Edited version of private ruling

Authorisation Number: 1011652191128

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Ruling

Subject: Residency

Are you a resident of Australia for tax purposes since commencing a long term contract in a foreign country?

No.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commenced on:

1 July 2009

Relevant facts and circumstances

You are a citizen of a country other than Australia and your spouse is also a citizen of a country other than Australia.

Neither you nor your spouse have dual citizenship with any other country.

You moved to Australia permanently several years ago.

Your parents live in your home country and you visit as a tourist from time to time.

You do not have any assets in your home country.

You are employed by an Australian company.

You left Australia to carry out a short term consulting assignment for a foreign company in a foreign country.

You were then offered a longer term contract, on a secondment basis to the foreign company.

The contract can be extended by the mutual agreement of the foreign company and yourself.

You were granted a work permit and this expires after approximately two years. It can be renewed.

Your spouse subsequently joined you in the foreign country and they have been granted a Dependant's Pass which expires on the same date as your work permit.

Your spouse resigned from their job in Australia to move to the foreign country.

Prior to moving overseas you and your spouse were living in your own house.

The house is owned by your spouse and is the only property owned by either of you.

The house is now rented while you are living in the foreign country.

You returned your employer-provided vehicle to your employer when you left Australia.

You have moved all your personal effects that you need to the foreign country.

You and your spouse are living in a furnished apartment provided by your overseas employer.

You and your spouse have retained a bank account in Australia as your Australian employer will only pay your salary into an Australian bank account.

You and your spouse have also set up a bank account in the foreign country.

The only assets you have in Australia are:

· Superannuation: your main superannuation account plus small private funds that have been dormant for many years.

· Other investments: you do not own any shares or have other investments in Australia.

· Vehicle: You do not own any vehicles. Your spouse owns a hobby car which is being stored.

Neither you nor your spouse have been employees of the Commonwealth Government.

You and your spouse planned to visit Australia for a short period approximately once a year to see your children who are living independently in Australia. Apart from that you have no other need or intention to visit Australia.

You visited Australia briefly and you do not plan on returning to Australia for the next nine to 12 months.

Your contract provides you with return airfares to Australia and you are not using them. You are bringing your children overseas.

At the completion of your current employment contract (and possible extensions) you and your spouse intend to either return to Australia or to seek other overseas work assignments.

You are over 16 years of age as at 1 July 2009.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

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

Reasons for decision

Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident as a person who is a resident of Australia for the purpose of the Income Tax Assessment Act 1936 (ITAA 1936).

Subsection 6(1) of the ITAA 1936 defines the terms 'resident' and 'resident of Australia' in respect of individuals to mean:

(a) a person who resides in Australia and includes a person:

I) whose domicile is in Australia, unless the Commissioner is satisfied that his permanent place of abode is outside of Australia

II) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that his usual place of abode is outside Australia, or

III) who is an eligible employee for the purposes of the Superannuation Act 1976 or is the spouse or a child under 16 years of age of such a person.

The above definition provides four tests to assist in determining whether you are a resident of Australia for income tax purposes. The four tests comprise:

1. residence according to ordinary concepts (primary test)

2. domicile and permanent place of abode test (first statutory test)

3. 183 day rule (second statutory test), and

4. Commonwealth superannuation test (third statutory test).

Where one or more of the above tests is satisfied, an individual will be deemed to be an Australian resident for tax purposes.

Taxation Ruling IT 2650 also provides guidelines for determining whether individuals who leave Australia temporarily to live overseas on temporary work assignments cease to be Australian residents for income tax purposes during their overseas stay. IT 2650 focuses on the first two tests referred to above being tests most widely applicable to persons who leave Australia temporarily and are not actually living in Australia during the income year.

The four tests will be applied to your circumstance.

1. Residence according to ordinary concepts test

The ordinary meaning of the word 'reside', according to the Shorter Oxford English Dictionary, 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 your case, you are employed by an Australian company and you left Australia on a short term assignment for that company in a foreign country. Subsequently you were offered and accepted a secondment contract for over two years. This contract can be extended by mutual agreement between yourself and the company. You and your spouse moved your required personal belongings to the foreign country and are living in a furnished apartment provided by your employer. In addition, your home in Australia has been made available for rent.

During the period you are working overseas, you are not living in Australia, and therefore you are not considered to be residing in Australia according to ordinary concepts.

2. Domicile and permanent place of abode test

A person will be a resident of Australia if he or she has an Australian domicile, unless the Commissioner of Taxation can be satisfied that the person has established a permanent place of abode outside of Australia.

Domicile

Taxation Ruling IT 2650 states at paragraph 21 that 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, for example, through having obtained a migration visa. A working visa, even for a substantial period of time such as two years, would not be sufficient evidence of an intention to acquire a new domicile of choice.

In your case, you are a citizen of a country other than Australia and you moved permanently to Australia several years ago. As you have not indicated an intention to make your home indefinitely in the foreign country (at the completion of the contract, you intend to either return to Australia or seek other overseas work assignments) you are not considered to have acquired a new domicile of choice.

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', or an abode in which a person intends to live for the rest of their life. A person living overseas who intends to return to Australia in the foreseeable future is not prevented in the meantime from setting up a permanent place of abode elsewhere.

Paragraph 23 of IT 2650 sets out the following factors which help determine a taxpayer's permanent place of abode. The weight given to each factor will vary depending on the circumstances of each case and no single factor is conclusive.

The intended and actual length of the taxpayer's stay in the overseas country.

You advised that you left Australia to take up a short term employment contract in a foreign country and you have since accepted a longer contract with the same company. This contract can be extended by mutual agreement between you and the company.

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.

You have a contract of over two years duration to work in a foreign country. Your intentions after this time are not definite in that you are not sure whether you will return to Australia at the completion of the contract (and possible extensions) or whether you will seek other overseas work assignments.

Whether the taxpayer has established a home (in the sense of a dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia.

During your overseas stay you and your spouse have been living in a furnished apartment which is being paid for by your employer. You have moved all the personal effects that you need to the foreign country.

Whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence.

You have maintained ownership of your home in Australia. You have made it available for rent while you are overseas.

The duration and continuity of the taxpayer's presence in the overseas country.

Your current employment contract is initially for over two years and may be extended by the mutual agreement of yourself and the company. You advised that you plan to visit Australia for a short period approximately once a year to see your children who are living independently in Australia. Apart from that, you have stated you have no other need or intention to visit Australia.

The durability of association that the person has with a particular place in Australia, that is, 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.

The durability of your association with Australia is supported by the ownership of property, your bank account (which you have pointed out is a requirement of your contract), and family ties. Your association with the foreign country is through your employment, a bank account, your spouse being there and the personal effects needed that you took with you to the foreign country.

IT 2650 provides some examples where residency has been discussed and determined in various situations. Your circumstances are similar to those discussed at paragraph 33 of IT 2650:

33. A bank manager was posted to the New Hebrides for 2 years. During that time he and his family lived in a furnished house provided by the bank. The taxpayer's home in Australia was let. On leaving Australia, the taxpayer expected a further overseas posting after his 2-year period. He advised the Department of Social Security that the family was leaving Australia permanently and child endowment payments should cease. The taxpayer was considered to have abandoned his place of residence in Australia and to have formed the intention to, and in fact did, reside outside Australia. His place of abode in Vila was not merely temporary or transitory; rather, it was intended to be and was in fact his home for the time being (Case S19 85 ATC 225; 28 CTBR (NS) Case 29).

Result: non-resident.

Based on the above facts, you are considered to have abandoned your place of abode in Australia and established a permanent place of abode in the foreign country with your spouse.

3. The 183-day test

Under the 183-day test, a person will be considered an Australian resident if they are present in Australia for 183 days or more during the year of income 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.

You left Australia to carry out a short term assignment in a foreign country. You have since commenced a longer contract and you have only returned to Australia briefly since that time. You do not plan on visiting Australia for at least nine to 12 months.

As the Commissioner considers that your usual place of abode is outside Australia, you are not considered to be a resident under this test.

4. The superannuation test

Under the superannuation test, a person will be considered an Australian 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.

Neither you nor your spouse are members of the relevant Superannuation Schemes. In addition, you are over 16 years of age. Accordingly, you are not an Australian resident under this test.

Conclusion

You are not considered to be an Australian resident for income tax purposes from the time you accepted your overseas long term secondment contract.