Edited version of private ruling

Authorisation Number: 1011534980172

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Ruling

Subject: Residency

Are you an Australian resident for income tax purposes?

Yes.

This ruling applies for the following period

Income year ended 30 June 2010

Relevant facts

You are an Australian citizen living overseas.

You returned to Australia to pursue further studies.

During this period you were in Australia you undertook casual employment in Australia.

You stated that your income derived from this period of employment in Australia was below the tax free threshold.

You moved to the foreign country A to seek employment under a temporary exchange visa valid for one year. However, since you obtained employment, you changed your visa to another type of visa that is not limited to one year but subject to your employment.

You commenced your employment two months before the end of the financial year with an Australian agency as a locally employed staff member. You are employed on a permanent-on-going basis not on a fixed period contract.

You are uncertain when you will return to Australia at this stage as you do not have any plans to move back to Australia in the near future.

You plan to return to Australia to visit your family once per year.

You do not maintain a place to live in Australia. While you were in Australia you were living with your parents.

You are renting an apartment in 'foreign country A' where you are currently employed. You were on a sublease for five months but when this sublease expired you will enter into a longer term lease.

You are in the foreign country A to pursue your career.

You do not own any property in Australia.

You are not a member of the Commonwealth Government Superannuation Scheme or the Public Service Superannuation Scheme because you are a locally engaged staff.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 995-1(1)

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident as a person who is a resident of Australia for the purpose 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 taxation purposes. These tests are:

· The resides test

· The domicile test

· The 183 day test

· The superannuation test.

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 taxation purposes if they meet the conditions of one of the other three tests.

Taxation Ruling IT 2650 provides guidelines for determining whether individuals who leave Australia temporarily to live overseas, for example, on temporary overseas work assignments, cease to be Australian residents for income tax purposes during their overseas stay.

The resides test

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2009, rev. 5^th edn, 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 (2008), 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'.

For the first seven months of the year you were studying and working casually in Australia. As you are an Australian citizen who normally lives in Australia, you would be considered to be residing in Australia during this period you were undertaking study and work in Australia. Therefore, you are considered an Australian resident under the resides for this period.

However, for the remaining period of the income year you moved to 'foreign country A' and you were not living in Australia, therefore you are not considered to be residing in Australia under this test. Hence, it is necessary to consider whether you are an Australian resident under the other tests for residency for the remaining five months of the income year.

The domicile test

Under the domicile test, a person will be considered an Australian resident if they are considered to have their domicile in Australia, unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

"Domicile" is a legal concept to be determined according to the Domicile Act 1982. Generally, a person retains the domicile of origin unless and until he or she acquires a domicile of choice in another country, or until he or she acquires another domicile by operation of law.

Paragraph 10 of IT 2650 provides that a person with an Australian domicile but living outside Australia will retain that domicile if he or she intends to return to Australia on a clearly foreseen and reasonably anticipated contingency (for example at the end of his or her employment). Furthermore, paragraph 21 of IT 2650 provides that a person is not deemed to have adopted a new domicile of choice in a foreign country unless they are able to prove an intention to make his or her home indefinitely in the foreign country for example through obtaining a migration visa. A working visa even for a substantial period is not sufficient evidence to show a new domicile of choice.

In your case, you are an Australian citizen and you are overseas to pursue a career in your chosen field under a particular class of visa that is not a migrating visa. Although you do not have any plans to return to Australia in the near future, you have not shown an intention to make your home indefinitely in the foreign country. Therefore, you have retained your Australian domicile.

Since you retained your Australian domicile it is necessary to determine whether you have a permanent place of abode outside of Australia.

Paragraph 12 of IT 2650 provides that the expression 'place of abode' refers to a persons residence, where one lives with one's family and sleeps 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.

The term "permanent" is interpreted by the Courts in the context of resident definition as something that does not have to be 'everlasting' or 'forever'. It means something less than a permanent place of abode outside Australia. It should be contrasted with a temporary or transitory place of abode outside of Australia. The Federal Court found that the taxpayer's intention regarding the duration of his stay overseas was only one factor to be taken into account. Of more importance is the nature and quality of use which the taxpayer makes of a particular place of abode overseas (paragraph 14 of IT 2650).

Paragraph 23 of IT 2650 provides some of the factors which have been considered relevant by the Courts in reaching a state of satisfaction as to a taxpayer's permanent place of abode, such as:

(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 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, that is maintaining bank accounts in Australia, place of education of the taxpayer's children, family ties and so on.

Paragraph 24 of IT 2650 provides that the weight to be given to each factor will vary with individual circumstances and no single factor will be decisive. However, greater weight should be given to factors (c),(e) and (f) than to the remaining factors.

Paragraph 28 of IT 2650 provides that whether a person has established a home (in the sense of a dwelling place; a house that is a fixed residence of a person, family or household) in an overseas country is a strong indicator of whether he or she has established a permanent place of abode overseas.

Furthermore, the duration and continuity of your presence in the overseas country and the durability of your association with Australia is also relevant.

In your case, for the initial period you were in the foreign country you were on a limited temporary visa. You were not employed during this period and you were on a sub-lease arrangement for a period. Shortly before the end of the relevant income year you gained permanent employment. This allowed you to change the status of your visa to one which enabled you to stay in the foreign country A for a longer period. You do not have any property in Australia. Although you do not maintain a place in Australia, you have family in Australia that you will visit once a year.

Paragraph 18 of IT 2650 provides that as income tax liability arises annually, the question about where a taxpayer resides must be determined annually according to the facts applicable to the particular year under consideration.

For the income year ended 30 June 2010, you were in the foreign country A for a short period. During most of this period you were on a very limited temporary visa, part of this period you were looking for employment, your living arrangement was temporary and not sufficient to support a view that you have established a permanent place of abode in the foreign country A.

Therefore, on balance the Commissioner is not satisfied that you established a permanent place of abode in foreign country A during the 2009-10 income year. Since you have retained your Australian domicile and the Commissioner is not satisfied that you established a permanent place of abode overseas, you are still considered to be an Australian resident under this test for the remaining period of the 2009-10 income year.

Since you are considered to be an Australian resident under the resides test for the period of the income year and under the domicile test for the remaining period of the income year, it is not necessary to consider your residency under the other two remaining tests for residency.

Note

For subsequent income years your Australian residency status may change base on the change in your facts and circumstances

An Australian resident's assessable income include ordinary income derived directly or indirectly from all sources, whether in or out of Australia (subsection 6-5(2) of the ITAA 1997). However, a foreign resident assessable income includes ordinary income from all Australian sources only (subsection 6-5(3) of the ITAA 1997).

Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income it is not assessable income.

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