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Ruling

Subject: Residency

Question and answer:

Will you be a resident of Australia for taxation purposes during your absence from Australia?

No.

This ruling applies for the following period:

1 July 2012 to 30 June 2014.

The scheme commenced on:

1 July 2012.

Relevant facts and circumstances:

You were born in Australia and you are an Australian citizen.

You are not a citizen of any other country.

You left Australia in the relevant year to live and work in another country.

You have an employment contract in the other country.

You will be paying tax the other country.

You intend to return to Australia at the end of the employment contract.

You will live in rented or shared accommodation while in the other country.

You will not buy residential property in the other country.

Your only asset in the other country is a bank account into which your pay will be deposited.

Prior to leaving Australia you were living with your parents. Aside from your parent's house, you do not have a permanent place of your own to reside at in Australia.

Your only Australian assets are some shares and bank accounts.

Your social and sporting connections in Australia include friends, family and a sporting club.

You intend to join a sporting club in the other country and to develop a social network as time passes.

You have never been employed by the Commonwealth of Australia

You are not a member of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990?

You are not an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS) which was established under the Superannuation Act 1976?

You are not the spouse or a child under 16 of a person who is a member of the PSS or an eligible employee in respect of the CSS.

Relevant legislative provisions:

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

Income Tax Assessment Act 1936 subsection 6(1).

Reasons for decision

Section 995-1 of the Income tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for tax purposes as 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:

· the resides test,

· the domicile (and permanent place of abode) test,

· the 183 day test, and

· the superannuation test.

If any one of these tests is met, an individual will be a resident of Australia for taxation purposes.

The resides test is the primary test for determining the residency status of an individual. If residency is established under the resides test, the remaining three tests do not need to be considered. However, if residency is not established under the resides test, an individual will still be a resident of Australia for taxation purposes if they meet the conditions of one of the other three tests.

The resides test

The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'.

The Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01 defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

Taxation Ruling No. IT 2650 Income Tax: residency - permanent place of abode outside Australia (which contains the Australian Taxation Office (ATO) view on whether individuals who leave Australia temporarily cease to be Australian residents for income tax purposes) specifies that a person's place of abode is where they live.

You will be living and working in the other country for a period of several months. Accordingly, you will not be a resident of Australia for taxation purposes under the 'resides' test during that period.

The domicile (and permanent place of abode) test

Under this test, a person whose domicile is in Australia will be considered a resident of Australia for taxation purposes, unless the Commissioner is satisfied the person's permanent place of abode is outside Australia.

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin' and will not usually change, but can in some circumstances. For example, a person can acquire a domicile in another country by choice but to do so, a person must have an intention to make their home indefinitely in a country outside their domicile of origin.

Taxation Ruling No. IT 2650 specifies that a person with an Australian domicile who is living outside Australia will retain their Australian domicile if they intend to return to Australia on a 'clearly foreseen and reasonably anticipated contingency' - at the end of a specific period for example.

Because you were born in Australia your domicile of origin is Australia.

You have stated your intention is to return to Australia at the end of your employment contract. Accordingly, you will retain your Australian domicile during the period you live and work in the other country.

Because you will retain your Australian domicile while you are in the other country, if the Commissioner is not satisfied your permanent place of abode is outside Australia during that time you will be a resident of Australia for taxation purposes under this test.

The word 'permanent' in the context of this test of residency is not taken to mean everlasting or forever, but rather, is used in the sense of being contrasted with temporary or transitory.

IT 2650 notes that generally speaking, an overseas stay for a period of less than two years is considered transitory and that a taxpayer who returns to Australia after a transitory stay overseas is likely to have retained their Australian residency for taxation purposes during their absence from Australia. However, IT 2650 also notes that:

· the length of a taxpayer's stay overseas is not conclusive in determining whether or not a permanent place of abode was established by the taxpayer in the overseas location, and

· the fact that a taxpayer knows they will return to Australia at a definite point in time does not mean that they cannot establish a permanent place of abode outside Australia.

To properly determine whether or not a taxpayer has (or will) establish a permanent place of abode overseas during their absence from Australia requires consideration of a number of factors that have been identified by the Courts and Boards of Review/Administrative Appeals Tribunal as being relevant in reaching a state of satisfaction as to a taxpayer's permanent place of abode. These factors are identified in IT 2650 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 (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.

Having considered the facts of your case, and noting that IT 2650 specifies that while no single factor is decisive, greater weight should be given to factors (c), (e) and (f) than to the other factors identified above, we are satisfied that you will establish a permanent place of abode in the other country during the period you will be living and working there. In particular we note that:

· Although you will be outside of Australia for less than two years, the period of time you will be away is not insignificant and as stated in IT 2650, length of time is not conclusive in its own right in determining whether or not you will establish a permanent place of abode during the period you are in the other country.

· You are travelling to the other country to honour an employment contract. You have opened a bank account in the other country. You will pay tax in the other country and you intend to join a sporting club and develop social relationships in the other country. All these facts indicate that your durability of association with the other country will not be insignificant during the period you will be living and working there.

· Although we consider your durability of association with Australia to be greater than it is with the other country on the basis that your family is in Australia and because you have stated your intention to return to Australia at the end of your employment contract, we do not consider this to be a sufficient factor in its own right to conclude that you will not establish a permanent place of abode in the other country during the period you live and work there.

· The fact that that you have indicated your intention to return to Australia at a definite point in time does not prevent a conclusion being made that you will establish a permanent place of abode in the other country while you are living and working there. IT 2650 clearly states that just because a taxpayer knows they will return to Australia at a definite point in time does not mean that they cannot establish a permanent place of abode outside Australia in the meantime.

· You have stated you will live in either rented or shared accommodation for the period you are in the other country. We consider your intentions in this regard to be sufficient to suggest that you will establish a home (in the sense of a dwelling place, house or other shelter) that will be your fixed residence for the period you are in N the other country.

Considering the above, you will not be a resident of Australia for taxation purposes under this test during the period you are living and working in Country A.

The 183-day test

Where a person is present in Australia for 183 days during an income year, the person will be a resident of Australia for taxation purposes unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

In your case, you will be living in your usual place of abode in Country A for from the time you leave Australia until your return. Accordingly, you will not be a resident of Australia for taxation purposes under this test during that period.

The superannuation test

Under this test, an individual will be considered a resident of Australia for taxation purposes if:

1. they are a member of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990,

2. they are an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS) which was established under the Superannuation Act 1976, or

3. they are the spouse or a child under 16 of a person who is a member of the PSS or an eligible employee in respect of the CSS.

In your case, you do not have a spouse, you are over the age of 16, and you are neither a member of the PSS or an eligible employee for the purposes of the CSS.

Accordingly, you are not a resident of Australia for taxation purposes under this test.

Conclusion - your residency status

You will not satisfy any of the tests of residency outlined in subsection 6(1) of the ITAA 1936 during the period you are living and working in the other country. Accordingly, you will not be an Australian resident for taxation purposes during that period of time.

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