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Ruling

Subject: Residency for tax purposes

Question and answer:

Are you residents of Australia for tax purposes?

No.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

The scheme commenced on:

1 July 2009

Relevant facts and circumstances

You were both born in Australia and lived in Australia until you went to Country X to work as volunteers.

You have been unable to leave Country X permanently until someone is identified to take on the responsibility for your work in Country X. You are actively trying to find someone to do this so you may return to Australia to live.

You have work visas for Country X for your volunteer activities.

You live in a house that is provided by the organisation you are serving. The house is next door to the main compound of the organisation.

You do not receive salary or wages from the organisation, but they pay for your accommodation.

You intend to return to Australia to live within the next five years.

You both have Australian drivers' licences.

You rent out your home in Australia.

You intend to live in your home when you move back to Australia.

Your furniture is in storage with friends in Australia.

You have maintained your Australian bank accounts and financial investments.

You have a car in Australia that you use while you are in Australia.

For most years since you have been in Country X, you have returned to Australia for about two months to meet with family, organisations and to attend to financial affairs.

When you are in Australia, you stay with your children or with friends.

You are not citizens of any country other than Australia.

You are not on the Australian electoral roll.

You have Australian private health insurance.

Your immediate family lives in Australia.

You maintain relationships with friends, family and professional advisors in Australia.

Neither of you have ever been Commonwealth government employees.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

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.  However, where you are a foreign resident, your assessable income includes only income derived from an Australian source. 

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: 

§ the resides test,

§ the domicile test,

§ the 183 day test, and

§ 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 tax purposes if they meet 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'.

Although the question of whether a person resides in a particular country is a question of fact, the courts have referred to and taken into account various factors considered to be relevant. These are:

§ whether the person is physically present in that country at some time during the year of income

§ the history of the person's residence and movements

§ if the person is a visitor to the country, the frequency, regularity, duration and purpose of the visits

§ if the person is outside the country for part of the relevant income year, the purpose of the absences

§ the family and business ties which the person has with the particular country, and

§ whether a place of abode is maintained by the person in the relevant country or is available for his or her use while there.

Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia emphasises the intended and actual length of the individual's stay in an overseas country, any intention to return to Australia or travel elsewhere, the establishment or abandonment of any residence, and the durability of association that the individual maintains with a particular place in Australia as the main factors to be considered when determining the residency status of individuals leaving Australia.

In your case, you have been in Country X for many years, only returning to Australia for a few weeks each year. You do not know when you will be returning to Australia to live permanently. You conduct volunteer activities in Country X and live in a house provided by your organisation. You live together as spouses and although your children remain in Australia, they are adults.

You do not have a residence available to you in Australia, as your house has been rented out, and when you do return to Australia it is only for short visits to see family and conduct business, rather than to live.

Although you have maintained associations with Australia, it cannot be said that you are residing in Australia, rather, you visit Australia every year or so, and spend the rest of the year living in Country X.

Therefore, you are not residents of Australia under this test.

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.

Domicile

Domicile is a legal concept, determined according to the Domicile Act 1982 and common law rules established by private international law cases.

Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence.

Your domicile is Australia because you were born in Australia and you are Australian citizens. You have taken no steps to change your domicile to Country X, or to any other country.

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 (1982) 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 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.

In relation to the weight to be given to each of the above factors, paragraph 24 of IT 2650 states:

The weight to be given to each factor will vary with the individual circumstances of each particular case and no single factor will be decisive… however… greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant.

In your case, the Commissioner is satisfied that you have a permanent place of abode in Country X, as you have been living and working there for many years, you do not know when you will be returning to Australia, you moved there as husband and wife, and you do not have a home available to you in Australia.

Therefore, you are not residents of Australia under this test.

The 183 day test

Under the 183 day test, a person is a resident of Australia if they are actually physically present in Australia for more than 183 days in an income year unless the Commissioner is satisfied that their usual permanent of abode is outside of Australia and they have no intention of taking up residence here.

As you were not physically present in Australia for more than 183 days you are not residents of Australia under this test.

The superannuation test

A person will be considered a resident under the Commonwealth superannuation fund test if they currently contribute to certain superannuation funds for Commonwealth government employees. The eligible funds are funds:

§ established under the Superannuation Act 1976 (such as the Commonwealth Superannuation Scheme), or

§ established under the Superannuation Act 1990 (such as the Public Sector Superannuation Scheme), or

§ the spouse or child under 16 of a person covered by either of the above funds.

As neither of you have ever been Commonwealth government employees, you are therefore not able to contribute to the abovementioned superannuation schemes and are not residents of Australia under this test.

Your residency status

As you do not meet any of the above tests, you are not residents of Australia for tax purposes.

As you are not residents of Australia, according to section 6-5 of the ITAA 1997, your assessable income only includes income gained from sources in Australia.

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