Edited version of your written advice

Authorisation Number: 1051177818379

Date of advice: 9 March 2017

Ruling

Subject: Residency

Question 1

Will you cease to be an Australian resident for tax purposes from a specific date?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2017

Year ending 30 June 2018

Year ending 30 June 2019

Year ending 30 June 2020

The scheme commences on:

1 January 2017

Relevant facts and circumstances

You were born in Australia and you are an Australian citizen.

You are the managing director of the X group of entities (X Group).

X Group operates globally, with operations in Australia, Country A, Country B, Country C, Country D and Country E.

In 19AA the global X Group business was restructured and split into X separate businesses.

The entities containing the intellectual property rights for Australia and the Australian trading business were fully under the ownership of your sibling.

The intellectual property for Country E and the distribution rights for Continent Y were placed in entities controlled by you.

You have managed the international business from Australia for a number of years.

You have effected a transition to move the management closer to the markets in more appropriate time zones.

You have split the majority of your time during the last Y years between Country E and Country C.

You have not spent more than 183 days in each of the last Y financial years in Australia.

While you are in Australia you have primarily stayed in hotels.

You do not maintain a home in Australia.

While in Country C you stay in an apartment which was leased from late 20BB to mid 20UU. Your partner and children spent significant time at this residence.

While in Country E you stay at a residence which has been leased since 20CC.

Your partner and your X children, spend the majority of their time at the Country E residence.

Your children were born in Country E and your eldest child attends school in Country E.

You indicated on your outgoing passenger card when leaving Australia that you were an Australian resident departing permanently.

You have purchased an apartment in Country B for you and your family to reside in. The settlement took place in early 20WW.

You have applied for your eldest child to attend primary school in Country B from early 20WW.

You have no intention of returning to Australia on a permanent basis with any future visits being exclusively for business purposes.

During the business trips to Australia you will stay in short term accommodation located close to your required business engagements.

You hold 100% of the shares in Company Z, an Australian private company which currently acts as the trustee for Trust W.

Trust W is the majority owner of the X Group of entities.

You have an interest in three properties in Australia.

The first property is owned by you however it has been deemed unsafe to live in. You are in negotiations to sell the property to the state government.

The second property is owned by Company V, an entity associated with you. This property is on the market to be sold.

The third property is owned by the Trust U, an entity associated with you. The property is currently advertised as available for commercial lease.

You own X motor vehicles in Australia. They are in the process of being sold.

You hold an Australian bank account and credit cards which you are in the process of closing.

You hold overseas transaction accounts and credit cards which you intend to use exclusively in the future.

You do not hold any memberships to social clubs or associations in Australia.

You have registered as a non-resident voter on the Australian electoral roll.

You are a member of an Australian Self-Managed Superannuation Fund.

You are not a person who is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or the spouse of such a person.

You ceased to be the sole director and sole secretary of a number of Australian private companies on a specific date.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1), and

Income Tax Assessment Act 1997 section 6-5.

Reasons for decision

Summary

You ceased to be an Australian resident for tax purposes on a specific date.

Detailed reasoning

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. 

Section 995-1 of the 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 provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. The tests are:

● the resides test,

● the domicile (and permanent place of abode) test,

● the 183 day test, and

● the superannuation 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.

Relevant to your situation are the first two tests which are examined in detail in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia. In examining these tests, IT 2650 provides a number of factors which assist in assessing a taxpayer's situation against the 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 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 deciding cases of residency, the courts and tribunals have noted that a person does not necessarily cease to be a resident because he or she is physically absent from a place. Instead, the test is whether the person has retained a continuity of association with a 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).

As you are residing outside of Australia, do not have a place of abode in Australia and do not have a current intention to return to live in Australia, you are not considered to be residing in Australia according to ordinary concepts.

The domicile test

Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia. Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence.

Domicile

Domicile is a legal concept, determined according to the Domicile Act 1982 and common law rules established by private international law cases.

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 this regard paragraph 21 of 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 are an Australian citizen by birth and you have travelled extensively for business, spending more than 183 days outside of Australia during the years ended 30 June 20DD and 30 June 20UU. You intend to relocate to Country B for an undefined period, with no current intention of returning to Australia on a permanent basis.

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 a person intends to live for the rest of his or her life. An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer 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 Commissioner's view on what constitutes a permanent place of abode is contained in IT 2650.

Paragraph 23 of 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 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.

In relation to the weight to be given to each of the above factors, paragraph 24 of IT 2650 states:

The weight to be given to each factor will vary with the individual circumstances of each particular case and no single factor will be decisive.

Although you are maintaining an association with Australia through your property, membership of your self-managed superannuation fund and business ventures, your associations with Country B, Country C and Country E are more significant as:

● You have no current intention to return to Australia to live, and you have been living in Country C and Country E for a number of years,

● You do not maintain a place of abode in Australia, all of your property holdings are for investment purposes,

● You have long term rental accommodation in Country E,

● You have purchased an apartment in Country B,

● You have business ties to Country B, Country C and Country E,

● Your partner and children have been residing in Country E and will be relocating to Country B,

● Your personal belongings have been progressively moved to Country B

● You have purchased furniture for the apartment in Country B,

● You have enrolled your child into primary school in Country B,

● You have informed the Australian electoral roll of your departure, and

● You have limited your office holdings of Australian private companies so that you are no longer the sole director or sole secretary.

Based on these facts, it is therefore considered that you have established a permanent place of abode in both Country E and Country B. Therefore, you are not considered to be an Australian resident under the domicile test.

The 183 day test

When 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.

You do not satisfy this test as you have not spent more than 183 days in Australia during the income year.

The Superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person.

You are not a member of the PSS or CSS or a spouse of such a person, or a child under 16 of such a person. Therefore, you are not treated as a resident under this test.

Your resident status

As you are not deemed to be an Australian resident under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936, you ceased to be an Australian resident for tax purposes from a specific date.

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