Edited version of your written advice

Authorisation Number: 1051262937054

Date of advice: 16 August 2017

Ruling

Subject: Residency

Question and answer

Are you a resident of Australia for tax purposes?

Yes.

This ruling applies for the following period:

Year ending 30 June 2017

The scheme commences on:

1 July 2016

Relevant facts and circumstances

You are an Australian citizen.

You departed Australia for a foreign country to commence employment.

You accepted permanent local employment in a foreign country on a contract which has no fixed term.

You are employed in a foreign country with oversight duties for your employer’s Australian business.

You intend to remain in a foreign country for several years.

You took your personal belongings to a foreign country on your departure from Australia, including clothes and personal effects.

You have returned to Australia for work and to visit your family on a number of occasions including and to prepare your home to be listed for renting and to assist your child moving into their own apartment and assist your spouse with packing up their personal effects in order to relocate to a foreign country.

You were present in Australia for a total of less than X days in the income year ended 30 June 2017.

You had no more than four visits to Australia during any income year.

On your departure from Australia, you marked your departure card as permanently departing. On each subsequent visit to Australia you stated that you were temporarily visiting and on each subsequent departure that you were permanently departing.

You have a home in a foreign country in furnished rental accommodation that you have leased in your own name and which is always available for your use. The lease was most recently renewed.

You have a spouse and a child; both are Australian citizens.

Your spouse and child remained in Australia when you departed Australia.

You own a house in Australia, in which your spouse and child continued to live after your departure.

Your spouse was employed by an Australian company and continued to work in Australia until their resignation.

Your spouse relocated to a foreign country permanently. Prior to this there were several short trips to a foreign country.

Your spouse always intended to move to a foreign country once your child was settled in employment and university studies.

Your child moved out of your Australian family home and into an Australian rental property on your spouse’s departure from Australia.

Your Australian family home has been rented out since your spouse and adult child vacated the property.

You have access to a gym in your accommodation in a foreign country.

You intend to work and live in a foreign country for the long term and do not have any immediate plans to return to Australia permanently.

You have a mortgage against this property with an Australian financial institution.

You have an Australian superannuation fund.

You own an investment property in Australia.

You have Australian bank accounts.

You are registered as an overseas elector with the Australian electoral roll.

You have cancelled all of your memberships with clubs and societies in Australia.

You own restricted stock units in a foreign company.

You are not a member of the superannuation scheme established by deed under the Superannuation Act 1990.

You are not an eligible employee for the purposes of the Superannuation Act 1976.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

Summary

You are a resident of Australia for tax purposes until X as you satisfied the resides test and the domicile test until this date. You are not a resident of Australia from X.

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.

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.

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

● You departed Australia to commence employment on a local permanent contract in a foreign country with no fixed term.

● You intend to remain in a foreign country for several years.

● You have no immediate plans to return to Australia permanently.

● You took your personal belongings including clothes and personal effects on your departure from Australia.

● You are living in furnished rental accommodation in a foreign country. You entered into a lease agreement for this accommodation. The lease was recently renewed.

● You are registered as an overseas elector with the Australian electoral roll.

● You cancelled all of your Australian memberships with clubs and societies.

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

● Your spouse remained living in your family home while you while you were overseas until they left to join you in a foreign country.

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 in the situation where their spouse remains living in Australia in the family home.

In these circumstances, it may be considered that the taxpayer meets the resides test as they have retained a sufficient 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 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 of 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’.

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 a foreign country until X. Although your spouse did not join you as they remained in Australia to provide a stable environment while your child settled into university and employment. The fact is your child remained living in your family home 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 family home 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.

Consequently, we consider that, on balance, your intention to work overseas indefinitely is outweighed by the continuity of association you retained with Australia during the period you are working in a foreign country.

Therefore, while your spouse remained living in your Australian family home until X you continued to reside in Australia according to the ordinary meaning of the word. You were a resident under the resides test of residency until X.

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 test 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 show that you took any steps to establish a new domicile in any other country during the relevant period.

Therefore, your domicile is still Australia during the period you are employed in a foreign country.

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.

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.

Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650) provides a list of some of the factors that are considered relevant in reaching a 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 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 intended to work overseas indefinitely and established your own accommodation in a foreign country, you did not abandon your residence in Australia. As your Australian residence was still available to you, you retained a durable association with Australia and in particular, your spouse 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 your spouse remained in Australia.

Based on the facts you have provided, we can conclude that you do not satisfy the remaining two tests of residency for the relevant period; the 183 day test or the superannuation test.

Your residency status

As you meet the resides and domicile tests of residency, you were a resident of Australia for tax purposes until X.

You are not a resident of Australia for tax purposes from X.

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