Edited version of private advice

Authorisation Number: 1051823347461

Date of advice: 1 April 2021

Ruling

Subject: Residency

Question

Are you a resident of Australia for income tax purposes?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

General

You were a non-resident of Australia living for multiple years in Country A (since early 20XX) up until early 20XX where you both moved to Country B.

When you moved to Country A, you gave up your Australian tax residency and you became a tax resident of Country A as you relocated there and intended to live there indefinitely.

You were residing in Country A on a particular type of visa, which are typically given to foreigners who are employed by an organisation in Country A.

Your domicile changed to Country A from when you commenced living there in early 20XX.

Client 1 (the spouse of client 2) is a citizen of Australia.

Client 2 (the spouse of client 1) is also a citizen of Australia and a citizen of Country C, as her parent was born in the Country C.

Client 1 will commence new employment with an International organisation upon arrival to Country B, whilst client 2 will be looking after your children.

Prior to leaving Country A you were a Country A resident for taxation purposes.

You have entered Country B on a diplomatic visa issued by the Country B Government, which is given to foreign nationals who either work in a foreign government's embassy, or who are employed by an international organisation such as the organisation whom client 1 will be working for.

Your visa's expire in late 20XX, however if client 1 ceases the employment at the international organisation, you have 30 days to either apply for other visas or leave the country. If client 1 is still working for the international organisation in December 20XX, under normal circumstances your Visa's would be renewed.

If client 2 later decides to obtain employment in Country B, client 2 will need to apply for a special work permit for the spouse of a diplomatic visa holder, however in that situation client 2 would remain the holder of a diplomatic visa.

Client 1's appointment with the international organisation is an 'indefinite appointment' but with a contract for 2 years. The international organisation puts all new staff on rolling contracts of usually 2 years in duration.

It is your current intention that you will both leave Country B and return to Australia when client 1 ceases their employment role with the international organisation, which you estimate to be somewhere between two to nine years.

You have both committed to living in Country B for at least two years, and if at the end of that period you both like living in Country B, you could potentially remain living in Country B for a period up to nine years.

You intend on returning to Australia at least once every two years to visit family during the Christmas period for as long as you are living in Country B.

You have advised Medicare that you were departing Australia prior to you leaving to live in Country A.

You have cancelled your Australian private health insurance.

When completing incoming and outgoing passenger cards, you will nominate your residency status and your address as being in Country B.

Accommodation

You are currently in a temporary Airbnb while you look for more permanent accommodation in which to live in Country B.

You have engaged the services of a realtor (who acts as both a buying agent and helping us find a rental) as you are open to both renting or buying here depending on what makes financial and lifestyle sense.

Whether you rent or buy you are looking for a single-family, detached house that would be your home while you are based in Country B.

If you decide to rent, you anticipate that the rental agreement will be between 6 to 12 months, however you are also open to the idea of buying a property in Country B as that would give your children more stability by not having to change schools at the end of a lease agreement if you had to move.

You have joint investment properties in Australia which are currently being rented out.

Assets

Client 1 receives some Australian income in the form of a pension payment from the PSS Superannuation Scheme (from their previous employment within the Australian Public Service), rental income, and family trust distributions.

You have an Australian family trust, which holds some investments in shares and companies, and has distributed proceeds each year on which you have paid tax on.

You have loan offset accounts against home loans for your Australian investment properties.

You have not made any investments in Australia since leaving Country A and moving to Country B.

You are considering buying another house in Australia.

You have no household effects or personal effects in Australia as when you left for Country A you took these with you, sold some and have the rest to friends and family.

You had previously advised Australian financial institutions that you were a non-resident prior to you leaving for Country A.

You have a bank account in Country B, but currently you do not have any other assets in Country B. However, you intend on buying a car Country B, along with additional furniture once you decide on what type of permanent living arrangement you will have in Country B (either renting or buying a property).

You do not intend on lodging a tax return whilst you are living and working in Country B, however there is a special form you need to fill out each year to declare that you did not earn any non-employment income from the Country B each tax year to be lodged with Country B tax authorities.

However, if you do purchase a house in Country B you will be subject to capital gains tax in Country B upon the sale of any such property.

In addition, if client 2 decides to obtain employment in Country B, they will need to pay tax on any income they earn in Country B.

Family and social connections

You have two dependents (your children), both of a young age.

You have not maintained any professional, social or sporting connections with Australia.

You anticipate establishing some sporting, social and church connections in Country B.

You will obtain drivers licences in Country B.

You will not maintain any professional or occupational memberships in Australia.

Employment

Regarding client 1's employment with the international organisation:

•         Client 1 will be working within a specific department within the international organisation;

•         Client 1 will be working full-time doing professional managerial work leading the communications team.

•         Client 1 has been given an 'indefinite appointment'. These are administered by rolling two-year contracts.

•         Client 1's employment with the international organisation can be extended, and they will be notified 6 months before the contract ends if it will not be renewed. Otherwise it will be rolled over into a new 2-year contract, and this would continue until retirement age or until client 1 resigns.

Client 1 previously worked for many years with the Commonwealth of Australia in an Australian city as a full-time, ongoing employee.

Client 2 previously worked for several years as a full-time employee with the Commonwealth of Australia - initially on a contract and then as a permanent employee.

Neither client 1 nor client 2 are members of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990.

Neither client 1 nor client 2 are an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS) which was established under the Superannuation Act 1976.

Neither client 1 nor client 2 are a spouse or a child under 16 of a person who is a member of the PSS or an eligible employee in respect of the CSS.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1936 Section 995-1

Reasons for decision

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 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 test,

•         the 183 day test, and

•         the superannuation 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.

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. 3^rd 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:

(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 to different countries

(viii)       Maintenance of place of abode.

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

•         You have been permanently living and working in Country A since early 20XX.

•         When you moved to Country A, you gave up your Australian tax residency and you became a Country A tax resident as you relocated there and intended to live there indefinitely.

•         In early you moved to Country B for a period of between two and nine years

•         You have entered Country B on a diplomatic visa issued by the Country B Government, which is given to foreign nationals who either work in a foreign government's embassy, or who are employed by an organisation such as the organisation whom client 1 will be working for.

•         Your visa's expire in late 20XX, however if client 1 ceases their employment with the organisation, you have 30 days to either apply for other visas or leave the country. If client 1 is still working for the organisation in late 20XX, under normal circumstances your Visa's would be renewed.

•         Client 1's appointment with the organisation is an 'indefinite appointment' but with a contract for 2 years. The organisation puts all new staff on rolling contracts of usually 2 years in duration.

•         It is your current intention that you will both leave Country B and return to Australia when client 1 ceases their employment role with the organisation, which you estimate to be somewhere between two to nine years.

•         You have therefore both committed to living in Country B for at least two years, and if at the end of that period you both like living in Country B, you could potentially remain living in Country B for a period up to nine years.

•         You intend on returning to Australia at least once every two years to visit family during the as long as you are living in Country B.

•         You are currently living in temporary accommodation while you look for more permanent accommodation in which to live in Country B.

•         You have not made any investments in Australia since leaving Country A and moving to Country B.

•         You have two dependents (your children), who are of a young age and who live with you in Country B.

•         You will obtain a driver's licence in Country B.

•         You have not maintained any professional, social or sporting connections in Australia.

•         You anticipate establishing some sporting, social and church connections in Country B.

Accordingly you are not residing in Australia under ordinary concepts and you are not a resident under this test.

As you do not meet the resides test, we will need to consider whether you meet any of the other three tests of residency.

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.

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 (section 10 of the Domicile Act 1982).

Generally, persons leaving Australia temporarily would be considered to have maintained their Australian domicile unless it is established that they have acquired a different domicile of choice or by operation of law.

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, along with being able to lawfully stay in that country.

Taxation Ruling IT 2650 - Income tax: residency - permanent place of abode outside Australia (IT 2650) provides further guidance on the Domicile test.

Paragraph 9 of IT 2650 states:

The intention that a person must have in order to acquire a domicile of choice in a country is the intention to make his home indefinitely in that country.

Paragraph 10 of IT 2650 states:

In determining a person's domicile for the purposes of the definition of "resident" in subsection 6(1), it is necessary to consider the person's intention as to the country in which he or she is to make his or her home indefinitely. Thus, a person with an Australian domicile but living outside Australia will retain that domicile if he or she intends to return to Australia on a clearly foreseen and reasonably anticipated contingency e.g., the end of his or her employment. On the other hand, if that person has in mind only a vague possibility of returning to Australia, such as making a fortune (a modern example might be winning a football pool) or some sentiment about dying in the land of his or her forebears, such a state of mind is consistent with the intention required by law to acquire a domicile of choice in the foreign country - see In the Estate of Fuld (No. 3)(1968) p. 675 per Scarman J at pp. 684-685 and Buswell v. I.R.C (1974) 2 All E.R. 520 at p. 526.

A domicile of choice is therefore not acquired where the person only intends on living in a country for a certain and definite period and for a particular purpose (for example a work assignment for a couple of years) because they will not have the required intention to settle permanently in that country.

The Domicile Act also provides that a person's domicile at the time continues until a new domicile of choice is acquired (section 7 of the Domicile Act 1982).

Application to your circumstances

In your case, you adopted a new domicile of choice - Country A, when you moved there in 2015. Once you arrived in Country A your intention was to live there indefinitely.

When you left Country A to live in Country B in early 20XX, you intended to live there for a period of between 2 to 9 years, having entered Country B on a Diplomatic visa issued by the Country B Government.

Your visa's expire in late 20XX, however if client 1 ceases their employment with the international organisation, you have 30 days to either apply for other visas or leave the country. If client 1 is still working for the international organisation in late 20XX, under normal circumstances your Visa's would be renewed.

Client 1's appointment with the international organisation is an 'indefinite appointment' but with a contract for 2 years. The international organisation puts all new staff on rolling contracts of usually 2 years in duration.

It is your current intention that you will both leave Country B and return to Australia when client 1 ceases their employment role with the international organisation, which you estimate to be somewhere between two to nine years.

You have both committed to living in Country B for at least two years, and if at the end of that period you both like living in Country B, you could potentially remain living in Country B for a period up to nine years.

However, based on your current intention, we do not consider that your domicile has changed to Country B, as you do not currently intend on living in Country B indefinitely. This contrasts with when you first moved to Country A, where your original intention was to live there indefinitely.

Therefore, and based on your circumstances, you have retained your Country A domicile, as you have not since acquired a new domicile of choice, and you have not stated any intention of permanently resettling in Australia in the short-term.

Accordingly, you are not a resident of Australia for tax purposes under the domicile test, having adopted a domicile of choice outside of Australia (Country A), and also having retained your Country A domicile despite you moving to the Country B.

As your domicile is not in Australia, we will not need to consider whether your permanent place of abode is outside of Australia.

The 183-day test

Where 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.

The Commissioner is satisfied that will not be in Australia for more than 183 days during the 20XX-XX financial year.

The Commissioner is also satisfied that your usual place of abode is outside Australia.

The Commissioner is also satisfied that you do not intend to take up residence in Australia.

You are a non-resident under this test.

The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the PSS or the CSS, or that person is the spouse or child under 16 of such a person.

Generally this would include a permanent or temporary employee of the Australian Public Service (APS).

Client 1 previously worked for many years with the Commonwealth of Australia in an Australian city as a full-time, ongoing employee.

Client 2 previously worked for several years as a full-time employee with the Commonwealth of Australia - initially on a contract and then as a permanent employee.

However:

•         Neither client 1 nor client 2 are members of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990;

•         Neither client 1 nor client 2 are an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS) which was established under the Superannuation Act 1976; and

•         Neither client 1 or client 2 are a spouse or a child under 16 of a person who is a member of the PSS or an eligible employee in respect of the CSS.

As outlined in ATO ID 2002/1064, as person no longer employed by the APS is not classed as a member of the PSS. As such, individuals no longer employed by the APS are former members, and therefore not members of the PSS.

As client 1 and client 2 are no longer employed by the APS, or a spouse or child under 16 of an APS employee, you are both not a resident under this test.

Your residency status

As you are not a resident under any of the four tests of residency you are not a resident of Australia for income tax purposes under subsection 6(1) of the ITAA 1936.

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