Edited version of your private ruling

Authorisation Number: 1012492395010

Ruling

Subject: Residency - leaving Australia

Question and answer:

Will you be a resident of Australia for taxation purposes after you depart Australia for a maximum of two years?

Yes.

This ruling applies for the following period:

1 July 2013 to 30 June 2015.

The scheme commenced on:

1 July 2013.

Relevant facts and circumstances:

You were born in Australia.

You are an Australian citizen.

You are not a citizen of any other country.

You intend to depart Australia for a working holiday.

You intend to return to Australia within one to two years.

You will travel to Country A on a visa that will allow you to live and work there.

You intend to live and work in Country A for the majority of time but you will also travel throughout other countries while you are away.

You will stay with friends in Country A.

You do not intend to return to Australia during the period you are away.

You will retain your Australian bank accounts while you are away.

You will maintain contact with your family and friends in Australia while you are away.

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 remaining 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 specifies that a person's place of abode is where they live.

You will be overseas for a period of up to two years, during which time you will live and work in Country A and travel to other countries. While you are away you will not be a resident of Australia for taxation purposes under this test because you will not be living in Australia during that time.

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 has a permanent place of abode 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.

You were born in Australia, therefore your domicile of origin is Australia.

You have stated your intention to return to Australia within two years of leaving. Therefore, you will retain your Australian domicile during the period you are overseas.

Because you will retain your Australian domicile, if the Commissioner is not satisfied you will have a permanent place of abode outside Australia while you are overseas, you will remain a resident of Australia for taxation purposes under this test.

In the context of 'a permanent place of abode' the word 'permanent' 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 an overseas stay for a period of up to two years is generally considered transitory in nature and that a taxpayer who returns to Australia after a transitory stay overseas usually retains their Australian residency for taxation purposes during their absence.

IT 2650 also notes that the length of a taxpayer's stay overseas is not necessarily conclusive in its own right in determining whether or not a permanent place of abode was (or will be) established by the taxpayer in an overseas location. Rather, IT 2650 notes that a number of factors must be considered to reach a state of satisfaction as to whether or not a permanent place of abode was (or will be) established in an overseas location. 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, the Commissioner is not satisfied that you will establish a permanent place of abode outside of Australia while you are overseas. In particular we note that:

· Your intention is to travel overseas for between one and two years on a working holiday after which you intend to return to Australia. Although you will base yourself in Country A for the majority of time you are away, you will also travel throughout other countries during that time. These facts support the conclusion that your overseas trip will be transitory in nature.

· You will not establish a home that could be said to be your 'fixed' residence while you are overseas. Rather you will base yourself at accommodation in Country A that is owned by friends. Whilst this would undoubtedly be considered your 'place of abode' while you are in the overseas country, it cannot be considered a 'permanent place of abode outside of Australia'. This position is supported by the recent decision of the Administrative Appeals Tribunal in Boer v FC of T 2012 ATC 10-269 (Boer's case) in which Hack PE noted three matters in particular that precluded the conclusion that a dwelling was a permanent place of abode of the taxpayer. These factors were:

o That the dwelling in question was not the place of abode of the taxpayer for the whole of the period of time concerned. This is relevant to your situation because although you will spend the majority of your time in Country A, you also intend to travel throughout other countries during the time you are overseas.

o That there was an equivalent basis for regarding Australia as the taxpayer's permanent place of abode. This is relevant in your situation because you have stated your intention to return to Australia within one to two years and you will not remain in one place for the duration of your time overseas.

o The taxpayer in Boer's case did not have an exclusive right of possession for the dwelling in question. This has relevance to the accommodation you will use in Country A because you will be staying in accommodation owned by friends and it cannot be said that accommodation is yours to occupy exclusively.

· We also consider that during the period of time you are away, your durability of association with Australia will remain greater than any durability of association you could be said to have with Country A or with any other countries you visit. We consider this to be the case because:

o you will be outside Australia for a relatively short period of time (between one and two years), and will not remain in one place for the whole time you are away,

o you intend to return to Australia,

o you will maintain your Australian bank accounts during your absence, and

o you intend to maintain contact with friends and family in Australia while you are away.

Considering the above, you will be a resident of Australia for taxation purposes under this test while you are overseas because you will maintain your Australian domicile and you will not have a permanent place of abode overseas.

Conclusion

During the period of time you are away on your working holiday you will remain a resident of Australia for taxation purposes under the domicile test.

As you will be a resident of Australia for taxation purposes under the domicile test, it is not necessary to consider the application of the remaining tests of residency to your circumstances.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).