Edited version of private advice

Authorisation Number: 1051806065937

Date of advice: 6 May 2021

Ruling

Subject: Residency of Australia for taxation purposes

Question

Were you a resident of Australia for taxation purposes for the period you worked in Country Z?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2020

The scheme commences on:

1 July 2019

Relevant facts and circumstances

You were born in Country Y.

You are a citizen of Country Z.

You are a permanent resident of Australia.

You intend on becoming an Australian citizen.

You have lived in Australia for XX years.

You and your Australian partner went traveling overseas for X months and then went to Country Z to work.

You were working in Country Z from mid 20XX to early 20XY.

Your intention was to return to Australia and not to remain permanently in Country Z.

You and your partner rented a property in Country Z.

You took clothes to Country Z with you.

Prior to leaving for Country Z you were living with your partners parents.

Prior to living with your partners parents, you and your partner rented a property in Australia.

You paid the following tax in Country Z:

•         Personal tax - The wage tax, which alone accounts for a third of the Country Z government's revenue, is withheld at source from compensation. The taxation at source for employment income will be carried out based in taxation classes based on the personal status. You are class I = single, living in a registered civil partnership.

•         Solidarity tax - On top of income tax, the so-called solidarity surcharge is levied at a rate of X% of the income tax for higher incomes. The solidarity surcharge was introduced in 19XX. These include the debts and pension obligations of the Country Z government, as well as the costs of upgrading infrastructure and environmental remediation in the new states of Country Z.

•         Pension tax - Anyone working in Country Z is obliged to participate in a pension insurance scheme. Over time, your contributions build up to provide you with a basic provision for your retirement. If you are self-employed (i.e. you run your own business or are a freelancer), you can choose whether to opt into the statutory pension insurance scheme or start a private pension plan.

•         Health tax - Since 19XX, everyone in Country Z has been required to contribute to long-term care insurance scheme, which covers you in the event of your needing care due to old age, accident or illness. Anyone who has statutory health insurance is automatically covered.

•         Social tax - Workers in Country Z are also required to contribute to unemployment insurance. These contributions are used to provide unemployment benefits to anyone who is out of work.

You and your spouse are not eligible to contribute to the relevant Commonwealth super funds.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 995-1(1)

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

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, if you are a foreign resident, your assessable income includes only income derived from an Australian source (subsection 6-5(3) of the ITAA 1997).

The terms resident and resident of Australia, regarding an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition provides four tests to ascertain whether a taxpayer is a resident of Australia. These tests are:

1. the resides test

2. the domicile tests

3. the 183-day test

4. the superannuation tests

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides. However, where an individual does not reside in Australia according to ordinary concepts, they may still be a resident of Australia for tax 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 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'.

In considering the definition of 'reside', the High Court of Australia, in Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 at page 99-100, per Latham CJ, noted the term 'reside' should be given a wide meaning for the purposes of section 6(1) of the ITAA 1936. Similarly, in Subrahmanyam v Commissioner of Taxation 2002 ATC 2303, Deputy President Forgie said at paragraphs 43 and 44 that the widest meaning should be attributed to the word 'reside'.

The question of whether an individual 'resides' in a country is a question of fact and degree and not of law. In deciding this question, the courts have consistently referred to and considered the following factors as being relevant:

(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 with Australia compared to the foreign country concerned; and

(viii) maintenance of a place of abode.

The weight given to each factor varies with individual circumstances and no single factor is necessarily decisive. In Shand v Federal Commissioner of Taxation 2003 ATC 2080, the Tribunal stated (at 35):

Questions of residence, domicile, permanent place of abode, have frequently been found by the courts and tribunals to be difficult to assess on a factual level and not easy to define in concrete legal terms.

You and your spouse were working in Country Z from mid 20XX to early 20XY.

It was your intention to return to Australia and not remain permanently in Country Z.

Prior to working in Country Z, you and your spouse did X months of travelling.

You rented accommodations in Country Z and you took clothes overseas with you.

Based on the information provided to us you did not break your connection with Australia for the period you were traveling and working in Country Z.

You are a resident under this test.

The domicile test

If a person's domicile is Australia they will be an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. In order to show that an individual's domicile of choice has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country.

Your domicile of origin is Country Y and your domicile of choice is Australia based on your permanent residency. You have not sought citizenship or intend to live in Country Z indefinitely. Therefore your domicile of choice will remain Australia.

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.

The Commissioner is not satisfied that you set up a permanent place of abode outside Australia for the following reasons:

•         You went to Country Z with the intention of returning to Australia.

•         You rented accommodation in Country Z and only took clothing with you.

You are a resident under this test

The 183-day test

Under the 183 day test, a person is a resident of Australia if they are actually physically present in Australia for more than 183 days in an income year unless the Commissioner is satisfied that their usual place of abode is outside of Australia and they have no intention of taking up residence here.

You were not in Australia for more than 183 days in the 2020 income year.

You worked in Country Z for more than 183 days in the 2020 income year.

You are not a resident under this test.

The superannuation tests

This test covers Commonwealth government employees - members of the Commonwealth superannuation funds (as well as their spouses and children under 16 years of age).

A person is a resident under this test if they are:

•      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; or

•      the spouse, or a child under 16, of a person covered by either of the above.

Neither you nor your spouse are eligible to contribute to the PSS or the CSS Super funds.

You are not a resident under this test.

Your residency status

For the period you were in Country Z working you were a resident of Australia for taxation purposes.

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