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Edited version of your private ruling

Authorisation Number: 1012418111438

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Ruling

Subject: Residency status during your period of employment in country Z.

Question 1
Were you a resident of Australia for taxation purposes for the period you were living and working in country Z?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commences on:

February 2012

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 were born in Australia and are an Australian citizen.

You departed Australia during the 2011-12 financial year to commence working under a contract with an organisation in Country Z on a full time basis for an AUSAID funded program.

It was your intention to work and reside in Country Z for a period of one to two years.

You have a partner and children who accompanied you to Country Z.

You terminated your Australian rental lease when you moved to Country Z.

The contract you signed expired at the end of the financial year and was to be renegotiated for a further period between the organisation and X.

The two organisations needed time to finalise the contract and draw up new employment contracts for those interested in staying on.

You continued to work there under the same conditions on a verbal agreement until the new contracts were available.

You returned to Australia during the 2012-13 financial year for the birth of your child. During this period you stayed with your parents.

You returned to Country Z approximately Y weeks later and your family joined you approximately Z weeks later.

A colleague who had been working under the same contract in Country Z had obtained a private ruling on the taxability of the income gained from the positions. This came back in the negative as the positions were not employees but contractors not directly contracted by X.

You then decided to cease working in Country Z and returned to Australia.

You established a family home in Country Z whilst you were there and your children attended school in Country Z whilst you were there.

Neither you nor your spouse have ever been employed by the Commonwealth Government of Australia and therefore neither of you are eligible to contribute to a Commonwealth Government superannuation fund.

You are now back in Australia and you recommenced working here during the 2012-13 financial year.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Reasons for decision

Residency

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 contains four tests which will help us ascertain whether you were a resident of Australia for income tax purposes for the period you were living and working in Country Z. These tests are:

You need only fall within one test to be a resident and must fall outside all four tests to be a non-resident. The main test for deciding your residency status is whether you reside in Australia according to the ordinary meaning of the word resides. 

The residence according to ordinary concepts test

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3rd edition, 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 Income tax: residency - permanent place of abode outside Australia provides us with guidelines for determining whether individuals who leave Australia temporarily to live overseas, for example, on temporary overseas work assignments, cease to be Australian residents for income tax purposes during their overseas stay.

IT 2650 explains that the following factors need to be taken into account:

The weight to be given to each factor will vary with individual circumstances of each case and no single factor is conclusive.

(a) The intended and actual length of your stay in Country Z
(b) Intention to return to Australia.

IT 2650, at paragraph 25, states the Commissioner's view that a period of about two years or more would generally be regarded as a substantial period for the purposes of a taxpayer's stay in another country. However, the duration of your actual or intended stay out of Australia is not, of itself, conclusive and needs to be considered with all of the factors listed above.

Paragraph 27 of IT 2650 goes on to explain that if you leave Australia with an intention of returning at the end of a transitory stay overseas, you would remain a resident of Australia for income tax purposes unless you can satisfy the Commissioner that after consideration of all the other factors listed above we conclude that your permanent place of abode was outside Australia.

There have been several court cases where residence according to ordinary concepts has been examined in detail. Overall, it has been established that 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 Subrahmanyam Deputy President Forgie referred to the decision of the Federal Court of Australia in Hafzav v Director-General of Social Security (1985) FCR 444, wherein his Honour discussed various earlier cases which have considered the issue of "residence" as follows:

Physical presence and intention will coincide for most of the time. But few people are always at home. Once a person has established a home in a particular place even involuntarily (see Commissioners of Inland Revenue v Lysaght [1928] AC 234 at 248 and Keil v Keil [1947] VicLawRp 56; [1947] VLR 383 a person does not necessarily cease to be resident there because he or she is physically absent. The test is whether the person has retained a continuity of association with the place (Levene v Commissioners of Inland Revenue [1928] UKHL 1; [1928] AC 217at 225 and Judd v Judd (1957 75 WN (NSW) 147 at 149) together with an intention to return to that place and an attitude that that place remains 'home' (see Norman v Norman (1969) 16 FLR 231 at 236)...............where the general concept of [residence] is applicable, it is obvious that, as residence of a place in which a person is not physically present depends upon an intention to return and to continue to treat that place as 'home', a change of intention may be decisive of the question whether residence in a particular place has been maintained."

Application of these factors to your circumstances

You departed Australia with an intention to stay in Country Z for a period of one to two years and always intended to return to Australia. However subsequent developments led you to return to Australia prematurely. After returning to Australia for a period of four weeks for the birth of your child, you stayed in Country Z for a total of:

(c) The establishment of a home outside Australia

Your family accompanied you to Country Z and you established a new family home there. Your children attended school there.

(d) The abandonment of any residence of place of abode in Australia.

You vacated your rental property with a cessation of the lease prior to leaving for Country Z.

(e) The duration and continuity of your presence in the overseas country

As established above, you remained in Country Z for a period of less than 20 weeks in the 2011-12 financial year and over 10 weeks in the 2012-13 financial year. You and your family were living in rented accommodation and your children were attending school there.

(f) The durability of association you have with Australia.

After you and your family had established a home in Country Z you made a choice to return to Australia for a period of Y weeks for the birth of your child, and returned prematurely due to subsequent developments.

It was always your intention to return to Australia at some definite point in time. You did not sign a further contract to stay in Country Z but continued to work under the same conditions under a verbal agreement.

Results of the residence according to ordinary concepts test

Consideration of the guidelines provided and the Commissioner's view contained in IT 2650, leads us to the conclusion that your durability of association with Australia is stronger than your ties with Country Z.

It is acknowledged that you and your family surrendered your rental accommodation in Australia, arranged rental accommodation in Country Z and your children attended school there however you found it necessary to return to your family in Australia for the birth of your child.

In addition, you always intended to return to Australia and did so prematurely after learning from your colleague that the positions you were occupying were not exempt from tax in Australia.

Accordingly, you remained a resident of Australia for the period you were living and working in Country Z.

As stated previously, the residence according to ordinary concepts test is the primary test and once it has been established that have met these requirements it is not necessary to examine the remaining tests.

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