Edited version of your private ruling

Authorisation Number: 1012560630108

Ruling

Subject: Residency

Question and Answer

Are you an Australian resident for taxation purposes for the period you were employed overseas?

Yes

This ruling applies for the following period:

Year ending 30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances

You are a citizen of Australia.

You were born in Australia and lived in Australia all that time.

Your domicile is Australia.

You left Australia to work in the overseas country.

You were paid in your bank account in the overseas country.

Your employment in the overseas country was contracted for a period of about 12 months.

You did not intend to renew the contract of your employment.

You intention was to return to Australia after the end of your employment contract.

Prior to leaving Australia, you gave up the lease on the room you had in a share house and sold your car.

You shipped boxes of your belongings to the overseas country and packed the rest in storage.

You took over the lease of an apartment and purchased some of the previous lessee's furniture and belongings.

You also purchased some of your own furniture for the apartment.

You did not have a spouse and nor any dependents.

You have numerous friendship groups in both Australia and the overseas country.

You maintained your Australian bank account whilst overseas and transferred money from the overseas bank account to pay your credit card debts and mobile phone bill.

You did not have any other asset in Australia.

You did not visit Australia while you were employed overseas. You travelled to other countries for a holiday.

After the completion of your employment overseas, you commenced selling your furniture and household belongings in the overseas country and returned to Australia.

You entered into a new lease for an apartment on your return to Australia.

You have never been employed by the commonwealth government.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 995-1

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

The terms 'resident' and 'resident of Australia', in regard to an individual, are defined in subsection 6(1) of the ITAA 1936.

An Australian resident is taxed in Australia on income from all sources; a non-resident is only taxed in Australia on income from Australian sources.

The definition provides four tests to ascertain if an individual is a resident of Australia for income tax purposes. These tests are:

1. The resides test (residence according to ordinary concepts)

2. The domicile test

3. The 183 day test

4. 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 the individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for income tax purposes if they meet the conditions of one of the other three tests.

1. The resides (ordinary concepts) test

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3^rd edition, The Macquarie Library Pty Ltd, NSW, 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 provides guidelines for determining whether individuals who leave Australia temporarily to live overseas, for example, on temporary overseas work assignments or on overseas study leave, cease to be Australian residents for income tax purposes during their overseas stay.

The principles and guidelines adopted in IT 2650 can also be used for individuals who intend to reside overseas indefinitely. Paragraph 19 of IT 2650 states:

The first question to be asked in considering the residency status of a person temporarily leaving Australia is whether he or she can be considered to reside in Australia. If the test of residence according to ordinary concepts is satisfied, there is no need to go any further. The person is a resident of Australia for income tax purposes.

Various court and Tribunal decisions have also considered the ordinary meaning of the word 'reside' with the recent being Pillay v. Commissioner of Taxation [2013] AATA 447; Sneddon v. Commissioner of Taxation [2012] ATC 10-264; [2012] AATA 516 (Sneddon), Iyengar v. Commissioner of Taxation [2011] ATC 10-222;[2011] AATA 856 (Iyengar).

The Courts and the Tribunal have generally taken into account the following eight factors in considering whether an individual is an Australian resident according to ordinary concepts in an income year:

· Physical presence in Australia;

· 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;

· Family and business ties with Australia compare to the foreign country concerned; and

· Maintenance of a place of abode.

These factors are similar to those set out in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia. Although no one single factor is decisive and the weight given to each factor depends on individual circumstances, IT 2650 emphasises the intended and actual length of the individual's stay in an overseas country, any intention to return to Australia or travel elsewhere, the establishment or abandonment of any residence, and the durability of association that the individual maintains with a particular place in Australia as the main factors to be considered when determining the residency status of individuals leaving Australia.

Physical presence in Australia

A person does not necessarily cease to be a resident because he or she is physically absent from Australia.

TR 98/17 considers physical presence or length of time by itself is not determinative of residency. An individual's behaviour as reflected by a degree of continuity, routine or habit that is consistent with residing here is relevant.

In relation to this, the AAT stated in Joachim v Federal Commissioner of Taxation 2002 ATC 2088 (at 2090):

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 involuntary, 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, together with an intention to return to that place and an attitude that the place remains home.

This view was confirmed in the more recent case of Iyengar v FC of T [2011] AATA 856 (Iyengar's case).

You departed Australia for 12 months to travel to the overseas country on a working visa. You returned to Australia after the completion of your employment. You did not intend to renew your employment contract nor stay overseas after the contract ended

Nationality

The nationality of a person is rarely a decisive factor in deciding whether or not a person resides in a location, however it is one factor that is considered along with all of the circumstances of each case.

In your case you were born in Australia and are a citizen of Australia.

History of residence and movements

You were born in Australia and lived in Australia all that time. You departed Australia for 12 months to travel to the overseas country to work on a 12 month contract.

Prior to leaving Australia, you gave up the lease on the room you had in a share house and sold your car.

You shipped boxes of your belongings to the overseas country and packed the rest in storage.

You took over the second year of a lease of an apartment and purchased some furniture and belongings.

You also purchased some of your own furniture for the apartment.

You did not visit Australia while you were employed overseas. You travelled to other countries for a holiday.

After the completion of your employment, overseas, you commenced selling you furniture and household belongings in the overseas country and returned to Australia.

Habits and 'mode of life'

The Commissioner regards a person's habits and daily routines in regard to their domestic and business arrangements as strongly indicative of residency status. This is particularly relevant to determining the residency of a person who enters Australia, but is also relevant in assisting to determine the residency status of a person who leaves Australia.

"Where the day to day behaviour of individuals, considered over time, is relatively similar to their behaviour before entering Australia, they are likely to be regarded as residing here. Even when their behaviour over time is different from their behaviour before entering Australia, they are likely to be regarded as residing here, when the facts of their presence indicate a routine establishing they are living in Australia." (TR 98/17).

You were born in Australia and lived in Australia all that time.

You left Australia in mm/yyyy to work in the overseas country.

Prior to leaving Australia, you gave up the lease on the room you had in a share house and sold your car.

You shipped boxes of your belongings to the overseas country and packed the rest in storage.

You took over the second year of a lease of an apartment and purchased some furniture and belongings.

You also purchased some of your own furniture for the apartment.

You have numerous friendship groups in both Australia and the overseas country.

You maintained your Australian bank account whilst overseas.

You did not have any asset in Australia.

You did not visit Australia while you were employed overseas. You travelled to other countries for a holiday.

After the completion of your employment, overseas, you commenced selling you furniture and household belongings in the overseas country and returned to Australia.

You entered into a new lease for an apartment on your return to Australia.

These support the view that you have maintained your residence of Australia.

Frequency, regularity and duration of visits to Australia

Where a person is living in a country and visits another, the frequency and regularity of their visits is an important factor to be considered in determining whether or not they are resident in that other country.

Case law has shown that a taxpayer can be a resident of a country even if they only spend a short period of time in that country, for example the AAT found a taxpayer to reside in Australia despite the fact that he had only been present in Australia in the relevant income year for separate periods of only two weeks, three weeks and two and half weeks. A further decision found a taxpayer who had only been present in Australia for two separate periods of two weeks and ten days during a period of two years and seven months to be residing in Australia.

While you were employed overseas you did not visit Australia. However you were only absent from Australia for a short time.

Purpose of visits to or absences from Australia.

You were absent from Australia for a period of approximately X months purely for work purpose. At the end of you employment, you returned to Australia.

As above you were only away from Australia for a short time.

Family and business ties with Australia

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.

The Macquarie Dictionary defines 'family' as:

· parents and their children, whether dwelling together or not.

· one's children collectively.

· any group of persons closely related by blood, as parents, children, uncles, aunts, and cousins.

Your only tie overseas was as a result of, and only for the purposes of, your employment there.

You are not married and do not have any dependents overseas

Assets

You had a bank account in overseas country.

You maintained your Australian bank account.

You shipped boxes of your belongings to the overseas country and packed the rest in storage in Australia.

You also purchased some of your own furniture for the apartment in the overseas country.

You did not have any other assets in Australia.

Maintenance of a place of abode in Australia

The maintenance of a place of abode in Australia is an important factor when considering the residency status of a taxpayer.

Prior to leaving Australia, you gave up the lease on the room you had in a share house. After the completion of your employment, you returned to Australia.

You entered into a new lease for an apartment for X months

Application to your circumstance

As stated above it is important that not one single factor is decisive and the weight given to each factor depends on individual circumstances.

While you settled into life in the overseas country it was for only X months,

Your intention was to be in the overseas country until the end of your employment contract and you intended to return to Australia after the completion of your contract.

Based on a consideration of all of the factors outlined above you are a resident of Australia according to the resides (ordinary concepts)

Other residency tests

Even where a taxpayer is not considered to 'reside' in Australia in accordance with the ordinary meaning of the term, the taxpayer will still be considered to be a resident of Australia for domestic taxation purposes where they meet one of the other three residency tests, being the domicile and permanent place of abode test, 183 day test and the superannuation fund test.

Domicile and permanent place of abode

Under this test, a person whose domicile is in Australia is deemed to be a resident of Australia for tax purposes, unless the Commissioner is satisfied that their permanent place of abode is outside Australia.

Domicile is a legal concept. The primary common law rule is that a person acquires at birth a domicile of origin, being the country of their father's permanent home. A person retains the domicile of origin unless and until they acquire a domicile of choice in another country, or until they acquire another domicile by operation of law.

In order to show that a new domicile of choice in a particular country has been adopted, a person must be able to prove an intention to make his or her home indefinitely in that country, for example, through having obtained a migration visa. Working, even for a substantial period of time, would not be sufficient evidence of an intention to acquire a new domicile of choice.

The expression 'place of abode' refers to a person's residence, where one lives with one's family and sleeps 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.

In its context in the resident definition, a 'permanent' place of abode does not have the meaning of everlasting or forever. Rather, it is used in the sense of being contrasted with a temporary or transitory place of abode outside Australia. The nature and quality of use which a taxpayer makes of a particular place of abode overseas is important (FC of T v. Applegate 79 ATC 4307; (1979) 9 ATR 899).

Application to your circumstances

You were born in Australia and therefore your domicile of birth is Australia. You have not acquired another domicile of choice. Your living arrangement was temporary and you returned to Australia after the completion of your employment.

As you have an Australian domicile you will be a resident of Australia unless the Commissioner is satisfied that you have a permanent place of abode outside of Australia.

Permanent place of abode

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.

A permanent place of abode does not have to be everlasting or forever. It 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.

IT 2650 sets out a number of factors established by Court and Tribunal decisions which assist in determining a taxpayer's permanent place of abode;

i. the intended and actual length of the taxpayer's stay in the overseas country;

ii. 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;

iii. 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;

iv. whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;

v. the duration and continuity of the taxpayer's presence in the overseas country; and

vi. durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

As with the factors under the resides test not one single factor is decisive and the weight given to each factor depends on individual circumstances.

Application to your circumstances

Your employment in the overseas country was contracted for a period of X months.

You did not intend to renew the contract of your employment.

You intention was to return to Australia after the end of your employment contract.

Prior to leaving Australia, you leased a room you had in a share house.

You maintained your Australian bank account whilst overseas.

After the completion of your employment, overseas, you commenced selling your furniture and household belongings in the overseas country and returned to Australia.

You entered into a new lease for an apartment on your return to Australia.

The Commissioner is not satisfied that you have established a permanent place of abode outside of Australia.

You are a resident of Australia under the domicile test.

3. 183 Days Test

Where a person is present in Australia for more than half the year of income the person will be a resident, 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.

Application to your circumstances

As you are a resident under the first two tests, this test hasn't been considered.

4. Superannuation Test

This test only applies to persons eligible to contribute to the Superannuation fund for Commonwealth government officers or their spouses or their children under the age of 16 years.

Application to your circumstances

This test does not apply to your circumstances as you have never been employed by the Commonwealth government.

Your residency status

As you meet at least one of the tests you are a resident of Australia for tax purposes during the time you were employed in the overseas country.

Foreign income

Subsection 6-5(2) of the Income Tax Assessment Act 1997 includes in the assessable income of an Australian [tax] resident "… ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year"

As you are an Australian resident while you worked overseas, the income you derived while working overseas will be assessable income.

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