Edited version of private ruling

Authorisation Number: 1011823226358

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Ruling

Subject: Residency status

Question and answers:

1. Are you a resident of Australia for income tax purposes?

Yes.

2. Are you required to lodge an income tax return for the income years that you will be overseas?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commenced on:

1 July 2011

Relevant facts

You are a citizen of Australia and country X.

Your country of origin is Australia.

You have an overseas passport.

You are divorced with no children.

You intend to travel to country X to obtain life experience.

You will be leaving for country X to work and live for a period of less than 2 years.

You currently work for the public service, but will resign when you leave Australia.

You contribute to the public service super scheme and have a preserved benefit. You will cease to be a contributing member of the public service super scheme before you leave Australia.

While in country X you will be staying with a friend and paying rent.

During the period that you will be overseas, you intend to return to Australia for a holiday to visit your parents and siblings, however you are uncertain when this will occur or how long the visit will be for.

Your assets in Australia consists of banks accounts.

You do not have a permanent place to live in Australia.

You have no social or sporting affiliations in Australia.

You do not have any overseas assets.

You have no social or sporting affiliations in country X.

Your family and siblings will not be accompanying you overseas.

You are over the age of 16 years.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 6(1).

Reasons for decision

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:

1. the resides test

2. the domicile test

3. the 183 day test

4. the superannuation test.

The first two tests are examined in detail in Taxation Ruling IT 2650.

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.

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 provide 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.

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 you:

· intend to leave Australia for a period of less than 2 years;

· have permanent accommodation in country X where you will stay with a friend and pay rent during the course of your overseas stay;

· intend to return to Australia permanently after your overseas stay;

· do not own any land or dwellings in Australia, but have retained your Australian bank accounts;

· you intend to return to Australia for a holiday to visit your family and siblings for a short period of time at some stage during your stay overseas;

· are single with no dependants;

· do not have any assets overseas;

· do not have permanent employment in country X;

· have no social or sporting affiliations in Australia;

· have no social or sporting affiliations with country X.

On balance you are not considered to be a resident of Australia according to ordinary concepts under 'the resides' test, particularly as you will be living and working in country X during this period. 

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.

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.

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. 

You:

· are single with no dependants;

· intend to leave Australia a period of less than 2 years;

· have accommodation in country X, staying with a friend and pay rent during the course of your overseas stay;

· have no social or sporting affiliations in Australia;

· have no social or sporting affiliations with country X;

· will return to Australia for a holiday to visit family at some stage during your overseas stay; and

· intend to return to Australia permanently within a 2 year period.

On the balance and based on the above, the Commissioner is not satisfied that you will be establishing a permanent place of abode outside of Australia, particularly given that you are intending to return to Australia within 2 years to permanently reside.

Therefore, you are a resident of Australia for income tax purposes under the domicile test for this period.

Your residency status

As you are considered to be a resident of Australia under the domicile test of residency outlined in subsection 6(1) of the ITAA 1936, there is no need to examine the remaining tests.

Therefore, you will continue to be a resident of Australia for income tax purposes for the period that you are overseas.

Lodgement of an income tax return

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 gained from all sources, whether in or out of Australia.

Assessable income includes salary and wages and interest from bank accounts.

In your case you hold a number of Australian bank accounts and in addition will be seeking employment in country X. As you are considered to be a resident of Australia for income tax purposes, the income that you will receive from all these sources during this period will be assessable in Australia, under section 6-5 of the ITAA 1997.

Therefore, as the any income you will receive will be assessable in Australia during this period, you will be required to lodge an Australian income tax return and include the income that you have received in the income year that it has been received.

Further information

Foreign income tax offset (FITO)

A Foreign income tax offset (FITO) is available to taxpayers to protect them from the double taxation that may arise where the taxpayer pays foreign tax on income that is also taxable in Australia. This is achieved by allowing a taxpayer to claim a tax offset where they have paid foreign tax on amounts included in their Australian assessable income.

You can find further information on FITO by visiting the ATO website at www.ato.gov.au.

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