Edited version of private advice

Authorisation Number: 1051562411313

Date of advice: 7 August 2019

Ruling

Subject: Residency

Question

Are you a resident of Australia for income tax purposes?

Answer

No

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were born in Australia and are an Australian citizen.

You went to Country A XX years ago for a X month working holiday.

Since then you have returned to Australia three times to live permanently for periods of XX months.

You have been living and working in Country A in total for approximately XX years over the XX year period.

You have returned to Australia almost every year for at least X month to spend time with your Australian family and friends and to maintain your Australian roots and ties.

In 20XX you purchased a property in Australia. You lived in the property as your main residence during the period while you were living in Australia.

The property has been leased with the current XX month tenancy agreement signed in the year ended 30 June 20XX.

You intend to move into this property when you return to Australia.

You are married to a Country A citizen with whom you have XX children.

The children have dual Australian and Country A citizenship.

You do not have permanent residency in Country A. You have maintained working holiday, working or spousal visas in Country A.

When your first child was conceived you and your spouse formed an XX year plan for your stay in Country A.

Your plan was to live in Country A near to your spouse's family to give your spouse support with your young children and immersion with their Country A family, culture and background.

You have always intended to return to Australia by the time your eldest child reached XX years of age.

You state you do not intend, nor have ever intended to reside permanently with your family in Country A.

For the past XX years you have lived with your family in a rental property in Country A.

The rental agreement is in your spouse's name.

You have not purchased property in Country A.

You have been employed on X year contracts for the past XX years in Country A.

You pay income, health and citizenship tax in Country A.

Your last employment contract expired during the year ended 30 June 20XX.

You have commenced working for an Australian company working remotely from your home office in Country A.

You have an agreement that you will continue working in the future when you return to Australia.

You expect to return to Australia in 20XX.

Your assets in Country A consist of vehicles, registered through your spouse's family business, which pays the vehicle tax and insurance.

You have furniture, electrical and other household goods which you will bring to Australia when you return.

You have household effects in storage in Australia including electric goods and furniture.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 subsection 955-1(1)

Reasons for decision

Summary

You are not a resident of Australia in accordance with any of the tests of residency outlined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) and subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997), you are not considered to be an Australian resident for taxation purposes for the year ended 30 June 2019.

Detailed reasoning

Section 6-5 of the ITAA 1997 provides that where you are a resident of Australia for taxation purposes, your assessable income includes income derived 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. This includes employment income, rental income, Australian pensions and annuities and capital gains on Australian assets.

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 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 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:

·         resides test

·         domicile test

·         183 day test and

·         Commonwealth superannuation fund 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. The remaining tests will be considered if you do not meet the primary test.

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 (ordinary concepts) 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. 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'.

The question of whether an individual 'resides' in a particular country is a question of fact and degree and all the circumstances of the taxpayer are taken into account in arriving at a decision.

Based on the facts you are not residing in Australia according to the ordinary meaning of the word as you are currently living in Country A. You are therefore not a resident under the resides test.

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 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 or acquire another domicile by operation of law.

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 prove an intention to make his or her 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. 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 were born in Australia and therefore your domicile of origin is Australia. You have not changed your domicile and your domicile remains Australia. 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 is outside Australia

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 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."

Paragraphs 13 to 17 of IT 2650 discuss the meaning of the word "permanent":

13. The leading case on whether a permanent place of abode is outside Australia is F.C. of T. v. Applegate (79 ATC 4307; (1979) 9 ATR 899). The taxpayer, whose domicile was in Australia, had been sent by his employer, a firm of solicitors, to establish a branch office in Vila, New Hebrides. His absence was to be for an indefinite period in the sense that the period was not specified or defined but it was expected that it would be of a substantial length. It was also expected that later he would be recalled to Australia. In fact, he returned to Australia after 2 years, his stay being cut short by illness. The taxpayer claimed that the salary he earned in Vila was exempt from Australian tax being income derived by a non-resident from sources wholly out of Australia. In that case, it was decided that, because the taxpayer could not be considered to have resided in Australia under the ordinary meaning of the word "reside", the extended definition of "resident" contained in paragraph (a)(i) had to be considered. Both the Supreme Court of New South Wales and, on appeal, the Full Court of the Federal Court of Australia held that the taxpayer had a permanent place of abode outside Australia. He was therefore a non-resident in the year of income concerned.

14. The Federal Court rejected the Commissioner's argument that a permanent place of abode outside Australia required an intention to live outside Australia indefinitely without any intention of returning to live in Australia in the foreseeable future, other than at some remote, albeit specific, point of time. The Court said that the term "permanent" must be interpreted in the context in which it appears. The Court said that in its context in the "resident" definition a permanent place of abode does not have to be "everlasting" or "forever". It means something less than a permanent place of abode in which a person intends to live for the rest of his or her life. It should be contrasted with a temporary or transitory place of abode outside Australia. 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 or her usual place of abode. 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. The Federal Court also found that the taxpayer's intention regarding the duration of his stay overseas was only one relevant factor to be taken into account. Of more importance is the nature and quality of use which the taxpayer makes of a particular place of abode overseas.

15. "Permanent place of abode", according to Fisher J (79 ATC at 4317; 9 ATR at 910-911), 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".

16. The case of F.C. of T. v. Jenkins 82 ATC 4098; (1982) 12 ATR 745, involved a bank officer who had been transferred to the New Hebrides for 3 years. He returned to Australia after only 18 months because of ill health. The taxpayer had tried to sell the family home before going overseas but was unable to find a buyer. The Australian home was eventually leased and the taxpayer retained a bank account in Australia.

17. The Supreme Court of Queensland held that the taxpayer had a permanent place of abode outside Australia during the period he was overseas even though he had not at any material time formed an intention to remain indefinitely in the New Hebrides in the sense in which the word "indefinitely" is used in Applegate. Sheahan J considered that if a stay of 10 years could not sensibly be regarded as "temporary", neither should a stay of 3 years be so regarded. In giving evidence, the taxpayer had said that, under normal circumstances, he and his spouse would have applied for an extension after the 3 years had lapsed. In addition, they had no fixed date on which to return to Australia until the taxpayer fell ill.

In Harding v CoT [2019] FCAFC 29 the Full Court found that 'permanent place of abode is outside Australia' involves two considerations:

1)    Whether the taxpayer has definitely abandoned, in a permanent way, their Australian residence, and

2)    Whether the taxpayer is living permanently in a specific country, rather than moving between foreign countries.

The Commissioner's view on what constitutes a permanent place of abode is contained in IT 2650.

Paragraph 23 of IT 2650sets 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... however... greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant.

It is clear to the Commissioner is that you have established a permanent place of abode outside of Australia. Therefore, you are not a resident of Australia under the domicile test.

The 183-day test

Under the 183 day test you are considered a resident of Australia if you are present in Australia for a total period of more than half of the year of income, that is 183 days, unless the Commissioner is satisfied that your usual place of abode is outside Australia and you do not intend to take up residence in Australia.

You were not present in Australia for a total period of more than 183 days in a year of income. Therefore you will not be a resident of Australia under the 183-day test.

The superannuation test

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

You are not a member of the PSS or CSS, nor are you eligible to contribute to either of them. Therefore, you are not a resident of Australia under the superannuation test.

Your residency status

As you are not a resident of Australia in accordance with any of the tests of residency outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, you are not considered to be an Australian resident for taxation purposes for the year ended 30 June 20XX.

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