Edited version of private advice

Authorisation Number: 1012624482042

Ruling

Subject: Residency for tax purposes

Questions and answers

1. Were you a resident of Australia for tax purposes for the period you were in Country X under Australian domestic taxation law?

Yes.

2. Were you a resident of Australia for tax purposes for the period you were in Country X under the double tax agreement between Australia and Country X?

Yes.

3. Is the income you earned in Country X assessable in Australia?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2012

Year ended 30 June 2013

Year ending 30 June 2014

The scheme commenced on:

1 July 2011

Relevant facts and circumstances

You were born in, and are a citizen of Australia.

You departed Australia in January 20XX for Country X.

You went to Country X for the purposes of a secondment.

Your family accompanied you to Country X.

Your contract states, in part:

• The position is in the form of a short-term assignment with the company for a term of 24 months under the terms of your existing contract of employment.

• Your home location is Australia. Your host location is Country X.

• Contributions of an amount equal to your base salary (in Australian dollars) multiplied by J% will continue to be paid on a monthly basis to an Australian Superannuation Fund nominated by you or, if you so elect, the same percentage of your base salary expressed in Country X currency will be paid to a Country X pension plan which you may establish.

• Your gross remuneration will be subject to taxation and National Insurance in Country X and dependent on your personal circumstances you may remain a tax resident of Australia.

• The company will either apply for the necessary visa/work permits for an Assignee or reimburse the cost of obtaining work permits, visas and other required documentation.

• The company will provide you and your family with business class return air tickets by a direct route from your home base to Country X to your Home Base at the end of the Assignment.

• The company will pay for transportation of a reasonable quantity of personal effects by airfreight and/or shipping.

• On repatriation at the conclusion of the Assignment, similar costs of transportation of your personal items to your Home Location will be paid by the company.

• The company will pay reasonable costs of storage of your household goods and those personal effects not transported to Country X.

• For the period of Assignment you will be entitled to your normal leave of five weeks per annum.

• You will be entitled to one return visit to Australia (business class air travel) for your family per year during the period of Assignment.

• You will be entitled to an allowance for unfurnished rental accommodation plus an additional amount for furniture hire. The house rental agreement must be entered into by the company.

• Upon completion of the assignment, it is anticipated that the Assignee will return to an appropriate position within the company in the home location or as may be otherwise agreed.

• Assignments may be extended beyond the intended duration by mutual agreement between the company and the Assignee.

You entered Country X on a Intra Company Transfer Long Term Migrant Visa. The visa was for a three year period. Your employer organised and sponsored your visa.

Your accommodation in Country X was provided to you by your employer.

While in Country X, you held the following assets in Country X:

• Motor vehicle

• Bank accounts

• Household effects

While in Country X, you held the following assets in Australia:

• Bank accounts

• Your former main residence which was demolished while you were in Country X

• A rental property

• Personal effects (in storage)

You earned rental income from your Australian rental property while you were in Country X.

You are unsure whether your name was removed from the Australian electoral roll. You voted in the state election while in Country X to ensure you did not break any electoral laws.

You advised your Australian bank that you were relocating overseas.

You did not advise Medicare to have your name removed from their records.

You cancelled your Australian private health insurance.

You stated on your Australian Immigration outgoing passenger card that the reason for your departure was 'business'.

You state that at the time of your departure it was your intention to remain in Country X indefinitely.

You departed Country X permanently after less than two years.

During the time you were in Country X, you returned to Australia three times, two trips solely for employment purposes and the third trip also in connection with your employment but your family accompanied you for a holiday. All trips were paid for by your employer. You stayed in hotels, serviced apartments and at your family member's house. You were in Australia for no more than 17 days during any of these trips.

Your agent stated that you returned to Australia after less than two years due to you leaving the employment of your employer.

Your agent also stated that it is coincidental that the rebuilding of your main residence in Australia was completed just prior to your return to Australia.

While in Country X, you were treated as a resident of Country X for Country X tax purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

Residency for Australian domestic tax law purposes

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. 

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 relocated to Country X for employment purposes. You stated on your outgoing immigration departure card that the reason for your departure was business. Your employer provided you and your family a return trip to Australia each year and provided for your relocation to and from Country X at the beginning and end of your secondment. According to your contract, the term of your secondment was two years, however this could be extended by mutual agreement. You were physically present in Country X for less than two years before returning to Australia.

As stated above, although you were physically absent from Australia for a period of less than two years, this does not necessarily indicate that you were not a resident during this period, particularly given that according to your contract you were provided return flights annually to your "home base" of Australia and your employer also provided for your relocation at the beginning and end of your employment.

(ii) Nationality

In your case, you were born in Australia and are an Australian citizen. You are not a citizen of Country X.

This indicates your continuing association to Australia.

(iii) History of residence and movements

In your case, you lived and worked in Australia prior to your departure to travel to Country X. As previously discussed, the term of your secondment was two years with annual return trips and relocation costs all provided by your employer.

The fact that your employer considered your "home base" to be Australia and provided you with return trips to Australia during your secondment indicates a continuing association with Australia.

(iv) Habits and 'mode of life'

You intended to live and work in Country X for at least two years and lived in employer provided accommodation in Country X. You entered Country X on a Tier 2 Intra Company Transfer Long Term Migrant Visa. The visa was for a three year period. Your employer organised and sponsored your visa. While in Country X you purchased a motor vehicle and household effects and set up bank accounts. Your employer considered your "home base" to be Australia and provided you with return trips to Australia during your secondment. You returned to Australia three times during the period you were seconded to Country X. You returned to Australia when you decided to end your employment with your employer.

Although you had set up accommodation and purchased assets in Country X, the fact that your accommodation was supplied to you by your employer, the fact that you were on a restrictive visa sponsored by your employer who still considered your "home base" to be Australia and the fact that when you ended your employment you returned to Australia, all indicate that you were in Country X specifically for work purposes and not to live there.

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

As stated above, the term of your secondment was two years with annual return trips and relocation costs all provided by your employer. You returned to Australia three times during your secondment for work-related purposes, and your family accompanied you on one trip for a holiday.

This indicates your continuing association to Australia.

(vi) Purpose of visits to and absence from Australia

The purpose of your absence from Australia was a two year secondment with your employer.

This indicates your continuing association to Australia.

(vii) Family, business and financial ties

Family

Your spouse and children accompanied you to Country X.

This indicates an association with Country X for the period you were there.

Business or economic

As stated above, you were seconded by your employer to work in Country X for two years. You purchased a motor vehicle and household effects in Country X and set up bank accounts. In Australia you retained bank accounts, your former main residence which was being demolished and rebuilt and a rental property. You earned Australian rental income while in Country X.

Although you had business and economic ties in both Country X and Australia, your ties were stronger to Australia.

This indicates your continuing association to Australia.

Assets

As stated above, purchased a motor vehicle and household effects in Country X and set up bank accounts. In Australia you retained bank accounts, your former main residence which was being demolished and rebuilt and a rental property.

It is evident that you have a higher value of assets in Australia than Country X.

This indicates your continuing association to Australia.

(viii) Maintenance of a place of abode in Australia

As stated above, your former main residence in Australia was demolished and rebuilt while you were in Country X. Although your main residence was not available for you to live in while you were in Country X, the fact that you retained the property and were in the process of rebuilding it indicates your continuing association to Australia.

Summary of the resides test

As mentioned above, the weight given to each factor varies with individual circumstances, no single factor is necessarily decisive and the term 'reside' should be given a wide meaning.

In your case, although you intended to be physically absent from Australia for at least two years, there are various factors that indicate that you have not ceased to be a resident of Australia. These are primarily:

• you held a restrictive visa which was sponsored by your employer

• you departed Country X when you left your employment

• you stayed in accommodation provided by your employer

• your employer considered Australia to be your "home base" and as such provided your relocation to and from Country X as well as annual return trips to Australia

• you maintained significant assets in Australia, including your main residence

• you stated on your immigration outgoing passenger card that the reason for your departure from Australia was 'business' rather than leaving permanently

Based on the above, you retained a continuity of association with Australia while you were overseas and were residing in Australia according to the ordinary meaning of the word.

Therefore, you are a resident of Australia under the 'resides' test of residency.

Whilst it is not necessary to meet more than one test to determine residency for tax purposes (we have already established that you are a resident under the resides test), we will also include a discussion of the domicile test as an alternative argument.

The domicile 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, as you entered Country X on a three year Intra Company Transfer Long Term Migrant Visa organised and sponsored by your employer, you did not establish a new domicile of choice in that country. You were born in Australia and your domicile was still Australia while 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 (paragraph 12 of IT 2650).

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 (paragraph 14 of IT 2650).

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, you went to Country X on a two year secondment, you entered Country X on a three year Intra Company Transfer Long Term Migrant Visa organised and sponsored by your employer and you stayed in employer provided accommodation.

Based on these facts, the Commissioner is not satisfied that you have established a permanent place of abode outside of Australia and therefore, you are a resident of Australia under the domicile test of residency.

Your residency status

As you meet the resides test and the domicile test, you are a resident of Australia for tax purposes.

As you are a resident of Australia, according to section 6-5 of the ITAA 1997, your assessable income includes income gained from all sources, whether in or out of Australia.

Residency for Country X double tax agreement purposes

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country X double tax agreement is listed in section 5 of the Agreements Act.

The Country X double tax agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The Country X double tax agreement operates to avoid the double taxation of income received by residents of Australia and Country X.

You have advised that Country X authorities determined that you were a Country X resident for tax purposes for the period you were in Country X, therefore, we need to determine whether you were a resident of Country X or Australia for the purposes of the double tax agreement.

An article of the double tax agreement states (in part):

1. For the purposes of this Convention, a person is a resident of a Contracting State:

(a) in the case of Country X, if the person is a resident of Country X for the purposes of Country X tax; and

(b) in the case of Australia, if the person is a resident of Australia for the purposes of Australian tax.

A Contracting State or a political subdivision or local authority of that State is also a resident of that State for the purposes of this Convention.

2. A person is not a resident of a Contracting State for the purposes of this Convention if that person is liable to tax in that State in respect only of income or gains from sources in that State.

3. The status of an individual who, by reason of the preceding provisions of this Article is a resident of both Contracting States, shall be determined as follows:

(c) that individual shall be deemed to be a resident only of the Contracting State in which a permanent home is available to that individual; but if a permanent home is available in both States, or in neither of them, that individual shall be deemed to be a resident only of the State with which the individual's personal and economic relations are closer (centre of vital interests);

(d) if the Contracting State in which the centre of vital interests is situated cannot be determined, the individual shall be deemed to be a resident only of the State of which that individual is a national;

(e) if the individual is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall endeavour to resolve the question by mutual agreement.

Availability of a permanent home

In your case, for the period in question, you owned a rental property in Australia that was being rented out and the property that was previously your main residence that was in the process of being demolished and rebuilt. Therefore, you had no permanent home available to you during the time you were in Country X.

While in Country X, you stayed in accommodation provided to you by your employer and you were in Country X on a visa organised and sponsored by your employer. As your accommodation was contingent on your continuing employment with your employer, it cannot be said that you had a permanent home in Country X.

As you had no permanent home available to you in either country, we must next consider where your centre of vital interests were situated, that is, where your personal and economic relations were closer.

Personal and economic relations

In your case, although your spouse and children accompanied you to Country X, you were employed in Country X and you purchased a motor vehicle and household items and set up bank accounts, your personal and economic relations overall still remained closer to Australia, as your employment was that of a 'secondment' to your normal employment in Australia, you retained ownership of a rental property and derived rental income from that property, you retained ownership of your main residence which you demolished and rebuilt while in Country X, you maintained bank accounts in Australia and kept personal effects in storage, you returned to Australia on multiple occasions and your employer considered Australia to be your "home base", you stated that on your immigration outgoing departure card that the reason for your travel was 'business' and you left Country X when you ended your employment with your employer, which is indicative that you were only in Country X for work purposes.

As your personal and economic relations are closer to Australia, you are a resident of Australia under the double tax agreement.

Nationality

It is also important to note that even where your centre of vital interests could not be determined, that is, that it was considered you had personal and economic relations equally in Australia and Country X, in that case we would consider your nationality as the deciding factor of residency for the purposes of the double tax agreement. As you are only a citizen of Australia and not Country X, in that case you would therefore also still ultimately be a resident of Australia under the double tax agreement.

Therefore, you are a resident of Australia for the purposes of the double tax agreement.

Assessability of salary under the double tax agreement

Article X of the double tax agreement states (in part):

1. Subject to the provisions of Articles Y and Z of this Convention, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in that other State.

2. Notwithstanding the provisions of paragraph 1 of this Article, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

(a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year or year of income of that other State; and

(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and

(c) the remuneration is not deductible in determining taxable profits of a permanent establishment which the employer has in the other State.

In your case, as you are a resident of Australia for the purposes of the double tax agreement, the income you earned in Country X is assessable in Australia and may also be taxable in Country X. Your income would only be assessable in Australia and not Country X if you met all the conditions set out in paragraph 2 of Article 11, however, as you were in Country X for more than 183 days in both the 2012 and 2013 income years, you have not met all the conditions of this section.

Therefore, the income you earned in Country X is assessable in Australia and must be included as assessable income in your income tax returns for the relevant income years.

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).