Private ruling: Residency
Date of advice: 14 December 2016
Published: May 2017
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 2015

Ruling: Q1: Are you a resident of Australia for income tax purposes? | A1: Yes

Relevant facts and circumstances: You are an Australian citizen. You left Australia in 20WW to live and work in Country A Your initial term of employment in Country A commenced in 20WW, effective to 20XX. Your employment term has been extended to 20YY. You will be spending up to 20% of your work time in Australia each year. Your salary is paid into your Country A bank account. You have a visa for Country A which expires in 20ZZ. Your visa allows you to enter Country A for a maximum initial stay of three years from date of entry. You can request for your visa to be extended in increments of up to an additional two years, with a maximum limit of seven years. You intend to live in Country A for a period of five to ten years. You lease an apartment in Country A. Your spouse resides in Australia in the family home with your adult children. Your marriage remains harmonious. Your pets remain living in Australia, one with deteriorating health. The family home is available to you when you are required to be present in Australia. You transfer funds to bank accounts in Australia to cover mortgage payments on your rental property and living expenses for your family. Your assets in Australia include: ● one investment property ● household furniture and effects ● superannuation ● one third interest in a primary production business, and ● an Australian share portfolio. Your assets in Country A include: ● superannuation plan ● household furniture ● bank accounts.

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: Summary: You are an Australian resident for tax purposes under subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) | Detailed Reasoning - Detailed reasoning: 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 a foreign resident for taxation purposes, your assessable income includes only Australian sourced income. 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 . IT 2650 focuses on the first two tests, being the tests most widely applicable to persons who ordinarily reside in Australia, but who leave Australia temporarily and are not actually living in Australia during the year of income. Whilst 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, they may still be considered a resident of Australia for tax purposes if they satisfy the conditions of one of the three other tests. | Detailed Reasoning - The resides test: The ordinary meaning of the word resides, according to the Shorter Oxford English Dictionary, 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 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 to be relevant in determining the residency status of individuals in IT 2650. It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances. In your case: ● You are an Australian citizen. ● You left Australia in 20WW to live and work in Country A. ● Your spouse and adult children remain in Australia and live in the family home. ● You spend approximately 20% of your work time in Australia. ● The family home is available to you when you are visiting Australia. ● You maintain rental accommodation in Country A. Based on these factors, we accept that you are not considered to be residing in Australia according to ordinary concepts. Therefore, you are not an Australian resident for tax purposes under this test. | Detailed Reasoning - The domicile test: If a person's domicile is 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: IT 2650 provides that a person will retain their domicile of origin unless a domicile of choice has been adopted. A person's domicile of origin is generally their country of birth. In order to show that a 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. In your case, your domicile of origin is Australia. You have not shown evidence that a domicile of choice has been adopted as you are not a permanent resident or citizen of Country A and your visa does not grant you permanent resident status during your stay in Country A. In addition, you have not shown your intention to make your home indefinitely in Country A. The duration of your stay in Country A will be determined by either the expiration of your visa or upon cessation of your employment, whichever comes first. | 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. 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 a person intends to live for the rest of his or her life. In your case, there is no evidence of the intention to remain in Country A for an indefinite period of time. In addition, your durability of association with Australia is considered to be more significant for the following reasons: ● The family home is available to you at all times and your spouse and adult children reside in the house whilst you are overseas ● You own an investment property in Australia ● You have an Australian share portfolio ● You have an Australian superannuation account ● You have one third interest in a primary production business ● You do not own any assets outside Australia other than household furniture, bank accounts and an employer superannuation plan ● You transfer funds to Australian bank accounts to cover mortgage payments on your investment property and living expenses for your family Based on these facts, it is considered that you are a resident of Australia for tax purposes as you have retained your domicile in Australia and have a permanent place of abode in Australia. Therefore, you are an Australian resident for tax purposes under the domicile test. | Detailed Reasoning - The 183 day test: When a person is present in Australia for 183 days during an income year, that person may be considered a resident unless the Commissioner is satisfied that the person's usual place of abode is outside of Australia and the person does not intend to take up residence in Australia. You have not spent 183 days or more in any one income year since departing in 20WW, nor do you intend to spend more than 183 days in an income year whilst you are living in Country A. | 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 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, nor are you a spouse, or child under 16, of such a person. Therefore, you are not a resident under this test. | Detailed Reasoning - Your resident status: You are deemed to be a resident of Australia under the domicile test from the date you left Australia. | Detailed Reasoning - Double Tax Agreement: In determining liability to tax on your 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 Convention between the Government of Australia and the Government of Country A for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income [1983] ATS 16 (Country A Convention) is listed in section 5 of the Agreements Act. Article 4 of the Country A Convention provides that an individual is a resident of Australia if they are a resident under Australian tax law, and they are subject to Australian tax on income which is sourced in Australia. Article 4 also states that a person is a resident of Country A if they are resident in Country A for the purposes of its tax. Where an individual is both a Country A resident and an Australian resident, they shall be treated as resident of the country in which their personal and economic relations are closest. This is the tie breaker considered since you maintain a permanent home and a habitual abode in each country. In your case, your personal and economic ties are closest to Australia. You would therefore be considered an Australian resident under the Country A Convention. Article 15(1) provides that employment income derived by an individual who is a resident of Australia shall be taxable only in Australia unless the employment is performed or exercised in Country A. If the employment is exercised or performed in Country A, remuneration derived from such employment may be taxed in Country A. Therefore, since your income is derived by employment exercised or performed in Country A, it will be taxed in Country A. | 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. Article 22 of the Country A Convention provides relief from double taxation. As you may elect to be taxed as a resident of Country A in respect of income derived in Country A, whilst remaining a resident of Australia under Australian tax laws, you will be entitled to a foreign income tax offset (FITO) against Australian tax payable in respect of your Country A sourced income.