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Ruling

Subject: Residency

Question:

Are you a resident of Australia for income tax purposes for the income years ended 30 June 2009, 30 June 2010, 30 June 2011 and 30 June 2012?

Answer:

No.

This ruling applies for the following periods:

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commences on:

1 July 2008

Relevant facts and circumstances

You are an Australian citizen and your country of origin is Australia.

You left Australia in 1999 to live and work in Country A.

Since you left Australia, you have been a freelance consultant employed by various agencies in Country A and Country B.

Since you left Australia, you have not performed any work in Australia.

You worked in Country A from 1999 to 2006 and you have been working in Country B from 2007 to 2011.

You are currently living in Country A awaiting work.

You have been granted business and tourist visas which allow you to stay in Country A and Country B.

You have a bank account and own your own dwelling in Country A.

You have a bank account in Australia into which your employment income is usually deposited.

You do not own any property in Australia.

In relation to your living arrangements in Australia, you stated that you rented a room in a friend's house in Australia from 1999 to 2005 and rented a room in another friend's house from 2006 to 2011. You now have to find alternative accommodation.

You visit family and friends in Australia once or twice every year for three to five weeks each time.

You expect to work overseas another five years before you return to Australia.

You were not and will not be present in Australia for more than 183 days continuously or intermittently during the income years ending 30 June 2009, 30 June 2010, 30 June 2011 and 30 June 2012 respectively.

You were not and are not a Commonwealth Government of Australia employee.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1) and

Income Tax Assessment Act 1997 Subsection 6-5(3).

Reasons for decision

The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (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 (residence according to ordinary concepts)

2. The domicile and permanent place of abode test

3. The 183 day test

4. 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. If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established.

Taxation Ruling IT 2650 provides guidelines for determining whether individuals who leave Australia to live overseas cease to be Australian residents for income tax purposes during their overseas stay.

1. The resides test

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3rd 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'.

As you will be residing outside of Australia for the relevant periods, you are not considered to be residing in Australia for the purposes of the resides test.

2. The domicile and permanent place of abode 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.

IT 2650 in paragraph 8 states that 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.

IT 2650 in paragraph 21 states that "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 e.g. through having obtained a migration visa." 

You are an Australian citizen and your country of origin is Australia. You have been granted business and tourist visas which allow you to stay in Country A and Country B.

Applying IT 2650 to your circumstances, your business and tourist visas are not sufficient evidence of an intention to acquire a new domicile of choice in Country A or Country B. Therefore, you are considered to have maintained your Australian domicile.

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. In essence, a person's place of abode is that person's dwelling place or the physical surroundings in which a person lives.

IT 2650 states in paragraph 14 that 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.  An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a permanent place of abode elsewhere.

IT 2650 states in paragraph 23 that a person's permanent place of abode is a question of fact to be determined in the light of all the circumstances of each case. Some of these factors which have been considered relevant include:

a) the intended and actual length of the individual's stay in the overseas country;

b) any intention either to return to Australia at some definite point in time or to travel to another country;

c) the establishment of 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 individual's presence in the overseas country; and

f) the durability of association that the individual has with a particular place in Australia.

IT 2650 states in paragraph 24 that the weight of each factor will vary with the individual circumstances and no single factor is decisive. However, "greater weight should be given to factors c) the establishment of a home outside Australia, e) the duration and continuity of the individual's presence in the overseas country and f) the durability of association that the individual has with a particular place in Australia than to the remaining factors".

In relation to factor a) the intended and actual length of the individual's stay in the overseas country, IT 2650 states in paragraph 25 that "a period of about two years or more would generally be regarded by [the ATO] as a substantial period…however…[this] is not conclusive and needs to be considered with all of the factors in paragraph 23 above."

In relation to factor c) the establishment a home outside Australia, IT 2650 states in paragraph 28 that "the fact that an individual has established his or her home (in the sense of a dwelling place; a house or other shelter that is the fixed residence of a person, family or household) in an overseas country would tend to show that the place of abode in the overseas country is permanent".

In relation to factor f) durability of association with a particular place in Australia, IT 2650 states in paragraph 29 that the maintenance of bank accounts in Australia is relevant.

You left Australia in 1999 to live and work in Country A.

Applying IT 2650 to your circumstances, it follows that as you have lived in Country A for more than two years, you had continuity of presence and your actual length of your stay in Country A was substantial.

You own your own dwelling in Country A.

Thus, you have established a home outside Australia in Country A because you have a permanent place to live in Country A.

You do not own any property in Australia. In relation to your living arrangements in Australia, you stated that you rented a room in a friend's house in Australia from 1999 to 2005 and rented a room in another friend's house from 2006 to 2011. You now have to find alternative accommodation.

You have a bank account in Australia into which your income is usually deposited.

You visit family and friends in Australia once or twice every year for three to five weeks each time.

Thus, you do have some durability of association with a particular place in Australia.

Weight of all factors

Weighing all the factors above in light of your individual circumstances, it is considered that it is considered that you have established a permanent place of abode outside of Australia in Country A for the relevant periods. 

As the Commissioner is satisfied that you have a permanent place of abode outside of Australia, you are not a resident of Australia for income tax purposes under this test for the relevant periods.

3. The 183-day test

Under this test, if you are actually present in Australia for more than half the income year, whether continuously or intermittently, you may be said to have a constructive residence in Australia unless it can be established that your usual place of abode is outside Australia and you have no intention to take up residence here.

You were not and will not be present in Australia for more than 183 days continuously or intermittently during the income years ending 30 June 2009, 30 June 2010, 30 June 2011 and 30 June 2012 respectively.

Thus, you will not be a resident under this test.

4. The superannuation test

An individual is still 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. Generally Commonwealth Government employees are eligible to contribute to the PSS or CSS.

You were not and are not a Commonwealth Government of Australia employee.

Therefore, this test does not apply to you.

Your residency status

As you are not a resident of Australia under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936, you are not an Australia resident for income tax purposes for the relevant periods.

Source of foreign income and assessability

You have a bank account in Australia into which your employment income is usually deposited.

Generally, income from personal services in a conventional employer/employee relationship would ordinarily have its source in the place in which the services are performed: FCT v French (1957) 98 CLR 398.

Applying FCT v French to your circumstances, it follows the source of your foreign income is the country in which you performed the services from which the particular foreign income was derived. Thus, the fact that your income is deposited in Australia does not affect the source of your foreign income.

Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a foreign resident taxpayer includes ordinary income derived directly or indirectly from all Australian sources during the income year. Salary and wages are ordinary income.

As a foreign resident of Australia, your foreign employment income is not assessable pursuant to subsection 6-5(3) of the ITAA 1997 for the relevant periods.

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