Edited version of private ruling

Authorisation Number: 1011505924966

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Ruling

Subject: Residency - Leaving Australia

Questions

Are you an Australian resident tax purposes?

Answers to questions

Are you an Australian resident tax purposes?

No

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You are a Australian and Country A citizen. Country A is your country of origin.

You and your family are planning to leave Australia in the financial year ended 30 June 2011 to work and live in Country C.

You will be leaving Australia for an indefinite period of time and have no intention of returning to Australia.

You will be employed and paid in Country C and intend to live there for an indefinite period of time.

You will set up a family home in Country C where all your belongings will be transported to from Australia.

Your children will attend school in Country C.

You only intend to return to Australia for holidays for 6 weeks or less per year.

You will cancel your medical insurance and inform the Family Assistance Office in Australia that you are leaving Australia permanently.

You and your wife will remove your names from the Australian electoral roll.

In Australia your assets consist of a newly constructed house, superannuation funds and a bank account which will be maintained in order to pay the mortgage on your house.

You may also keep your vehicle which will be garaged at a friends house for use when you return to Australia on holidays.

You will not be receiving any rental income from your house.

You have decided not to sell the house at this stage.

Money will be transferred from Country C to your Australian bank account to maintain the mortgage payments on a monthly basis.

You will not maintain any social or sporting connections in Australia.

In Country C you and your family will join social clubs and make new friends.

You and your wife were not Commonwealth Government of Australia employees.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5 and

Income Tax Assessment Act 1936 Subsection 6(1).

Reasons for decision

Residency

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 Income Tax Assessment Act 1936 (ITAA 1936). The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are:

· the resides test

· the domicile test

· the 183 day test

· the superannuation test.

The first two tests are examined in detail in Taxation Ruling IT 2650.

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 considered to be a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.

The resides 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'.

As you intend to maintain a permanent place of abode in Country C where you will reside and work full time with your wife and children, you are not considered to be residing in Australia.

The domicile test

If a person is considered to have their domicile in Australia they will be considered an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

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.

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.

In your case,

· you have advised that it is your intention to make your home indefinitely in Country C;

· you plan to reside in Country C with your wife and children,

· you will be working full time in Country C and

· you plan to create social ties in Country C.

Therefore, you are not considered to have maintained your Australian domicile.

Based on these facts, the Commissioner is satisfied that you have established a permanent place of abode in Country C.

The 183-day test

This test does not apply to you as it has been identified that your permanent place of abode will be in Country C.

The superannuation test

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

You will not be treated as a resident under this test as you are not a member of the PSS or the CSS, a spouse of such a person, or a child under 16 of such a person.

Your residency status

As you are not considered to be a resident of Australia under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936, you are not considered to be an Australian resident from the date of your departure from Australia under subsection 995-1(1) of the ITAA 1997.

General information - Australian sourced rental income

Rental income derived from property in Australia is ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

If you decide to rent out your house in Australia, as the rental property income has its source in Australia, this income will be subject to tax in Australia under section 6-5(3) of the ITAA 1997. Therefore, you would need to lodge an income tax return in Australia to declare this income.

Note

A non-resident of Australia will only need to lodge a tax return if they have income that is taxable in Australia. This excludes any income from which non-resident withholding tax has been deducted. Examples of income that may be subject to non-resident withholding tax are bank interest and unfranked dividends.

Where a taxpayer's status has changed during the year of income from resident to non-resident, they still need to answer 'yes' to the residency question in their tax return as they would have been an Australian resident for part of the year. This ensures that they are taxed at resident rates for the tax year. A taxpayer's non-residency for part of the year is taken into account by a reduction in their tax-free threshold. They are entitled to a pro-rata tax-free threshold for the number of months they are an Australian resident.

In order to claim a tax offset for a dependent spouse, the taxpayer must have been an Australian resident for at least part of the year. The claim will need to be reduced to take account of any period that their dependent spouse was not an Australian resident.

Non-residents of Australia are not required to pay the Medicare levy, so a taxpayer can claim the number of days that they are not an Australian resident during a tax year in their return as exempt days.

There is no need to disclose in the tax return foreign source income that is received after the taxpayer ceased to be an Australian resident.