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Ruling

Subject: Residency status

Question and Answer:

Will you be a non-resident of Australia for tax purposes for the year ended 30 June 2012?

Yes

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a citizen of Country X.

Your country of origin is Country X.

You are not a citizen of Australia.

You have permanent residence status in Australia.

You have been living in Country X for n years.

Your spouse lives in a house in Australia which they purchased in their own name.

For the majority of the last several years your marriage has not been harmonious. You have had several partners in Country X.

You run several businesses in Country X with a lot of employees.

You do not possess any assets in Australia.

You have purchased an apartment in Country X where you live and in which you will continue to live during your retirement.

Apart from your apartment and several businesses your other assets in Country X are your car, furniture and other household items.

You and your spouse have an adult child with an illness.

Your child lives with your spouse, however as your spouse is finding it difficult to manage them, you have been visiting Australia frequently to help care for them since 1 July 2011.

So far during the 2011-12 income year, you have visited Australia many times. For the 2011-12 income year you will have been in Australia for over 183 days.

Your plan is to take your child to Country X to live so that they can work in your business.

You do not contribute to your spouse's maintenance.

You contribute to your child's maintenance by giving your spouse an amount each month for their expenses.

You do not have any other family members in Australia.

You do not have any sporting or social connections with Australia.

Your sporting and social connections in Country X include a sports club.

You and your spouse have never been a member of a Commonwealth Government superannuation scheme

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1).

Income Tax Assessment Act 1997 Section 995-1.

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 income tax 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 an Australian resident for tax purposes if they satisfy the conditions of one of the three other tests.

The resides test

The ordinary meaning of the word reside, according to the dictionary meaning, 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 TR 98/17 specifies that the period of physical presence in Australia and an individual's behaviour while present in Australia are important factors for the purpose of the resides test and may reflect a degree of continuity, routine, or habit that is consistent with residing here.

Whether a considerable time has elapsed to demonstrate that an individual's behaviour has the required continuity, routine or habit is a question of fact and the Commissioner's view of the law is that six months is a considerable time when deciding whether an individual's behaviour is consistent with residing in Australia.

When behaviour consistent with residing here is demonstrated over a considerable time, an individual is regarded as a resident for taxation purposes from the time the behaviour commences. In considering an individual's behaviour while in Australia, the Commissioner considers a number of factors, including:

1. intention or purpose of presence;

2. family and business/employment ties;

3. maintenance and location of assets;

4. social and living arrangements.

There have been several court cases where residence according to ordinary concepts has been examined in detail. Overall, residence includes two elements: physical presence in a particular place and the intention to treat the place as home, at least for the time being, not necessarily forever.

In a recent case Iyengar and Commissioner of Taxation AATA 856 (30 November 2011) (Iyengar's Case) the AAT found the individual was a resident of Australia under the resides test because of his continuity of association with Australia by maintaining his jointly owned home in Australia and the fact that his spouse remained in that home in Australia.

In reaching its conclusion the Tribunal considered the following factors:

Physical presence

· his family remained in Australia;

· he transferred his employment income to Australia to pay his mortgage;

· he returned to his home in Australia during holidays;

· he retained most of his personal items in Australia;

· his temporary and fixed employment contract (2 years); and

· he did not purchase any substantial items of personal property whilst overseas.

Nationality

Ordinarily, the nationality of an individual does not weigh significantly in deciding the residency status of an individual. However, in borderline cases, this factor may play a role.

In Iyengar's case the taxpayer and his family became Australian citizens in June 2003.

Maintenance of a place of abode

In Iyengar's Case the taxpayer maintained a place of abode in Australia, being his family home, whilst he was employed overseas. The taxpayer also left behind in Australia some of his personal items, such as two motor vehicles, furniture and appliances, clothing and other household items. These factors were found to be indicative of him remaining an Australian resident.

Family and business ties with a country

Case law has established that the family or business ties that an individual retains with a country are relevant in determining whether an individual has remained or ceased to be a resident.

In Iyengar's Case the following ties that the taxpayer had with Australia were such that he remained a resident of Australia:

· his family remaining in Australia (except for the short trip to Dubai by his wife);

· he maintained his family home in Australia;

· he used all his foreign income to make additional payments on his mortgage; and

· his holidays in Australia were at his family home.

Application to your circumstances

Your circumstances can be distinguished from the facts of Iyengar's Case as;

The marriage to your spouse has not been harmonious for many years in contrast to Iyengar's Case.

You do not contribute to your spouse's maintenance. Your spouse lives in a house which they purchased in their own name.

You do not have any assets in Australia. In Iyengar's Case the taxpayer left behind in Australia two motor vehicles, furniture and appliances and other household items. By contrast, you own a motor vehicle, furniture and other household items in Country X/

Over the past n years, it is only in the last income year that your visits to Australia have been frequent and this has been due to your child who has an illness. Your plan is to take your child to Country X on a permanent basis to work in your business. In Iyengar's Case the taxpayer visited his family on a regular basis for the duration of his time overseas.

You did not become an Australian citizen like the taxpayer in Iyengar's Case.

You have a permanent home in Country X and do not own a home or have an ownership interest in a home in Australia. In Iyengar's Case the taxpayer's main purpose of working overseas was to pay off the family home in Australia.

You run several businesses in Country X. In Iyengar's Case, the taxpayer went to Dubai on a temporary and fixed employment basis.

You own substantial assets in Country X whereas the taxpayer in Iyengar's Case did not purchase any substantial items of property whilst overseas. He retained most of his personal items in Australia in contrast to your situation where most of your personal items are in Country X.

Based on the above facts, despite your frequency of visits to Australia since 1 July 2011, it is considered that you will not be an Australian resident for taxation purposes for the year ended 30 June 2012 under the resides test as your behaviour in Australia will not reflect a degree of continuity, routine or habit that is consistent with residing here.

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.

In order to show that a new domicile of choice in a country outside Australia has been adopted, a person must be able prove an intention to make his or her home indefinitely in that country.

In your case you were born in Country X. This is your domicile of origin. Your spouse purchased a house in Australia in their own name in which your spouse has been living. You have been living in Country X for the past number of years. As you did not take up Australian citizenship, you did not purchase a house in Australia, and you have been living in Country X in an apartment you own, you are not considered to have made Australia your domicile.

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.

You have not abandoned Country X or chosen another country as your permanent home. You have a permanent home in Country X. You live in your spouse's house when visiting Australia. The reason you have been visiting Australia is to care for your child. You plan to take your child to Country X on a permanent basis. Although you have spent a considerable amount of time in Australia in the 2011-12 income year, you have not changed your domicile to Australia. Your permanent place of abode is outside Australia, namely in Country X.

Thus you are not an Australian resident under the domicile test.

The 183 day test

Under this test, a person is required to be actually present in Australia for a total period of more than half the year of income, unless it can be established that the person's usual place of abode is outside Australia and there is no intention to take up residence here. The test applies in relation to the relevant income year rather than a calendar year.

In your case you will be in Australia for more than one half of the year in the 2011-12 income year. However, your usual place of abode is in Country X and you have no intention to take up residence in Australia.

Accordingly you are not an Australian resident under the 183 days test, even though you will be physically present here for over 183 days in the 2011-12 income year.

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. Generally Commonwealth Government employees are eligible to contribute to the PSS or CSS.

This test does not apply to you as or your spouse have never been an employee of the Commonwealth Government of Australia.

Your residency status from 1 July 2011 to 30 June 2012

For the period 1 July 2011 to 30 June 2012, you will not a resident of Australia under any tests of residency outlined in subsection 6(1) of the ITAA 1936. You will therefore be a non-resident of Australia for taxation purposes for that period.

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