Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of private advice

Authorisation Number: 1012673380271

Ruling

Subject: Residency

Questions and answers

This ruling applies for the following periods

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

The scheme commenced on

1 July 2014

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Section 6-5

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

International Tax Agreements Act 1953 Sections 4 and 5

Reasons for decision

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 first two tests are examined in detail in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650).

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 a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.

The resides (ordinary concepts) test

The outcomes of several Administrative Appeals Tribunal (AAT) cases have determined that the word 'resides' should be given the widest meaning and there have been a number of factors identified which can assist in determining if a particular taxpayer is a resident of Australia under this test.

Recent case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the 'resides' test:

These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in IT 2650 and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.

It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances.

(i) Physical presence in Australia

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

In relation to this the AAT has stated that:

Prior to departure, you are living on a permanent basis at your residential dwelling.

You and your spouse will be leaving to serve as missionaries in foreign country X. Initially you will be on a contract, with the possibility of extending it, depending on the needs there and your health.

You have not been granted permanent residency by any country. For foreign country X, you have been granted a work visa.

You have never had any intention of making your home indefinitely outside Australia.

You will maintain your family home in Australia. You will continue to contribute towards the insurance, upkeep and maintenance of the dwelling.

You plan to return to Australia if you your contract is not extended.

You intend to come back to visit your children and the family home every year for a period; longer and more often if your leave entitlements permit.

You will live in rented accommodation while overseas.

(ii) 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.

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

(iii) History of residence and movements

Prior to departure, you are living on a permanent basis at your residential dwelling.

You will move to foreign country X to take up paid employment.

You will live in rented accommodation in foreign country X.

You intend to come back to visit your children and the family home every year for a period; longer and more often if your leave entitlements permit.

You plan to return to Australia if your contract is not extended.

(iv) 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.

You and your spouse will serve in foreign country X.

Your will maintain your family home in Australia with your children living in it.

You intend to come back to visit your children and the family home every year for a period; longer and more often if your leave entitlements permit.

You will live with your spouse in rented accommodation while in foreign country X.

You have a job in Australia which you will give up before your departure.

You will be paid for your work in foreign country X. Your spouse will not be paid.

You will have a normal bank account in foreign country X for your salary and for you and your spouse's daily expenses.

You will retain assets in Australia:

You will be receiving some interest income from Australia.

You will not have your name removed from the electoral roll; you will still lodge a postal vote.

You will not advise any Australian financial institutions with whom you have investments that you are a foreign resident so that non-resident withholding tax can be deducted.

You will not advise Medicare or health insurance provider to have your name removed from their records.

You expect you will lodge tax returns in foreign country X.

(v) 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 period of two years and seven months to be residing in Australia.

You intend to come back to visit your children and the family home every year for a period. You have yet to get the full details of your leave entitlements. If entitlements permit, then you will want to visit more often and for longer periods.

(vi) Purpose of visits to or absences from Australia

You and your spouse will live and work in foreign country X.

You intend to come back to visit your children and the family home every year.

(vii) Family and business ties to Australia and the overseas country or countries

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.

Family

You have children who live in your dwelling in Australia.

Business or economic

In Australia you have:

In foreign country X you will have a joint bank account with your spouse.

Assets

In Australia you have:

In foreign country X you will have a joint bank account with your spouse.

(viii) Maintenance of Place of abode

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

You will maintain your family dwelling in Australia. You will contribute towards the insurance, upkeep and maintenance of the dwelling.

Most of your personal belongings will remain in the family dwelling.

You intend to come back to visit your children and the family dwelling every year for a period; longer if your leave entitlements permit.

Summary

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

There are several factors outlined above which indicate that you have not ceased to be a resident of Australia. Specifically:

Based on a consideration of all of the factors outlined above, you are a resident of Australia according to ordinary concepts as you will maintain a continuity of association with Australia for the relevant period.

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 and permanent place of abode' test as an alternative argument. Also, as you have specifically asked if you will be a resident of Australia under the 183 day test for the income year ended 30 June 2015, we will also discuss the 183 day test for the 2015 income year

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. The intention needs to be demonstrated in a legal sense, for example, by way of obtaining a migration visa, becoming a permanent resident or becoming a citizen of the country concerned.

In your case, you were born in foreign country Y and moved to Australia and became a citizen of Australia.

Therefore, your domicile of origin was foreign country Y and you changed your domicile to Australia.

Your domicile will still be Australia while you are living in foreign country X as you have not indicated that you will be taking any legal steps to change your domicile to that country.

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.

The taxpayer Boer v. Federal Commissioner of Taxation [2012] AATA 574; 2012 ATC 10-269 (Boer's case) lived in employer provided accommodation overseas which was not indicative of them establishing or maintaining their 'own' accommodation. This aspect was a contributing factor to them being unable to establish that they had a 'permanent place of abode' overseas.

Although it is your intention to live with your spouse in foreign country X on an ongoing basis (for some years and possible longer) you have not been granted permanent residency there and the duration and continuity of your presence there is contingent on your continued employment there; for which you have been issued a work visa. You have also stated that you and your spouse have no intention of remaining in foreign country X permanently and that you intend returning to Australia, unless your employment contract is extended.

You will live in rented accommodation in foreign country X which you will furnish it with some of your household goods from Australia. However, you will retain your dwelling in Australia, where most of your of household goods will remain and to which you will return at least once a year. You will continue to contribute towards the insurance, upkeep and maintenance of the dwelling. While absent, your children will live in your dwelling.

As you will not establish a permanent place of abode in foreign country X your presence there will temporary in nature, being dependant on your continued employment there. You cannot establish a permanent place of abode overseas when your presence in a place is temporary.

The Commissioner is not satisfied you will have a permanent place of abode outside of Australia while you live and work in foreign country X. Therefore, you will remain a resident of Australia under the 'domicile and permanent place of abode' test of residency.

The 183-day test (for the income year ended 30 June 2015)

Under the 183 day test you are considered a resident of Australia if you are present in Australia for a total period of more than half of the year of income, i.e. 183 days, unless the Commissioner is satisfied that your usual place of abode is outside Australia and you do not intend to take up residence in Australia.

You will be living and working fulltime in Australia.

You will be on annual leave in Australia.

You will be present in Australia for a total period of more than half of the income year ending 30 June 2015.

The Commissioner is not satisfied that your usual place of abode is outside Australia for this period.

Therefore you will be a resident of Australia under the 183-day test for the income year ended 30 June 2015.

As you are a resident of Australia for tax purposes for the years of the ruling, there is no need to consider the superannuation test.

Your residency status

As you are a resident of Australia under two of the tests of residency outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997 (the resides test and the domicile test), you are considered to be an Australian resident for taxation purposes for the income years ending 30 June 2015, 2016, 2017, and 2018. For the income year ending 30 June 2015 you will also be a resident of Australia under the 183-day test.

Assessable income

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that your assessable income includes income from ordinary concepts derived from all sources whether in or out of Australia.

As you are a resident of Australia under two of the tests of residency outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997 (the resides test and the domicile test), you are considered to be an Australian resident for taxation purposes for the income years ending 30 June 2015, 2016, 2017, and 2018. For the income year ending 30 June 2015 you will also be a resident of Australia under the 183-day test.

Foreign income tax offset (FITO)

If you earn income in the foreign country and pay tax on it there, you may be entitled to claim a FITO in your Australian income tax return. For more information on FITO, go to the website ATO.gov.au and type QC39816 in the search.

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).