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This edited version has been archived due to the length of time since original publication.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.

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Edited version of your written advice

Authorisation Number: 1051208863600

Date of advice: 31 March 2017

Ruling

Subject: Residency

Question

Were you a non-resident of Australia for tax purposes?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2016

The scheme commences on:

1 July 2015

Relevant facts and circumstances

Your country of origin is Australia and you are an Australian citizen.

You left Australia on mid-late 20XX to accompany your spouse to Country X for an initial period of X months.

You entered Country X on a XX day tourist visa which you subsequently renewed.

You signed a rental agreement for a period of one year and subsequently moved into the property during mid-late 20XX.

You formed the intention of residing in Country X toward the end of late 20XX; however, you returned to Australia approximately X months later.

You maintained your employment with you Australian employer during this period and received holiday pay from them.

You obtained work while in Country X and travelled to multiple countries as part of your work.

You maintained some assets in Australia while also procuring some household items in Country X.

You were not considered a resident for tax purposes in Country X and were not required to lodge a tax return.

You returned to Australia in early 20XY after the initial X months period had expired.

You subsequently left Australia in 20XY to reside permanently in Country Y.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

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

Reasons for decision

Detailed reasoning

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 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. 3rd 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:

These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (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.

In your case:

Based on these facts, it is evident that you did not establish enough of a connection with Country X to establish that you were residing in that country.

Consequently, you continued to reside in Australia according to the ordinary meaning of the word. Therefore, you met the 'resides test' and were a resident of Australia for tax purposes during 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.

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.

Therefore, as you are an Australian citizen and you did not take any legal steps which would have proven an intention to change your domicile to Country X, you retained your Australian domicile while you were present in that country.

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.”

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.

Where a taxpayer leaves Australia for an unspecified or a substantial period and establishes a home in another country, that home may represent a permanent place of abode of the taxpayer outside Australia. However, a taxpayer who leaves Australia with an intention of returning to Australia at the end of a 'transitory' stay overseas would remain a resident of Australia for income tax purposes. 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 25 and 27 of IT 2650).

In your case, the Commissioner is not satisfied that you had a permanent place of abode outside of Australia based on the following:

Therefore, as your domicile was Australia and the Commissioner is not satisfied that you established a permanent place of abode outside of Australia, you were a resident of Australia under the domicile test of residency.

Your residency status

As you were a resident under the 'resides' and 'domicile test' there is no need to consider the remaining two tests, and you are a resident of Australia for income tax purposes under subsection 6(1) of the ITAA 1936.

Assessability of your income

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. 

You may, however, be entitled to a foreign income tax offset for the foreign tax you paid overseas. Please refer to our website www.ato.gov.au for further information regarding foreign income tax offset.

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