Edited version of private advice

Authorisation Number: 1012618564131

Ruling

Subject: Residency and assessability of income

1. Are you a resident of Australia for tax purposes?

Yes.

2. Is your foreign employment income assessable in Australia?

Yes.

This ruling applies for the following periods

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

The scheme commences on

1 July 2013

Relevant facts and circumstances

Your country of origin is country Y and you are a citizen of country Y.

Your spouse is a citizen of country Y.

You and your spouse moved to Australia and became Australian citizens.

You are employed with company Z in country X under an open ended contract.

You have an employer sponsored visa which enables you to live and work in country X for an initial period of a couple of years and this period can be extended as required.

Your spouse and children are living with you and have a similar type of visa.

You have provided a letter from your employer which states that company Z is responsible for your employment permit and residency visa.

You have not provided a copy of your employment contract as you state that it is restricted.

You state that your employment contract does not specify whether you will be repatriated to any particular country when your contract either expires or is terminated.

You intend to live and work in country X for the foreseeable future and have no plans to return to Australia at this time.

When your current contract finishes you intend to obtain another contract in the same location.

In the few years before taking up your employment contract in country X you were working in other overseas countries.

You and your family have not returned to Australia since taking up the country X contract and you do not intend on making any return visits during the period of the contract.

Your employer arranged your accommodation in country X and provides you with a rental allowance.

You and your family are living in a rented apartment in a gated community for foreigners country X.

All your possessions have been transported from your house in Australia to country X.

You have purchased two vehicles and have opened a bank account in country X.

Your only asset in Australia is your house which is being rented out.

You have a mortgage over the house.

You will be remitting funds to Australia to meet your mortgage commitments.

You do not have any extended family living in Australia.

Your spouse has extended family living in Australia.

Neither you nor your spouse has ever been employed by the Australian Commonwealth Government.

You have advised the Australia electoral office to have your name removed from the electoral roll.

You have advised Medicare to have your name removed from its records.

You have cancelled your Australian private health insurance.

On the Australian Immigration outgoing passenger card you stated that you were departing to reside overseas.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

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 Income Tax Assessment Act 1936 (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 Commonwealth superannuation fund 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 for taxation purposes. 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'. As the word 'reside' is not defined in Australian taxation law, it takes its ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936.

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'.

In considering the definition of 'reside', the High Court of Australia, in Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 at page 99-100, per Latham CJ, noted the term 'reside' should be given a wide meaning for the purposes of section 6(1) of the ITAA 1936. Similarly, in Subrahmanyam v Commissioner of Taxation 2002 ATC 2303, Deputy President Forgie said at paragraphs 43 and 44 that the widest meaning should be attributed to the word 'reside'.

The question of whether an individual 'resides' in a particular country is a question of fact and degree and not of law. In deciding this question, the courts have consistently referred to and taken into account the following factors as being relevant:

(i) physical presence in Australia;

(ii) nationality;

(iii) history of residence and movements;

(iv) habits and 'mode of life';

(v) frequency, regularity and duration of visits to Australia;

(vi) purpose of visits to or absences from Australia;

(vii) family and business ties with Australia compared to the foreign country concerned; and

(viii) maintenance of a place of abode.

The weight given to each factor varies with individual circumstances and no single factor is necessarily decisive. In Shand v Federal Commissioner of Taxation 2003 ATC 2080, the Tribunal stated (at 35):

Questions of residence, domicile, permanent place of abode, have frequently been found by the courts and tribunals to be difficult to assess on a factual level and not easy to define in concrete legal terms.

To determine whether or not you are residing in Australia for taxation purposes, it is necessary for us to examine each of these factors in the context of your circumstances.

(i) Physical presence in Australia

It is important to note that a person does not necessarily cease to be a resident because he or she is physically absent from Australia. In Joachim v Federal Commissioner of Taxation 2002 ATC 2088, the Tribunal stated (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.

Further, in Iyengar v. Federal Commissioner of Taxation 2011 ATC 10-222, (2011) AATA, the Tribunal stated (at 62):

Physical presence in a country for some period during a particular year of income is usually considered by the courts as necessary in order that a person should be resident in that country during that particular income year. However, there have been exceptions to this: Rogers v Inland Revenue Commissioners (1879) 1 TC 225 and Slater v Commissioner of Taxation (NZ) (1949) 9 ATD 1.

In your case, you have taken up an open ended employment contract in country X and currently have no plans to visit or return to Australia.

Although you may not be physically present here while you are working in country X, this does not preclude you from being an Australian resident as no single factor is necessarily decisive, as mentioned above.

(ii) Nationality

You were born in country Y and are a citizen of both country Y and Australia.

(iii) History of residence and movements

In the few years before taking up your current contract in country X you were working in other overseas countries.

(iv) Habits and 'mode of life'

You intend to live and work in country X for the foreseeable future and are living with your family in rental accommodation in a gated community made available to foreigners. The accommodation was organised by your employer and you receive an accommodation allowance as part of your remuneration.

The company you work for is responsible for your employment permit and residency visa. As such, your stay in country X is contingent on your ongoing employment with this company. Should your employment cease for any reason, you will be required to leave the country.

(v) Frequency, regularity and duration of visits to Australia

As previously mentioned, you currently have no plans to make any return visits to Australia.

(vi) Purpose of visits to and absence from Australia

The purpose of your absence from Australia is to work in country X.

(vii) Family, business and financial ties

Family

Your family is living with you in country X.

Business or economic

You have taken up an employment contract in country X.

You receive rental income from your house in Australia and remit funds from your salary to meet your mortgage commitments.

Assets

Your assets in Australia comprise of the house you own.

Your assets in country X comprise of the vehicles you purchased, a bank account and your household effects and furniture.

(viii) Maintenance of a place of abode

You house in Australia is being rented out. Therefore, you are not maintaining a place of abode in Australia.

Summary of the resides test

In your case, there are various factors that indicate that you are no longer residing in Australia. These are primarily:

• you are working in country X for the foreseeable future;

• you may renew your existing employment contract;

• your spouse and children are living with you;

• you have shipped your household effects to country X;

• you do not plan to make any return visits to Australia;

• you do not have any plans to return to Australia to live;

• your Australian residence is being rented to tenants; and

• you have cancelled your private health insurance and had your name removed from the electoral roll and Medicare records.

Based on the above, you are not residing in Australia according to the ordinary meaning of the word are not a resident of Australia under the 'resides' test of residency.

The domicile and permanent place of abode test

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

Domicile

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. A person may acquire a domicile of choice in another country if they have the intention of making their home indefinitely in that country (section 10 of the Domicile Act 1982).

In this regard, paragraph 21 of Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650) states that:

In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country e.g., through having obtained a migration visa. 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 your case, your domicile of origin was country Y and you moved to Australia and were granted Australian citizenship. Therefore, your domicile changed from country Y to Australia.

Although you intend to live in country X for the foreseeable future, you have not obtained a migration visa or become a permanent resident or a citizen of country X. Therefore, your domicile will remain Australia as you have not established a new domicile of choice in country X.

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 you intend to live for the rest your life.  An intention to return to Australia in the foreseeable future to live does not prevent you in the meantime setting up a permanent place of abode elsewhere.

It is clear from the case law that a person's permanent place of abode cannot be ascertained by the application of any hard and fast rules. It is a question of fact to be determined in the light of all the circumstances of each case.

In your case, your continuing presence in country X is dependent on your employer sponsored residence visa or permit. Should your employment cease for any reason, you will be required to leave the country. Although it is your intention to live and work in country X for the foreseeable future, the duration and continuity of your presence in country X is contingent on your continued employment with company Z. This makes your presence in country X is temporary in nature.

Consequently, the Commissioner is not satisfied that you have established a permanent place of abode in country X as your presence in country X is temporary in nature. You cannot establish a permanent place of abode in a place when your presence in the place is temporary.

Therefore, you will be a resident of Australia under the 'domicile and permanent place of abode' test of residency.

As you are a resident under this test, it is not necessary to consider the other two tests of residency.

Your residency status

You are a resident of Australia for tax purposes under subsection 6(1) of the ITAA 1936 for the income tax years.

Assessability of Income

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia.  However, where you are a foreign resident, your assessable income includes only income derived from an Australian source. 

In your case, your assessable income will include your worldwide income as you have been found to be a resident of Australia for tax purposes.

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