Edited version of your written advice

Authorisation Number: 1013033309028

Date of advice: 14 June 2016

Ruling

Subject: Residency

Question and answer

Did you become a non-resident for taxation purposes from the time you rented out your Australian residence?

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

For a period of some years, you have worked primarily overseas and have returned to Australia on a rotational or cyclical basis for varying periods of time.

At the start of the income year commencing 1 July 20XX, you had been working for an overseas subsidiary of an Australian company in country X on a cyclical basis for a period several years. Your position was terminated in 20XX.

Later that year, you found new ongoing employment with an overseas subsidiary of an Australian company in country Y.

Details of your employment and living arrangements were as follows:

• Employed on a full time permanent basis working X days on and Y days off.

• Accommodation is provided on site in a 'donga' type room.

• The room is for your exclusive use and is not used by others during shift rotations.

• The room is small but contains a fridge, wardrobe and a small ensuite.

• You maintain a wardrobe of clothing and personal items along with various memorabilia.

• The room is cleaned by cleaning staff.

• Food is provided in a community mess facility.

• All personal items including other food and snack items are purchased by you in Australia and taken to the site.

• The work site has social facilities which include a bar, pool, gym and tennis facilities.

• When at the work site, you remain at the site at all times due to safety and health issues.

• You would prefer to live in alterative accommodation of your own but this is not possible due to:

• Security issues in the region; it is generally not safe to live and work in the area.

• The current facility is a gated site with security provided.

• There is a lack of clean and reliable water in the region.

• There is a lack of reliable electricity.

• The site is a considerable distance from the nearest town and travel is considered dangerous.

• Whilst employed on shifts, there is an on call requirement to the work generally and you often have to attend to operational issues in addition to your set shifts.

During the period commencing 1 July 20XX, you returned to Australia each time you were not working and in 20XY, you and your spouse went on a holiday departing from and returning to Australia.

Up until a time in 20XY, you maintained a residence in Australia with your spouse and spent your time there on your return trips to Australia.

Up until this time, you regarded yourself as a resident of Australia for taxation purposes and lodged your income tax returns accordingly.

In 20XY, you and your spouse moved out of your residence and rented it out.

Your furniture and personal effects were sold or given away with the remainder being placed in storage for which you pay monthly.

You arranged for your mail to be redirected to a relative in Australia.

Your spouse had the intention of travelling around Australia. On your return trips to Australia since renting your residence out, you have met your spouse in varying locations depending on where they were at the time.

You and your spouse have no children.

You intend on returning to Australia to live but your intention is to continue working overseas for as long as possible.

You own another rental property in Australia in addition to your former residence.

You are no longer connected to any clubs or associations in Australia.

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

Relevant legislative provisions

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 and 'domicile and permanent place of abode' tests are examined in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia, a copy of which is available from www.ato.gov.au.

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'.

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 Commissioner generally considers the following factors to be relevant:

• physical presence in Australia;

• 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 compared to the foreign country concerned; and

• maintenance of a place of abode.

The weight given to each factor varies with individual circumstances and no single factor is necessarily decisive.

It should be noted that a person does not necessarily cease to be a resident of a particular place just 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 (Joachim v Federal Commissioner of Taxation 2002 ATC 2088, at 2090).

In your case, you were working overseas in a remote area on a cyclical arrangement and when not working, you returned to Australia to be with your spouse in the dwelling you owned together. You considered yourself to be an Australian resident for taxation purposes during this period.

However, since renting out your house in 20XY, you believe that your residency status may have changed to that of non-resident.

Although you effectively abandoned your place of abode in Australia by renting it out, you still maintained your strong connection with Australia in all other respects which included regularly returning here to be with your spouse. Your lifestyle at the overseas work site almost entirely revolved around your work commitments and you lived without your spouse in minimalist accommodation in a secure compound with many communal facilities being provided by your employer. Further, all your non work time was spent outside the foreign country.

Based on your circumstances, we consider that your presence in the overseas country was only for work purposes and you maintained a strong continuity of association with Australia. Consequently, you cannot be said to have been truly 'residing' in that country according to the ordinary meaning of the word.

Therefore, you continued to be an Australian resident for taxation purposes under, the resides test of residency from when you rented out your Australian dwelling.

Whilst it is not necessary to meet more than one test to determine residency for tax purposes (as 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.

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, there is no evidence to suggest that you have established a new domicile of choice in any other country. You were born in Australia and your domicile is still 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 (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.

A place of abode must exhibit the attributes of a place of residence or a place to live, as contrasted with the overnight, weekly or monthly accommodation of a traveller.

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.

Paragraph 23 of Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650) sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode:

a) the intended and actual length of the individual's stay in the overseas country;

b) any intention either to return to Australia at some definite point in time or to travel to another country;

c) the establishment of a home outside Australia;

d) the abandonment of any residence or place of abode the individual may have had in Australia;

e) the duration and continuity of the individual's presence in the overseas country; and

f) the durability of association that the individual has with a particular place in Australia.

In your case, although you effectively abandoned your place of abode in Australia by renting it out, you still maintained your strong connection with Australia in all other respects which included regularly returning here to be with your spouse. Your lifestyle at the overseas work site almost entirely revolved around your work commitments and you lived without your spouse in minimalist accommodation in a secure compound with many communal facilities being provided by your employer. Further, the continuity of your presence in the overseas country was limited to the periods you were working, that is, all your non work time was spent outside the country.

Based on these circumstances, we consider that your presence in the overseas country was only for work purposes and you continued to maintain a durable association with Australia after you rented out your residence.

Therefore, the Commissioner is not satisfied that you established a permanent place of abode outside of Australia and therefore, you were a resident of Australia under the domicile and permanent place of abode test of residency for the relevant period.

Summary

You did not become a non-resident for taxation purposes from the time you rented out your Australian residence.

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