Edited version of private ruling

Authorisation Number: 1011660019826

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Ruling

Subject: Residency and Net medical tax offset

1. Are you a resident of Australia for income tax purposes?

No.

2. Are you eligible to claim net medical expenses tax offset?

No.

This ruling applies for the following period/s:

Income year ending 30 June 2008

Income year ending 30 June 2009

Income year ending 30 June 2010

The scheme commences on:

1 July 2007

The scheme that is the subject of the ruling:

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a citizen of Australia by birth.

You have worked in the one occupation for approximately 18 years in Australia.

You married a foreign citizen who was granted permanent residency of Australia. You both decided to live in Australia due to your employment here.

A short time later you were diagnosed with a serious illness. As a result you were discharged from an organisation on a pension basis.

At the same time a relative of your spouse became seriously ill. You and your spouse decided to go to Country X to take care of the relative.

Upon your return to Australia you learnt that the relative's condition has further deteriorated.

You went back to Country X. There your spouse too became ill and was confined to a wheelchair.

As your spouse cannot travel anymore you have taken permanent residency of Country X.

You are now the sole carer of both your spouse and the relative.

You do not work in Country X.

You own a rental property and maintain bank accounts in Australia.

You continue to receive a pension and rental income from Australia.

The relative is assisting you with accommodation and some costs of living in Country X.

You and your spouse do not want to live in Country X but the due to your extraordinary circumstances your temporary stay there has been extended.

As a result of your spouse's illness they have been dropped by their private health insurance company.

The monthly medical costs of your spouse have been huge and a tremendous financial drain on you.

Therefore, you want to be treated as an Australian resident for tax purposes and consequently be eligible to claim net medical tax offset in relation to medical expenses incurred in Country X for yourself and your spouse.

Relevant legislative provisions

Subsection 6(1) of the Income Tax Assessment Act 1936

Section 159P of the Income Tax Assessment Act 1936

Explanation: (This does not form part of the notice of private ruling)

Residency

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 reside 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 are living in Country X, you are not considered to be residing in Australia under this test.

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 their 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 their 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.

Taxation Ruling IT 2650 provides assistance in determining a person's permanent place of abode. It is a question of fact which must be determined in the light of the circumstances of each case. 

Some of the factors considered to be relevant in determining a person's place of abode include:

(a) the intended and actual length of the individual's stay in the overseas country

(b) whether the individual 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) the establishment of 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

(d) the abandonment of any residence or place of abode the individual may have had in Australia

(e) the duration and continuity of the individual's presence in the overseas country

(f) the durability of association that the individual has with a particular place in Australia, for example, maintaining bank accounts in Australia, informing government departments that he or she is leaving permanently, place of education of his or her children, family ties, and so on.

We consider the following factors which indicate that you have a permanent place of abode in Country X:

You are staying in Country X with your spouse in an accommodation provided by your relative. You are now the sole carer of both your spouse and your relative. Your spouse is confined to a wheelchair and cannot travel.

You have taken permanent residency in Country X.

You have rented out your family home in Australia which suggests that it is not available to you at all times continuously.

Although you maintain an association with Australia through your sources of income and investments, your associations with Country X are more significant as you have been residing there with your spouse for an extended period of time.

Based on these facts, it is considered that you have established a permanent place of abode in Country X.

The 183-day test

This test does not apply to you as it has been identified that your permanent place of abode is Country X.

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. 

This test does not apply to you as you and your spouse are not eligible to contribute to the PSS or the CSS.

Conclusion

You are not considered to be an Australian resident for tax purposes under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936.

Net medical tax offset

A net medical expenses tax offset is available under section 159P of the ITAA 1936. The tax offset is allowable to a taxpayer whose net medical expenses in the year of income exceed $1500. To qualify for the offset, the medical expense must be paid by a resident taxpayer in respect of themselves or a resident dependant.

As you were not an Australian resident for tax purposes you are not eligible to claim net medical expenses tax offset during the 2007-08, 2008-09 and 2009-2010 income years.