Edited version of your private ruling

Authorisation Number: 1012465787944

Ruling

Subject: Residency

Question 1

Are you a resident of Australia as defined in subsection 6(1) of the Income Tax Assessment Act 1936 for income tax purposes for the year ended 30 June 2012?

Answer

Yes, you are a resident of Australia for the period you were physically in Australia.

You are not a resident of Australia for the periods you were physically absent from Australia.

This ruling applies for the following periods:

1 July 2011 to 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You moved to Australia and became an Australian citizen.

In early 20XX, accompanied by your family, you departed Australia to take up an employment opportunity in Country A with a Country A company. You maintained a home there and your children went to school there. During the period you were in Country A, you returned to Australia to attend business meetings.

On completion of your work assignment in Country A in the first half of the relevant year, you were seconded to work for Company X in Country B on behalf of Company Y, an Australian company.

You returned to Australia in the first half of the relevant year accompanied by your family. Whilst in Australia you finalised your contract and provided original documents to proceed with the Country B visa application. Your stay in Australia was intended to be for a short period but due to a delay with your employment contract, the length of your stay in Australia was extended to over a month.

During the time you and your family were in Australia you stayed temporarily in an apartment.

During the period that you were in Australia you earned Australian sourced income, being wages paid by Company Y, into your Australian bank account.

You departed Australia to undertake a secondment in Country B. Your employment in Country B was for an initial period of twelve months. Your secondment is to be extended for a year, and may be subject to further extension. Depending on employment opportunities, you may choose to stay in Country B or to return to Country A or Australia at the conclusion of your contract.

You have visited Australia since departing for Country B, to take the family and to attend a business meeting. These visits were of brief duration.

Your spouse and children stayed in Australia before joining you in Country B in the latter half of the relevant year as the school in Country B advised joining the school later in the relevant year. Additionally, you could not obtain suitable housing in Country B until later in the relevant year.

For the specified period of months that your family were in Australia, they reactivated their private health insurance and used Medicare facilities. Your children also attended a local school for one term.

All your family members are living with you in Country B and none are in Australia.

You live in rented accommodation in Country B, which is subject to a lease. The accommodation and furnishings are paid for by Company A and reimbursed by Company B.

You have obtained a Country B employment visa for Y years.

Your wages and salary from the secondment in Country B are paid into an account which provides mortgage for your properties, and also into an account with a bank in Country B.

You are required to pay tax in Country B.

Your children attend school in Country B.

You own properties under mortgage in Australia, as well as shares. One of the properties was your home in Australia which has been rented out since early 20XX.

You retain bank accounts and credit cards in Australia.

You have a bank account in Country A, which is kept open to receive a refund of insurance excess.

You have a bank account and credit cards in Country B, and you own cars there.

You have held an Australian driver's license, and you held a Country A driver's licence from 20YY -20ZZ.

You and your family suspended private health insurance for periods outside of Australia.

You do not currently contribute to an Australian superannuation fund. Your membership in the Company Y Superannuation Fund is non-active.

You are a member of various clubs and associations.

You and your spouse are not Commonwealth Government of Australia employees.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 995-1(1)

Income Tax Assessment Act 1936 subsection 6(1)

Reasons for decision

Residency

An Australian resident is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 ('ITAA 1997') to be 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 regards 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 a resident of Australia if they meet the conditions of one of the other three tests.

As you were present in Australia for over a month in the relevant year and you or your spouse are not members of a relevant superannuation scheme and also are not eligible employees for the purposes of the Superannuation Act 1976, both the 183 day test and the superannuation test are not relevant to your circumstances.

The resides test

The term 'resides' is not defined in the Australian income tax legislation and takes its ordinary meaning.

Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia ('TR 98/17') at paragraph 14 references the Macquarie Dictionary definition of 'reside', which is 'to dwell permanently or for a considerable time; have one's abode for a time'; and the Shorter Oxford English Dictionary definition, which 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'.

In Re Executors of the Estate of Subrahmanyam and Federal Commissioner of Taxation [2002] AATA 1298, in considering the word 'resides', Deputy President Forgie said at paragraph 48:

In its broadest sense, 'resides' carries with it the notion of having a home in a particular place. It carries with it the notion of some physical presence with the notion of an intention to treat the place as home, at least for the time although not necessarily forever. It may be expressed in terms of dwelling in a place.

The period of physical presence or length of time in Australia is not, by itself, decisive of residency. However, an individual's behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residence.

TR 98/17 identifies the following factors as being useful in describing the quality and character of an individual's behaviour:

(a) intention or purpose of presence;

(b) family and business/employment ties;

(c) maintenance and location of assets;

(d) social and living arrangements;

(e) period of physical presence in Australia.

In addition, the courts have also generally taken into account an individual's nationality; history of residence and movements; habits and 'mode of life'; frequency, regularity and duration of visits to Australia; purpose of visits to or absences from Australia; and maintenance of a place of abode: see Sneddon v Federal Commissioner of Taxation 2012 ATC 10-264 at par 45 ('Sneddon'); Iyengar v Federal Commissioner of Taxation 2011 ATC 10-222 ('Iyengar') at par 61 to 82.

No single factor necessarily determines residency, and the weight given to each factor varies depending on individual circumstances.

Application to your circumstances

You returned to Australia in the first half of the relevant year subsequent to the completion of your work in Country A, and you departed Australia over a month later to undertake a secondment in Country B. For the relevant year ended, you were physically present in Australia for over a month, during which time:

· it was your intention to remain in Australia for a short period, but due to a contractual delay your stay was extended to over a month;

· you finalised your contract for Country B and provided original documents to proceed with the Country B visa application;

· you were accompanied by your family;

· you and your family stayed temporarily in an apartment;

· you earned Australian sourced income, being wages paid by Company Y, into your Australian bank account;

· your children attended a local school for a term;

· your family reactivated their private health insurance and used Medicare facilities;

· your home in Australia was rented out;

· you did not maintain a home outside of Australia;

· you held an Australian driver's licence.

At the completion of your employment in Country A, you chose to return to Australia where you maintain significant assets, including properties under mortgage, shares and bank accounts, and where your family was able to reactivate their private health insurance and use Medicare facilities, and your children were enrolled in school. For the period of your stay in Australia, you and your family arranged domestic affairs and exhibited behaviour which would be relatively similar to the arrangements and the behaviour of when you were residing in Australia prior to your time in Country A. It is in contrast to behaviour likely to be exhibited by you and your family if you had come to Australia for a visit or holiday. The character and quality of your behaviour during the period of your stay in Australia reflects a degree of continuity, routine or habit that is consistent with residence. Whilst you intended your stay in Australia to be temporary, and you remained in Australia for only a brief period of time, you were for that period, albeit briefly, residing here.

A conclusion that you are a resident of Australia for the intervening period between employment engagements undertaken overseas is consistent with the example given at paragraph 37 of Taxation Ruling IT 2650 Income tax: residency - permanent place of abode outside Australia ('IT 2650'), where an Australian missionary was overseas for a period of 4 to 6 years with the probability of again being posted overseas after completion of furlough leave in Australia. She was considered to be a non-resident during the period of her absence overseas. However, during the period of furlough in Australia, and while she was in Australia awaiting reappointment to another overseas post, she was not considered to have a permanent place of abode outside Australia and was a resident of Australia.

Accordingly, you are a resident of Australia for income tax purposes under the primary residence test for the period of over a month that you were physically in Australia in the relevant year.

The domicile test

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

Domicile is a legal concept. The primary common law rule, subject to certain exceptions, is that a person acquires at birth a domicile of origin, being the country of his or her father's permanent home. A person retains this domicile until another domicile is acquired, either by choice or by operation of law: see paragraph 8 of IT 2650.

Generally, persons leaving Australia temporarily are considered to have maintained their Australian domicile unless the person is able to prove an intention to make his or her home indefinitely in another country, for example through having obtained a migration visa. IT 2650 states at paragraph 21, that a working visa, even for a substantial period of time such as 2 years, would not be sufficient evidence of an intention to acquire a new domicile of choice.

In the present circumstances, you maintain your Australian domicile.

For individuals with an Australian domicile, it is subsequently necessary to consider whether they have a permanent place of abode outside of Australia.

IT 2650 provides guidance as to 'place of abode' and 'permanent place of abode' at paragraphs 11 to 17. The expression 'place of abode' refers to a person's residence, where they live with their family and sleep and night. In essence, a person's place of abode is that person's dwelling place or the physical surroundings in which a person lives. For a place of abode to be permanent it does not have to be everlasting or forever, and it also 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.

In the leading case of Federal Commissioner of Taxation v Applegate 79 ATC 4307 ('Applegate'), the taxpayer was held not to be a resident of Australia as he had established a permanent place of abode in Vila, New Hebrides, where he had gone, accompanied by his wife, to open and maintain a branch office on behalf of his law firm, and where he would remain for several years. The taxpayer had, prior to leaving Australia, given up the tenancy of his flat and assets in Australia, and in the New Hebrides, had obtained a lease for a house and become admitted as a legal practitioner. It was the intention of the taxpayer and his firm that after the lapse of an indefinite period of time the taxpayer would return to the Sydney office. Subsequently, on account of illness, the taxpayer and his family returned to Australia after being in Vila for almost two years. The Court regarded the taxpayer's intention to return to Australia after the lapse of an indefinite period of time as being only one relevant factor to be taken into account. Of more importance was the nature and quality of use which the taxpayer made of a particular place of abode: see Fisher J at 4317. Thus, notwithstanding the taxpayer's intention ultimately to return to Australia, a permanent place of abode had been established.

The other case of significance, Federal Commissioner of Taxation v Jenkins 82 ATC 4098, involved an accountant taxpayer appointed by his bank to Vila, New Hebrides for a term of three years with the possibility of extension. As the taxpayer's home in Australia could not be sold, the bank leased the premises, and stored the taxpayer's furniture at its own expense. The taxpayer retained a bank account in Australia to deal with rent receipts. Subsequently, the taxpayer was repatriated to Australia after eighteen months. It was considered by Sheahan J that the taxpayer had not given any consideration to prolonging his stay beyond the agreed three years, however although the taxpayer did not have an intention to remain indefinitely in Vila, which distinguished it from Applegate, his Honour was not prepared to accept that a stay outside of Australia for a fixed period should be regarded as temporary simply because the limits of the stay were fixed and ascertainable, and held that the taxpayer had established a permanent place of abode outside of Australia.

Some of the factors identified in IT 2650 considered relevant to whether a permanent place of abode has been established, are:

(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 of Australia;

(d) the abandonment of any residence or place of abode the individual may have had in 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.

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.

Application to your circumstances

For the relevant year, you were living in Country A between 1 July 20YY until you departed Country A in the first half of the relevant year; and you were living in Country B between the date you departed Australia in the first half of relevant year and 30 June in the relevant year.

In respect of the period you were in Country A:

· you had departed Australia to undertake employment with a Country A company and you ultimately lived in Country A for about Z years;

· your family accompanied you to Country A, and your children attended school there;

· you maintained a house in Country A and had a bank account;

· you held a Country A driver's licence from 20YY-20ZZ;

· your house in Australia was rented out, and you and your family suspended Australian private health insurance;

· you visited Australia twice to attend business meetings;

· you retained significant Australian assets.

For the period you were in Country A, it is considered that you had established a permanent place of abode in Country A, and you were not a resident of Australia for income tax purposes.

In respect of the period you were in Country B:

· you departed Australia to undertake a secondment for an initial period of 12 months, and your secondment is to be extended for a year with the possibility of further extension;

· you have obtained a Country B employment visa for a number of years;

· depending on employment opportunities, you may choose to stay in Country B or to return to Country A or Australia at the conclusion of your contract;

· you live in rented accommodation in Country B, which is subject to a two year lease. The accommodation and furnishings are paid for by Company X and reimbursed by Company Y;

· you have a bank account and credit cards in Country B, and you own cars there;

· your wages and salary from the secondment are paid into an account which provides mortgage for your properties, and also into an account with a Country B bank;

· you do not currently contribute to an Australian superannuation fund. Your membership in the Company Y Superannuation Fund is non-active;

· in the latter half of the relevant year your family travelled to Country B to be with you. They had been unable to accompany you earlier due to school admission requirements and the availability of suitable housing in Country B;

· your children currently attend school in Country B;

· all your family members are now living with you in Country B and none are in Australia;

· you have visited Australia since departing, to take the family and to attend a business meeting. These visits were of short duration;

· your house in Australia is rented out, and was not used by you on return trips to Australia;

· you and your family suspended Australian private health insurance;

· you retain significant Australian assets.

It is evident from the case law that no bright line distinction exists in respect of residency, and it is a question of fact to be determined in the light of all the circumstances of each case.

In Iyengar the taxpayer was found to be a resident of Australia under ordinary concepts in circumstances where:

· the taxpayer's employment contract in Dubai was for a period of two years with an option to extend, and the taxpayer spent almost 2 years and 7 months in Dubai and later Doha working for the company;

· it was the intention of the taxpayer to return to Australia upon completion of the contract, and he had been motivated to undertake the overseas employment in order to accelerate payment of the mortgage on the family home in Australia;

· the taxpayer's employer paid the rent of furnished accommodation in Dubai, some utilities, and the running costs of a car placed at his disposal;

· the taxpayer did not purchase any substantial items of personal property, e.g. a car, outside of Australia;

· the taxpayer's wife and son continued to reside in the family home in Australia, and his personal and jointly owned items of property were left there;

· during periods of return to Australia totalling 24 days, the taxpayer stayed with his family in the family home;

· the taxpayer's wife visited him in Dubai on three occasions;

· the taxpayer's salary was deposited in Australian dollars into a bank account maintained by the taxpayer in the UAE, and was used to make regular mortgage payments on the jointly owned Australian home.

The Tribunal considered that despite the taxpayer's limited physical presence in Australia, it was clear he had maintained a place of residence in Australia, retained a continuity of association with Australia, as well as an intention to return to Australia upon completion of his employment outside of Australia, and an attitude that the property in Australia was the family home. The Tribunal also indicated in obiter that the taxpayer had not established a permanent place of abode in Dubai.

Similarly, in Sneddon the taxpayer was held to be a resident of Australia according to ordinary concepts during his period of employment overseas, and despite physical absence for most of the income year, as the taxpayer had maintained a 'continuity of association' with Australia in circumstances where:

· the taxpayer had a home in Australia which continued to be available to him during visits to Australia as it had not been rented out, and which was used to store personal items and his car;

· on return visits to Australia from Qatar, the taxpayer lived at his property and drove his car;

· the taxpayer was not accompanied by his partner during the relevant year, but was subsequently joined by his partner who decided to move there only after twice visiting the taxpayer in Qatar;

· all personal ties of the taxpayer were with Australia, and his only tie with Qatar was his employment;

· in Qatar, the taxpayer lived in a fully-furnished apartment provided by his employer, and some of his utilities were also paid for by his employer;

· more than half the taxpayer's overseas employment earnings (which were deposited into his Australian bank account), were used to cover expenses in Australia, including those connected with his property, telephone and internet connections;

· the taxpayer's employer made superannuation contributions to his Australian superannuation fund;

· the taxpayer was physically present in Australia on 3 occasions in the relevant year totalling approximately 7½ weeks.

The Tribunal also indicated in obiter that the taxpayer had not established a permanent place of abode in Qatar.

However, in Case R92 84 ATC 615, the taxpayer was found to have established a permanent place of abode outside of Australia in circumstances where:

· the taxpayer was an engineer employed with a consultancy company and then by an affiliate, who at the direction of his employer accepted an overseas appointment and departed Australia for the Philippines accompanied by his wife and three children, living there for almost two years;

· whilst there was some uncertainty as to the tenure of the appointment, it was the taxpayer's expectation that his duties would be ongoing under extensions, but ultimately that he would return to Australia at some time in the future;

· all costs attached to the transfer were borne by the employer;

· the taxpayer leased out his home in Australia, and he and his wife continued to operate bank accounts in Australia during their absence to accept rental receipts and transfers of salary, and to pay mortgage instalments and life assurance premiums. Additionally, the taxpayer retained membership of his Australian private health fund;

· the taxpayer obtained a house in the Philippines which was furnished from an allowance provided by his employer;

· the two eldest children attended school in the Philippines;

· at the conclusion of his time in the Philippines the taxpayer recommenced occupancy of his home in Australia and was re-engaged by the Australian arm of the consultancy group.

The Board of Review considered that the taxpayer had left Australia for an indefinite period and his stay in the Philippines could not be described as temporary or transitory. Having regard to the nature and quality of the use of the place of abode in the Philippines, they were satisfied that a permanent place of abode had been established outside of Australia.

In Case S19 85 ATC 225, the taxpayer was also found not to be a resident of Australia as he had established a permanent place of abode outside of Australia. The taxpayer was a bank officer who undertook employment for two years in Port Vila, and during the period overseas retained a house in Australia which was leased out, a bank account into which rent was deposited, and he also continued to contribute to his mortgage, superannuation and life insurance in Australia. In Port Vila, the taxpayer lived with his family in a fully furnished house provided by his employer, and at the conclusion of his time overseas the taxpayer returned to living in his home in Australia. The Board of Review was satisfied that the taxpayer had abandoned his residence or place of abode in Australia and formed the intention to reside outside of Australia. His place of abode in Port Vila was not merely temporary or transitory; rather it was intended to be and was in fact his home for the time being. PM Roach commented at p231, that it was usual for bank officers to be transferred from one state or region to another, and ordinarily when families move in those circumstances they re-establish the family home in a manner suited to prolonged occupation. This is something quite distinct in character from the action of an individual or a family group 'making do' in temporary accommodation with limited resources and facilities.

Although your circumstances bear some similarity to Iyengar and Sneddon in that you retain significant assets in Australia, your accommodation in Country B is provided by your employer, and you use your salary to contribute to mortgages on your Australian properties, and thereby retain some continuity of association with Australia, your circumstances may be distinguished on the following basis:

· it was the intention when you departed Australia for Country B that you would eventually be joined by your family, and they have now relocated to Country B and are living there with you;

· as your former family home in Australia has been rented out it is not available to you, and you did not live there on the occasions you returned briefly to Australia since you departed for Country B;

· you have purchased substantial personal assets in Country B, i.e. cars, and you have a bank account and credit cards in Country B;

· depending on employment opportunities, you may choose to stay in Country B or to return to Country A or Australia at the conclusion of your contract;

· you do not currently contribute to an Australian superannuation fund. Your membership in the Company Y Superannuation Fund is non-active.

These factors point to the establishment of a permanent place of abode in Country B.

Additionally, although your family did not immediately join you in Country B, this was due to the availability of schooling and housing, and it was the intention at your departure that your family would eventually relocate to Country B, consistent with your previous arrangement when you were employed overseas in Country A.

In this regard, the Tribunal in Mayhew v Federal Commissioner of Taxation 2013 ATC 10-300 ('Mayhew'), in finding that the taxpayer in that case had established a permanent place of abode outside of Australia from the date of his departure, did not consider it to be of significance that the taxpayer's wife had not joined him overseas immediately when he departed Australia to undertake work in the UAE in December 2007, as she wished to continue working as a nurse until her contract finished, and only joined him permanently in April 2009. The Tribunal accepted, against a history of the taxpayer following work opportunities around the world, that it was consistent with the lifestyle they had always followed that the taxpayer's wife would eventually abandon her job in Australia and join her husband overseas, and this is precisely what occurred.

The retention of significant assets in Australia also arose in Mayhew. The taxpayer had retained substantial investment properties in Australia, including his former primary residence which was leased to the taxpayer's son, as well as cars in Australia which were used by the children. The Tribunal commented that the taxpayer, when returning to Australia had stayed in temporary accommodation (mainly hotels), and did not in any sense use the former family home as a residence, and attributed no significance to the fact that the application's cars remained registered in his own name and were in use.

On balance, it is considered for the period you were in Country B, that you are not a resident of Australia according to ordinary concepts, and having regard to the nature and quality of the use of the place of abode in Country B, that you have established a permanent place of abode in Country B.

Accordingly, you were not a resident of Australia for income tax purposes for the period you were in Country B.

Part year residency

The tax free threshold for a resident of Australia is $6,000 for the relevant income year. If you are only a resident for part of an income year your tax free threshold may be less than this amount.

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