Edited version of your written advice

Authorisation Number: 1013047502126

Date of advice: 20 July 2016

Ruling

Subject: Residency and leaving Australia

Question and answer:

Are you a resident of Australia for the relevant period?

Yes

This ruling applies for the following periods:

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

General background

You were born in the Country Y and are a dual citizen of Country Y and Australia.

You initially moved to Australia many years ago.

You have a spouse and children.

Your circumstances from 20XX to 20XX

Prior to 20XX, you were employed by an Australian Company.

In 20XX you accepted a position with a company in Country X (your new employer), which was based in a specific area of Country X.

Your contract with your employer was for an undefined term, and it was the intention of all parties that you would be employed for a period exceeding two years, and you personally expected this period to be for three to five years.

At the time you accepted the role, you relocated to Country X with the intention that you would remain there indefinitely. Your family also intended to relocate to Country X soon after you relocated.

You entered Country X in 20XX on a Visa, of which the maximum validity period is 24 months.

The Visa was applied for under the instruction from your employer who sponsored your application, and was tied to your employment.

It was standard practice for your employer to request Australian citizen employees to apply for these visa's, regardless of the length of employment of the Australian citizen, or any intention to relocate permanently to Country X.

Your employer adopted this policy on the basis that the application time for this visa is much shorter than a permanent immigration visa, and extensions can be issued multiple times over.

Given the importance of your position with your employer it was in their best interests to ensure that you were able to relocate to Country X as soon as possible, and the visa application met this objective.

It was your intention to apply for a permanent residency in Country X on the expiry of your visa.

A series of unanticipated events lead to your employment ceasing early.

The role included managing a portfolio of business assets across Country X, other countries and Australia that generated large annual gross revenues, and small percentage of this revenue was derived from Australia.

Accordingly, in accepting the role, you were aware that regular travel would be required to the relevant countries.

You own a property in Australia, in which you lived until you left Australia in 20XX. When you were required to return to Australia for business purposes, you stayed with your family in this property. This totalled around a couple of months during the time you were employed in Country X.

During your employment in Country X, you returned to Australia for business related purposes several times during the period you were employed in Country X. When you were in Australia, apart from the couple of months spent at your family home, a couple of weeks were spent in other locations in Australia.

A few other days were spent in Australia for personal reasons.

The Australian executive team of your employer is located in a city of Australia, and they also have extensive offices and work sites located throughout other cities and areas of Australia. The primary offices you had under your control in Australia were located in multiple cities and job sites. Whilst visiting Australia for business purposes, you always worked one of these offices carrying out the following duties:

• Review of financial and operational performance.

• Establishing and setting the strategic direction and goals of the Australian operations.

• Reviewing the performance of major projects.

• Playing an integral role regarding major bids and proposals.

• Consideration of acquisition opportunities.

• Recruitment of senior personnel for the Australian business.

• Responsibility for maintaining current client relationships and building new client relationships.

• Formulation and implementation of a business reorganisation due to a downturn in global economies.

Your total days spent in Australia represented 20% of the total days you were employed, which is proportionate to the percentage of Australian revenue you were responsible for in your role.

In 20XX you became aware that the CEO of your employer intended on resigning towards the end of the year. At this time it was your understanding that you were one of two people being considered to take over the CEO role.

The CEO resigned in 20XX and subsequently ceased employment with your employer in 20XX. Another person was then named CEO.

The appointment of another person to the CEO position put pressure on your position with your employer, which resulted in your employment being terminated in 20XX. At that stage you returned to Australia.

All of your salary payments were deposited into a Country X bank account in your name, and funds from this account were transferred to Australia periodically.

Whilst in Country X, you obtained a social security number, made contributions to a pension plan and obtained private health cover.

You met your tax obligations in Country X during the period.

Your working circumstances

Your role with your employer came with significant working expectations as follows:

• You were required to work up to 18 hour days, six days per week.

• You were required to travel as part of your role, despite being based in Country X.

• You needed to be available for work contact on holidays and weekends.

Your priority in recent years has been your working career, and you organised your lifestyle around your working commitments.

Whilst working in Country X you sent amounts of money from your income to your Bank account in Australia (held in joint names with your spouse).

The purpose for sending these funds back to Australia was to pay down Australian debt in your name.

Apart from your spouse, no one else had access to the Bank account where these funds were transferred to.

Personal and family circumstances and social ties

Two weeks after you departed for Country X, your eldest child gave birth to their first child, and your spouse remained in Australia to assist.

Your spouse and your youngest child had intentions of joining you in Country X in 20XX.

This intention was demonstrated by information you obtained from an organisation in Country X, who specialise in relocating families from one country to another. This organisation provided you with the following information relating to:

• Finding a home in a specific area of Country X.

• Education in this area.

• The finance and banking system in Country X

• Pre-arrival information.

In 20XX, your spouse and youngest child travelled to Country X to locate a property in which the family would live in, and to also gain familiarisation with both the specific location in Country X and their local schools. This trip was made at the cost of your employer as part of your employment contract.

Based on this visit to the country by your spouse and youngest child, rental accommodation was located close to schools and amenities, in which you and your family would be staying.

At that time your spouse made a decision to relocate on the basis that they were your dependant, as they were not gainfully employed.

Following this, as there was a chance that you may have been offered the CEO role with your employer, your family then decided to remain in Australia, as there was a possibility that you may have been relocated elsewhere as part of your employment.

Another factor in your family's decision not to join you in Country X was that your youngest child had just started at a new school in 20XX, and both you and your spouse wanted to provide some stability in relation to their schooling and education.

Given the uncertainty surrounding your position with your employer following the appointment of the other employee as the CEO, along with the fact that your eldest child had just given birth to their first child, your family remained in Australia.

You joined social clubs in Country X, and formed friendships with colleagues and neighbours.

You shipped personal belongings and effects to Country X including family photo albums, clothes, CD's and sporting equipment.

You applied for and obtained a specific type of access card whilst you were working in Country X. This access card is the principle card used to enable physical access to buildings of Government authorities and controlled spaces, which was a requirement of your position with your employer.

You sourced a home in Country X for you to live in, that was subject to a long term lease. The accommodation was furnished and you cooked your own meals.

You left a fully furnished home in Australia, in which your family lived whilst you were away.

At the time of your departure from Australia in 20XX you did not request for your name to be removed from the electoral roll, nor did you inform Medicare that you were departing Australia.

Whilst you advised your private banker of your intention to permanently relocate to Country X, you were not informed of any responsibility to advise your financial institution of your non-resident status, and as such they were not notified of this.

You hold various Australian professional memberships, which you maintained whilst living in Country X.

You maintained your Australian private health insurance policy whilst living and working in Country X.

You are not a member of the superannuation scheme established by deed under the Superannuation Act 1990 or an eligible employee for the purposes of the Superannuation Act 1976.

You lodged your 20XX-XX financial year Australian income tax return on the basis that you became a non-resident of Australia in 20XX.

You lodged your 20XX-XX financial year Australian income tax return on the basis that you were a non-resident of Australia for the full financial year.

Australian assets and Investments

Apart from your family home, you own another property in Australia. Prior to your departure from Australia in 20XX, due to your working responsibilities at that time, you regularly stayed in this property on week nights.

Upon accepting the position with your employer, you arranged for this property to be refurbished and let to a third party under a long term lease. You continued to hold this property as part of a long term investment strategy.

You hold a number of transaction accounts and credit cards with financial institutions in Australia, which you maintained whilst living in Country X.

You owned a car registered in Australia.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1).

Income Tax Assessment Act 1997 subsection 995-1(1).

Reasons for decision

Section 995-1 of the Income tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the ITAA 1936.

The definition offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the:

• the resides test,

• the domicile test,

• the 183 day test, and

• the superannuation test.

The primary test for deciding the residency status of each individual is whether they reside in Australia according to the ordinary meaning of the word resides.  If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established.

Where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be an Australian resident if they meet the conditions of one of the other tests.

The resides (ordinary concepts) test

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'.

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

(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 to different countries

(viii) Maintenance of place of abode.

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.

The question of whether an individual 'resides' in a particular country is a question of fact and degree and not of law. The totality of the taxpayer's factual circumstances needs to be taken into account in arriving at a decision.

In Dempsey and Commissioner of Taxation [2014] AATA 335 (Dempsey), the Administrative Appeals Tribunal of Australia (AATA) restated that the cases of Levene v Inland Revenue Commissioners [1928] AC 217 (Levene), Lysaght v Inland Revenue Commissioners (1928) 13 TC 511 (Lysaght) and Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 (Miller) were authoritative on the meaning of the word 'resides'.

In Levene (at 222), it was stated that:

… the word 'reside' is a familiar English word and is defined in the Oxford English Dictionary as meaning 'to dwell permanently or for a considerable time, to have one's settled or usual abode, to live in or at a particular place.' No doubt this definition must for present purposes be taken subject to any modification which may result from the terms of the Income Tax Act and Schedules; but, subject to that observation, it may be accepted as an accurate indication of the meaning of the word 'reside.' In most cases there is no difficulty in determining where a man has his settled or usual abode, and if that is ascertained he is not the less resident there because from time to time he leaves it for the purpose of business or pleasure.

The same approach was adopted in Lysaght. In this case, the Court also noted that mere fact that visits to a country are of short duration does not of itself exclude residence in that country.

In Miller (at 100-101), it was emphasised that the word 'resides' was 'not a term of art denoting a field with precisely defined boundaries' and 'is an ordinary English word extending over a field the boundaries of which constitute a broad limbo with blurred edges'. The court (at 101 and 103) was of the view that the meaning of the word 'resides' being so understood, the question as to where someone resided entailed questions of degree and was one of fact.

In Koitaki Para Rubber Estates Limited v Commissioner of Taxation [1941] HCA 13; 64 CLR 241, it was stated (at 249):

The place of residence of an individual is determined, not by the situation of some business or property which he is carrying on or owns, but by reference to where he eats and sleeps and has his settled or usual abode. If he maintains a home or homes he resides in the locality or localities where it or they are situate, but he may also reside where he habitually lives even if this is in hotels or on a yacht or some other place of abode:

Further, in Joachim v Federal Commissioner of Taxation 2002 ATC 2088, it was stated (at 2090):

Physical presence and intention coincide for most of the time but few people are always home. Once a person has established a home in a particular place, even involuntary, a person does not necessarily cease to be resident here 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.

In Dempsey (at 98), the AATA discussed the nature of fact and degree in determining the issue of residency:

Further, in considering the outcome in some of the cases, it is necessary to bear in mind the nature of the jurisdiction which was exercised. Though the meaning of "resides" was considered and explained in both Levene and Lysaght, the outcome in those cases turned on whether, that meaning so understood, there was evidence to support the finding of fact as to residence to which the Inland Revenue Commissioners had come. Neither case is authority for the proposition that the particular conclusion was the only one which might have been reached on such facts, only that the question being one of degree and there being evidence to support the particular conclusion, it ought not to be disturbed. Miller is an Australian illustration of this same point. Dixon J frankly confessed to a doubt as to whether he would have reached the same conclusion on the facts as had the Board of Review, but recognised that the question was one of degree and that the Board's view of the facts was not, on the ordinary meaning of the word "resides", a legal impossibility. Understanding this is one reason why not all outcomes on particular facts on the subject of residency are readily reconcilable.

In your case, there are various factors that indicate that you may have been residing outside Australia during the relevant period, as follows:

• When you first went to Country X, you had intended on living and working there for a considerable and indeterminable time.

• Your salary was paid into a bank account in Country X.

• Your family initially intended on joining you in Country X, and also visited Country X to search for a suitable property and school for your youngest child.

• You established your own accommodation in Country X.

• You joined social clubs in Country X and formed friendships with colleagues and neighbours.

However, there are also various factors that indicate that you may have still been residing in Australia, as follows:

• Despite initially intending to join you in Country X, due to the arrival of your first grandchild and your youngest child starting at a new school your family decided not to do this.

• You left a fully furnished home in Australia, in which your family lived whilst you were away, which was available to you during your stay in Country X.

• You sent funds sourced from your income earned in Country X to an Australian bank account, which your spouse had access to.

• You maintained bank accounts and credit cards with Australian financial institutions whilst living in Country X.

• You made several return visits to Australia, mostly for work related purposes, but these visits also included a total of eight days for personal reasons.

In deciding questions of residency, the Commissioner considers that it is difficult for a taxpayer to demonstrate that they have ceased to be a resident of Australia where a place of residence remains available to them in Australia and/or where their spouse remains living in Australia.

In these situations, it may be considered that the taxpayer meets the resides test as they have retained a continuity of association with Australia. Further, they may also meet the domicile test as the Commissioner may not be satisfied that they have a permanent place of abode outside Australia. Examples of decisions of this type can be found in Iyengar and Federal Commissioner of Taxation [2011] AATA 856 (Iyengar) and Sneddon and Commissioner of Taxation [2012] AATA 516.

However, examples of different outcomes can be found in two recent cases, The Engineering Manager and Commissioner of Taxation [2014] AATA 969 (Engineering Manager) and Dempsey. In both these cases, the taxpayers left Australia to work overseas and were found to be non-residents, as in the opinion of the AATA, they did not meet the resides or domicile tests of residency.

In Dempsey, the taxpayer was found to be a non-resident even though he maintained a place of residence containing his household effects and vehicles in Australia. He also stayed at the house on his occasional return visits to Australia. In this case, the taxpayer was not in a relationship and had adult children living in Australia. The AATA noted (at 109) that he was a 'free agent' not only in terms of the transferability of his skills, but also in terms of his 'personal circumstances'. That is, he was a single man who left no family at the house.

In the Engineering Manager, the taxpayer was found to be a non-resident even though he maintained a place of residence in Australia in which his spouse and children lived. The AATA stated (at 55) that his connection with his children was not determinative of whether he resided in Australia. However, the AATA also stated (at 48) that his marital relationship was 'fractured' and (at 56) that the inharmonious nature of the relationship was considered to be a 'very significant factor' (in finding that he was a non-resident).

In your case, we consider it significant that your spouse did not join you in Country X.

Despite their initial intention to join you in Country X, your spouse decided not to due to both the arrival of your grandchild, and your child just starting at a new school.

Whilst we recognise that these are important and special life events, they are not situations that could be considered as unusual or out of the ordinary, nor are they an unforeseen circumstance.

Regardless of this, the fact remains that your spouse remained living in your dwelling which remained available for your use during the time you were overseas.

Accordingly, your circumstances are ultimately different to Dempsey as the taxpayer did not have a spouse living in his dwelling and also different from the Engineering Manager as there is nothing to indicate that you had an inharmonious relationship with your spouse during the relevant period.

We also consider that your circumstances are more closely aligned with Iyengar, where the taxpayer was found to be a resident, despite living and working overseas from May 2007 to December 2009. The AATA stated (at 65) that Mr Iyengar retained a 'continuity of association' with Australia during the relevant income years, which included the following:

• Mr Iyengar's wife, son and daughter remained in Perth during the relevant period (except for three short visits by his wife to Dubai).

• His family home in Perth.

• His harmonious marriage with his wife.

• He returned almost all of his income he earned whilst working overseas to Australia for the purpose of paying the mortgage on his Perth home.

You also advise that unforeseen circumstances that occurred at the commencement of your employment in Country X resulted in you returning to Australia after 20 months.

More specifically you advise that the appointment of another person to the CEO position put pressure on your position with your employer, which resulted in your employment being terminated in 20XX, and at that stage you returned to Australia.

Whilst considering the circumstances above we are not convinced that this is an extenuating and unforseen circumstance as it appears that the termination of your employment was that of choice and not of necessity.

You had economic ties to Australia by the way of your investment property, and various bank accounts and credit cards.

You also had economic ties to Country X by way of your employment and a bank account during your stay in that country, along with some social connections by way of social clubs and friendships with colleagues and neighbours.

You also shipped personal belongings and effects to Country X.

However your ties to Australia which include your family, along with your fully furnished home, in which your family lived in whilst you were in Country X and was available to you whilst you were in Country X are stronger.

You sent funds sourced from your income earned in Country X to an Australian bank account, which your Spouse had access to.

You travelled to Australia several times during the relevant period and you state that the main reason for these trips was for work purposes. However, during these trips you stayed in your family property with your spouse and child.

Consequently, we consider that, on balance, your intention to work overseas for a considerable and indeterminable time is outweighed by the continuity of association you retained with Australia for the period you worked in Country X.

Based on these facts, you are residing in Australia according to the ordinary meaning of the word. Therefore, you meet the 'resides test' and are a resident of Australia for tax purposes.

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.

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

Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence.

In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country.

This 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 Country Y and changed your domicile to Australia when you became an Australian citizen.

Therefore, as you have not taken any legal steps which would have proven an intention to change your domicile to Country X, you have retained your Australian domicile.

Therefore, you will be a resident of Australia unless the Commissioner considers you have established a permanent place of abode outside of Australia.

Permanent place of abode

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 courts have considered a person's 'place of abode' is where they consider 'home'. In R v Hammond (1982) ER 1477, Lord Campbell CJ stated that "a man's residence, where he lives with his family and sleeps at night, is always his place of abode in the full sense of that expression."

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.

Paragraph 23 of Taxation Ruling IT 2650 Residency - Permanent place of abode outside Australia 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 taxpayer's stay in the overseas country;

(b) whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time;

(c) whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia;

(d) whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;

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

(f) the durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

Clearly, the longer an individual stays in any one particular place, the more permanent in nature is likely to be the stay in that place of abode. An individual's intention regarding the duration of the overseas stay and the length of the actual stay are significant factors in deciding whether they have set up a permanent place of abode.

A person's 'permanent place of abode' is a question of fact to be determined in the light of all the circumstances of each case. (Applegate v. Federal Commissioner of Taxation 78 ATC 4051; 8 ATR 372 (Applegate))

In Applegate, the court found that 'permanent' does not mean everlasting or forever but it is to be contrasted with temporary or transitory.

The courts have considered 'place of abode' to refer to a person's residence, where he lives with his family and sleeps at night.

In Applegate, the judge Fisher J made the following comments when analysing the expression 'permanent place of abode'

To my mind the proper construction to place upon the phrase 'permanent place of abode' is that it is the taxpayer's fixed and habitual place of abode. It is his home, but not his permanent home. It connotes a more enduring relationship with the particular place of abode than that of a person who is ordinarily resident there or who has there his usual place of abode. Material factors for consideration will be the continuity or otherwise of the taxpayer's presence, the duration of his presence and the durability of his association with the particular place.

It is the Commissioner's view that an overseas stay in excess of two years may indicate that an individual can be considered to have a permanent place of abode overseas, subject to a consideration of all the other relevant circumstances applying to the taxpayer (paragraphs 23, 25 and 27 of IT 2650).

In your case it is considered that you have not established a permanent place of abode outside of Australia because:

• Despite initially intending to join you in Country X, due to the arrival of your first grandchild and your youngest child starting at a new school, your family decided not to do this, and remained in Australia for the duration of your stay.

• Your priority in recent years has been your working career, and you have organised your lifestyle around your working commitments.

• The main reason you left for Country X was for work reasons, and whilst you have rented accommodation, and despite your families initial intention of joining you, you did not set up an established home with family in Country X.

• You left a fully furnished home in Australia, in which your family lived whilst you were away, which you owned, and was therefore available to you during your stay in Country X.

Although you intended on living and working in Country X for a considerable and indeterminable time, you did not abandon your residence in Australia, as it was still available to you, and you also retained a durable association with Australia, in particular through your family who remained in Australia.

Consequently, the Commissioner is not satisfied that you had a permanent place of abode outside Australia, and you were therefore a resident under the domicile test of residency during the period you worked in Country X.

As you have met the resides and domicile tests of residency, the 183 day test and the Superannuation test do not need to be considered.

Your residency status

As you meet the resides and domicile tests of residency, you are a resident of Australia for income tax purposes under subsection 6(1) of the ITAA 1936.

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