. You and your partner left Australia to live in a foreign country. You are studying a foreign language and your partner is enrolled in a training course. You have a one year visitor visa which can be extended. At this stage, you intend to remain in the foreign country until at least date D (apart from a trip to another country to attend an event). You have not set a date for your return to Australia nor booked flights. You have not returned to Australia since you left Australia. However, you will travel to Australia for a period of less than 183 days to attend a convention. You will then return to the foreign country. You have a joint bank account with your partner in the foreign country. The account pays interest (you think) quarterly. You have no other investments in the foreign country or any other overseas countries. You have no work contract overseas. You may need to pay tax on you interest earned in the foreign country but as yet you have not have to deal with the foreign country's tax system. Apart from this, you do not pay tax in any other overseas country. You and your partner have rented a house in the foreign country under a 12 month lease. You intend to renew the lease. You have sufficient funds to allow you to remain in the foreign country for many years, if you choose to. You own a house in Australia which has been leased. You have social connections in Australia as well as extended family members overseas. You partner has a number of friends in the foreign country. You have private health insurance in Australia which you have suspended. Virtually all of your taxable income in Australia the income year was earned prior your departure. Neither you nor your partner has ever been employees of the Commonwealth Government of Australia. You are more than 16 years of age. Relevant legislation provisions: Income Tax Assessment Act 1997 Subsection 995-1(1) Income Tax Assessment Act 1936 Subsection 6(1) Income Tax Assessment Act 1936 Paragraph 251U Medicare Levy Act 1986 Section 8D


Reasons for decision: Summary: An Australian resident for tax purposes is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to be 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 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 . 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 a resident of Australia for tax purposes if they satisfy 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'. Taxation Ruling IT 2650 provides guidelines for determining whether individuals who leave Australia temporarily to live overseas, for example, on temporary overseas work assignments or on overseas study leave, cease to be Australian residents for income tax purposes during their overseas stay. The principles and guidelines adopted in IT 2650 can also be used for individuals who intend to reside overseas indefinitely. Paragraph 19 of IT 2650 states: The first question to be asked in considering the residency status of a person temporarily leaving Australia is whether he or she can be considered to reside in Australia. If the test of residence according to ordinary concepts is satisfied, there is no need to go any further. The person is a resident of Australia for income tax purposes. In your case, you have been living and studying with your partner in the foreign country. You will remain there for a time, but possibly longer, as you have sufficient funds to do so. You have established a residence there in a rented house. Your house in Australia has been rented. Accordingly, it is considered that you are residing in the foreign country while you are living and studying there and, therefore, are not a resident of Australia under the resides test from date A to date D. | 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. In order to show that an individual's domicile of choice has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country. In your case, as you are still an Australian citizen while living in the foreign country, your domicile is Australia and remains unchanged. 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. Some of the factors which have been considered relevant by the Courts, Boards of Review and Administrative Appeals Tribunal and which are used by the ATO in reaching a state of satisfaction as to a taxpayer's permanent place of abode include: · the intended and actual length of the taxpayer's stay in the overseas country · 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 · 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 · whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence · the duration and continuity of the taxpayer's presence in the overseas country and · 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 your case, since your departure you: · moved to the foreign country to study its language · have a one year visitor visa which can be extended · intend to remain in the foreign country until at least date D (apart from a visit to another country to attend an event). You have not set a date for your return and have not booked flights · have not returned to Australia since you left. You will travel to Australia to attend a convention. You will then return to the foreign country · have a joint bank account with your partner in the foreign country · have rented a house in the foreign country under a 1 year lease which you intend to renew · own a house in Australia which has been leased · have social connection in Australia as well as extended family members overseas. Your partner has a number of friends in the foreign country · have private health insurance in Australia with which you have suspended from On balance and based on the above, the Commissioner is satisfied that you have established a permanent place of abode outside of Australia. Therefore, you are not a resident under the domicile test from date A to date D. | 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, i.e. 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. Since departing Australia you have not returned to Australia. However, you will travel to Australia to attend a convention, a period of less than 183 days. You will then return to the foreign country. As this period will be less than 183 days, you will not be present in Australia for a total period of more than half of the year of income, i.e. 183 days. As you do not expect to be in Australia at any other time during the period of this ruling, you will not be a resident of Australia under the 183-day test during this time. | 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 have stated that neither you nor your partner has ever worked for the Commonwealth Government of Australia. As such, you were not eligible to contribute to the PSS or CSS superannuation schemes. Further, you are more than 16 years of age. Therefore, you are not a resident of Australia under the superannuation test. | Detailed Reasoning - Conclusion: 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 for the period date A to date D. | Detailed Reasoning - Medicare levy surcharge: Section 8D of the Medicare Levy Act 1986 imposes an increase in the Medicare Levy (the Medicare levy surcharge) for a married (which includes de facto) person with no dependants for the income period if they and their spouse are not prescribed persons and are not covered by an insurance policy that provides private patient hospital cover. If you cancel or suspend your private health insurance policy then you are considered not to have any private patient hospital cover for that period. Accordingly, you may be liable for the Medicare levy surcharge if you and your spouse's taxable income exceeds the relevant threshold and you and your spouse are not exempt from paying the surcharge. You and your spouse are exempt from paying the surcharge if you and your spouse are in one of the exemption categories, that is, if you are prescribed persons. A prescribed person, as defined in section 251U of the ITAA 1936, is: · a person entitled to full free medical treatment as a Defence Force member or as a relative of, or as a person associated with, a Defence Force member · a person entitled under veterans' entitlement or military rehabilitation and compensation (repatriation) legislation to full free medical treatment · a blind pensioner or a sickness allowance recipient · a person who is not a resident of Australia for tax purposes, or a person who is a resident of Norfolk Island · a person who is attached to a diplomatic mission or consular post established in Australia or a household member of the person's family, provided the person is not an Australian citizen and is not ordinarily resident in Australia · a person certified by the Health Minister as not being entitled to Medicare benefits. Only those people listed as prescribed persons are eligible for a Medicare levy exemption and, therefore, surcharge exemption. As foreign residents are prescribed persons and you and your spouse are foreign residents, you qualify for an exemption. In your case, you fall within one of the above categories and therefore you are fully exempt from paying the Medicare levy and, therefore, the surcharge, for the time you are a foreign resident.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.