Private ruling: Residency and leaving Australia
Date of advice: 8 September 2016
Published: November 2016
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 January 2016

Ruling: Q1: Are you an Australian resident for income tax purposes for the period you are overseas? | A1: Yes | Q2: Is your payment from the PSS superannuation pension scheme assessable in Australia? | A2: No

Relevant facts and circumstances: You were born in Australia. You are a citizen of Australia. You moved to Country X with your spouse and children. You will stay in Country X for 1 to 2 years. You intend to return to Australia at the end of your stay in Country X. You are a tax resident of Country X. The main reason for you to move to Country X is for a change of scene. Your children attend school in Country X. Your family home in Australia has been rented out for the period you are residing in Country X. You have your personal items stored in a shed at your Australian residence. You maintain an Australian postal address, Australian bank accounts, and Australian investments. You are renting a house in Country X. You do not have any Country X's investment or income. You have a Country X's bank account solely for the purposes of managing day-to-day payments and expenses. You are not currently working or studying in Country X. You are not retired. You have no connection with Country X. Your spouse is working full-time from home via Internet for their Australian employer whilst living in Country X. You are receiving an income stream from the PSS Australian superannuation scheme which is paid into an Australian bank account.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1997 subsection 995-1(1) | International Tax Agreements Act 1953

Reasons for decision: Summary: Section 995-1 of the Income tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for income 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 definition offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the: • the resides test, • the domicile test, • the 183 day test, and • the superannuation test. If any one of these tests is met, an individual will be a resident of Australia for income tax purposes. The resides test is the primary test for determining the residency status of an individual for taxation purposes. If residency is established under the resides test, the remaining three tests do not need to be considered. However, if residency is not established under the resides test, an individual will still be a resident of Australia for taxation purposes if they meet the conditions of one of the other three tests. | Detailed Reasoning - The resides (ordinary concepts) 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'. 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 Taxation Ruling IT 2650 Income tax: residency - permanent place of abode outside Australia 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. In deciding cases of residency, the courts and tribunals have noted that a person does not necessarily cease to be a resident because he or she is physically absent from a place. Instead, the test is whether the person has retained a continuity of association with a place, together with an intention to return to that place and an attitude that the place remains home (Joachim v Federal Commissioner of Taxation [2002] ATC 2088 ). In your case: • You moved to Country X with your spouse and children. • You will stay in Country X for 1 to 2 years. • You intend to return to Australia at the end of your stay in Country X. • You are not working or studying or retired. • Your family home in Australia is being rented out for the period you are in Country X. • You have your personal items stored in a shed at your Australian residence. You have economic ties to Australia by way of receiving Australian superannuation pension. Your ties to Australia also include your property, your personal items stored in a shed at your Australian residence, and other Australian investments you are maintaining. You also left for Country X with the definite intention of returning to Australia within one to two years. Based on these facts, you are residing in Australia according to the ordinary meaning of the word. Therefore, you meet the 'resides test' and are a resident of Australia for income tax purposes. 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 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 the place that is considered by law to be your permanent home. It is usually something more than a place of residence. 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. This 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. Therefore, as you have not taken any legal steps which would have proven an intention to change your domicile to Country X, you have retained your Australian domicile. Therefore, you will be a resident of Australia unless the Commissioner considers you have established a permanent place of abode outside of 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. The courts have considered a person's 'place of abode' is where they consider 'home'. In R. v. Hammond [1852] 17 QB 772; (1852) 117 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." A place of abode must exhibit the attributes of a place of residence or a place to live, as contrasted with the overnight, weekly or monthly accommodation of a traveller. Paragraph 23 of Taxation Ruling 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. Clearly, the longer an individual stays in any one particular place, the more permanent in nature is likely to be the stay in that place of abode. An individual's intention regarding the duration of the overseas stay and the length of the actual stay are significant factors in deciding whether they have set up a permanent place of abode. Where a taxpayer leaves Australia for an unspecified or a substantial period and establishes a home in another country, that home may represent a permanent place of abode of the taxpayer outside Australia. However, a taxpayer who leaves Australia with an intention of returning to Australia at the end of a 'transitory' stay overseas would remain a resident of Australia for income tax purposes. It is the Commissioner's view that an overseas stay in excess of two years may indicate that an individual can be considered to have a permanent place of abode overseas, subject to a consideration of all the other relevant circumstances applying to the taxpayer (paragraphs 23, 25 and 27 of IT 2650). In your case it is considered that you have not established a permanent place of abode outside of Australia because: • Whilst you have been living in Country X, you went with the definite intention of returning after a one to two year period. • The main reason for moving there is for a change of scene rather than a permanent move • You have your personal items stored in a shed at your Australian residence. Therefore, you are a resident of Australia under this test. | Detailed Reasoning - Your residency status: As you meet the resides and domicile test of residency, you are a resident of Australia for income tax purposes under subsection 6(1) of the ITAA 1936. Subsection 6-5(2) of the ITAA 1997 provides that assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Pensions and annuities are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. Accordingly, as you are an Australian resident for income tax purposes the pension that you receive is assessable in Australia under subsection 6-5(2) of ITAA 1997. | Detailed Reasoning - Double tax agreement: In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements. Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations). 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 Country X agreement is listed in section 5 of the Agreements Act. The Country X agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The Country X agreement operates to avoid the double taxation of income received by residents of Australia and Country X. Article XX of the overseas agreement considers the tax treatment of pensions. 1. Pensions (including government pensions) and other similar periodic remuneration paid to a resident of a Contracting State shall be taxable only in that State. However, such income arising in the other Contracting State shall not be taxed in the first-mentioned State to the extent that such income would not be subject to tax in the other State if the recipient were a resident of that other State. In your situation, you are a resident of both Country X and Australia for income tax purpose under the domestic laws of each country. Therefore, it is necessary to refer to the 'tiebreaker' rules contained in the Country X Agreement to determine whether you will be treated solely as a Country X resident or an Australian resident. Article 4 of the Country X Agreement states that where an individual is both a Country X resident and an Australian resident. Then their status shall be determined according to relevant rules in Article 4. In Taxation Ruling TR 2001/13 Income tax: Interpreting Australia's Double Tax Agreements , the Commissioner accepts that it is appropriate to have reference to the OECD Model Tax Convention and Commentary (OECD Commentary) which provides guidance on the interpretation of the terms used in double tax agreements. The OECD Commentary provides that in relation to a 'permanent home': • for a home to be permanent, an individual must have arranged and retained it for his or her permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be of short duration. The dwelling has to be available at all times continuously and not occasionally for the purposes of a stay, which owing to the reasons for it is necessarily of short duration (e.g. travel for pleasure, business travel, attending a course etc.). • any form of home may be taken into account, including a house or apartment belonging to or rented by the individual and a rented furnished room. In your situation, you are renting a house in Country X in which you and your family are living while overseas. You have also rented out your residence in Australia and consequently no longer have a home available to you in Australia. Based on the above, it is evident that you have a permanent home in Country X. Therefore, you will be treated solely as resident of Country X under Article 4 of the Country X Agreement. Therefore, the pension you received shall be taxable in Country X rather than in Australia.