Edited version of your written advice

Authorisation Number: 1012717317814

Ruling

Subject: Residency for tax purposes

Question and answer

Are you a resident of Australia for tax purposes?

No.

This ruling applies for the following period:

Year ending 30 June 2015

The scheme commenced on:

1 July 2014

Relevant facts and circumstances

You and your spouse were both born in Australia and are citizens of Australia.

You moved to Country X in 20XX to live and start a business.

In 20XX, you and your spouse purchased a property in Country X.

You and your spouse have taken out a loan to fund the purchase of the land.

Your spouse works in Country Y on a fly in / fly out arrangement.

Your spouse intends to retire from employment in Country Y when your business is successfully operating. You and your spouse will then remain in Country X where your business will be your primary source of income.

When your spouse is in Country Y, you oversee the operation of the business. It is critical for you to be physically present in Country X at the business when your spouse is working in Country Y.

There is a residential house on the land you own in Country X which you reside in. Your spouse also resides in this house when not working in Country Y.

You have adult children and extended family in Australia. You anticipate that your family will now visit you and your spouse in Country X.

You and your spouse do not financially support any of your family members.

You intend to remain in Country X indefinitely. You have no intention of returning to Australia to live, even after your spouse retires. You and your spouse intend to remain living in Country X.

You estimate that you will spend at least X days in Country X in the 20YY income year.

You will not spend any considerable periods of time in Australia.

You and your spouse applied for a Country X visa in 20XX. This was granted and is valid for 12 months. In Country X, visas are granted for a maximum 12 month period. It is not possible for you to obtain a long term visa or apply for citizenship. You have already renewed your visa for the next twelve month period and will continue to renew your visa each year until such time as you are able to apply for citizenship.

You are required to live in Country X for a minimum of 10 years before you are eligible to apply for citizenship.

Your personal belongings are located in Country X.

You have no sporting or social connections in Australia.

You have had your name removed from the Australian electoral roll.

You have notified Medicare that you are a non-resident of Australia.

You have notified your Australian bank that you are a non-resident of Australia.

All your mail is sent to Country X.

Neither you nor your spouse are currently or have ever been Commonwealth government employees.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

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 '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.

In your case, while you remain a citizen of Australia, you will be physically present Country X for at least X days in the 20YY income year. You do not intend on returning to live in Australia permanently. You live with your spouse in Country X. You remain in Country X even when your spouse is working in Country Y. You have personal belongings in Country X. You and your spouse own property in Country X and have set up a business. You and your spouse have constructed a place of abode in Country X which you intend to live in with your spouse indefinitely. You hold a visa for Country X which you intend to renew annually until such time as you are eligible to apply for citizenship of Country X. Although you and your spouse continue to own two properties in Australia, they are leased to long term tenants and are not available for your use.

Taking into account all relevant factors, the circumstances of your situation as a whole are such that you are not residing in Australia according to the ordinary meaning of the word.

Therefore, you are not a resident of Australia under the resides test.

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, you were born in and are a citizen of Australia and therefore Australia is your domicile of origin. Although you have relocated to Country X, you are only able to stay on an annual visa and you are not able to apply for citizenship at this time. Therefore, you have not established a new domicile of choice and Australia remains your domicile.

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, the Commissioner is satisfied that you have a permanent place of abode outside of Australia as you have a home in Country X. You live at the property with your spouse. You have established a business in Country X. You intend to remain in Country X indefinitely.

Therefore, although your domicile is Australia, as the Commissioner is satisfied that you have a permanent place of abode outside of Australia, you are therefore not a resident of Australia under the domicile test.

183 day test

Where a person is present in Australia for 183 days during 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.

In your case, you will be physically present in Australia for less than 183 days. Therefore you are not a resident of Australia under the 183 day test.

Superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the PSS or the CSS, or that person is the spouse or child under 16 of such a person. To be eligible to contribute to those schemes, you must be or have been a Commonwealth Government employee.

In your case, neither you, nor your spouse, have ever been Commonwealth government employees. Therefore, you are not a resident under the superannuation test.

Your residency status

As you do not meet any of the tests of residency, you are a not resident of Australia for tax purposes.

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