Edited version of private ruling

Authorisation Number: 1011663951572

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Ruling

Subject: Residency

Question 1

Were you an Australian resident for taxation purposes for the period commencing Month X/Year X and ending Month Y/Year Y?

Advice/Answer 1

No

Question 2

Were you an Australian resident for taxation purposes from Month Z/Year Z?

Advice/Answer 2

Yes

Question 3

If you return to the overseas country to work, will you cease to be a resident of Australia from the date you leave Australia to take up a new employment position in the overseas country?

Advice/Answer 3

The Commissioner declines to rule on this question because the facts relating to the future eventualities are not known with reasonable certainty. The residency tests explained below in the reasons for decision section of this ruling need to be applied when the facts are known with certainty to answer this question. When the facts are known either you can apply the residency tests to the facts or apply to the Tax Office for a ruling.

This ruling applies for the following period

Month X/Year X and ending Month C/Year C

Relevant facts

You currently live in Australia and are not married.

You are currently contemplating a permanent move back to the overseas country to pursue your career.

You were born overseas and moved to Australia when your parents emigrated to Australia.

You completed high school in Australia and travelled overseas for a period. During this period you worked overseas for a firm on a work experience assignment.

You returned to Australia to begin university studies. You commenced a degree course and majored in your field. While studying for your degree, you worked in your field for a period.

You applied to participate in a foreign exchange program as you believed it would provide you with a platform upon which you could find employment within your field overseas. Your application was successful and you were awarded an international exchange scholarship to complete your undergraduate degree at an overseas University. You took up the award and moved overseas.

While still completing your degree, you worked for an employer in your chosen industry. Your intention was to complete your undergraduate degree overseas and to utilise the work provision element of your student visa to seek employment with an employer. You intended on building your career in the overseas country. Although the employer you worked for was happy to offer you full time employment and the necessary sponsorship to obtain a visa which would allow you to work in the overseas country you decided to move to another region in that country.

It was clear to you then that your future lay in your chosen field and a particular overseas city. Before moving back to that overseas city you flew back to Australia for about a month to graduate and to see your family. You then moved back to that overseas city without a job, but with the intention of establishing yourself in the industry in that city where you intended to make your home. You made your home in that city for nearly five years, with several brief visits to Australia for holidays, weddings and family milestone events.

But by Month/Year, at the height of your career you felt burned out from working to keep pace with a company that grew from a small number of staff. While professionally fulfilled, you felt a real sense of personal loss following the subsequent failure of your relationship.

You resigned from your job on excellent terms with the company management and after terminating your apartment rental agreement, you decided to take some time off to travel and to recharge your mind and you travelled to foreign countries to enjoy an extended vacation.

Then you returned return to Australia where your immediate family lives. When you left the oversees country you were unsure of what you wanted to do professionally; when you would return to the workforce and where that would be. But you knew that the greatest opportunities in your field still lay in that overseas city where you had built a reputation and where you knew you could always find employment in your field.

You did not rule out the prospect of returning to that city, where you had made your home for several years, and where you believed you would remain, if not indefinitely, for a very long time.

Although at this time you were not sure of where you would end up or how long you would take a break from your occupation you knew you needed a break. Your return to Australia did not signal your intention to settle here or stay here indefinitely. However, having returned to Australia refreshed, you proceeded to look for work in the occupation you knew best and after your return you began to explore opportunities in the local market. You arrived in Australia without a job to go to and without any clear intention of settling in Australia permanently.

You decided to accept a role at an agency in Australia working. You concluded working at this agency after a period of time. The experience was beneficial for your career with respect to the local industry and your reputation within it.

However, you now feel your break is over and you are seriously considering returning to the oversees city to resume your career and hopefully to take up where you left off - at least career wise. You had maintained strong networking contacts with the overseas companies you worked for and had visited them since you ceased working overseas. You are in contact with many of your contacts.

However, at this stage you are not entirely sure when or what you will do next or where you will settle. The lure of the overseas country is strong because there are more lucrative and more activities available to you there.

You lodged your Australian income tax returns for the XXXX -XXXX income tax years on the basis that you were a non-resident, because you were not living here.

You lodged your Australian income tax return for the XXXX year as a resident and will do so for the XXXX year just ended. You filed overseas tax returns for the XXXX to XXXX years with the overseas department.

You have few assets. You own a home unit in Australia but have never lived in it as your relatives have the use of it during their lives. You currently live in rented accommodation in Australia, You have shares in Australian companies and Australian and overseas bank accounts.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

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

Reasons for decision

An Australian resident is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to be a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

The definition of resident of Australia in subsection 6(1) of the ITAA 1936 provides four tests to ascertain whether a taxpayer is an Australian resident. These tests are the:

(1)   residence according to ordinary concepts

(2)   domicile and permanent place of abode test

(3)   183 day test, and

(4)   Commonwealth superannuation fund test.

Taxation Ruling IT 2650 discusses the residency tests contained in subsection 6(1) of the ITAA 1936, and provides guidelines for determining whether individuals who leave Australia to live overseas cease to be Australian residents for income tax purposes during their stay overseas.

(1) The residency Test

The length of your physical absence from Australia and the surrounding circumstances (such as establishing a home overseas with a partner you intended to have a long term relationship with) are not consistent with residing in Australia, even though you have a home unit you had never lived in it and your relatives have the use of it during their lives.

You do not satisfy the test for residency for the period commencing Month Month/Year and ending Month/Year as you were not physically present in Australia and were outside Australia living overseas for this period.

(2) Domicile and permanent place of abode test

Taxation Ruling IT 2650 (IT 2650) provides at paragraph 25 that:

Where a taxpayer leaves Australia for an unspecified or a substantial period and establishes a home in another country, that home will represent a permanent place of abode of the taxpayer outside Australia, subject to a consideration of the other factors listed in paragraph 23 of the ruling. As a broad rule of thumb, a period of about 2 years or more is generally regarded by the Office as a substantial period for the purposes of a taxpayer's stay in another country.

Paragraph IT 2650 also explains that the courts have held that a permanent place of abode does not have to be everlasting or forever. Your return to Australia to determine future plans did not mean you had not set up a permanent place of abode in the overseas country in the past.

We have considered the factors in paragraph 23 IT 2650 and reached a state of satisfaction that your permanent place of abode for the period commencing Month/Year and ending Month/Year was overseas. We considered the following factors.

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

(b)  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;

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

(d)  whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;

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

In applying the above factors to your circumstances, we noted that you intended to make a long-term move to the overseas country to pursue your career. Between Month X/Year X and ending Month Y/Year Y you were away overseas with only very brief visits to Australia to see immediate family. During this period you had established in the overseas country a career in your chosen profession and a home there with the intention of permanently settling down there with no future plans to move back to Australia although you have moved back to Australia for the time being.

You were out of Australia for a period exceeding two years and had established a place of abode outside Australia for a period of years. As your usual place of abode for a number of years was outside of Australia, you do not satisfy the test for Australia domicile for the period commencing Month X/Year X and ending Month Y/Year Y.

(3) The 183 day test

Generally a taxpayer qualifies for Australian residency for income tax purposes under this test if they are physically present in Australia for 183 days or more in the year. As you were away for more than 183 days working in the overseas country, you fail the 183 days residency test.

(4) The superannuation test

You do not satisfy the Commonwealth superannuation fund test because you are not a Commonwealth government employee contributing to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme.

Your circumstances are similar to the following example on the Tax Office website at ato.gov.au in the document titled 'Examples of residents and non-residents'.

Bronwyn an extended job overseas

Facts

Bronwyn, a resident of Australia, has received a job offer to work overseas for three years, with the option to extend for another three years.

Bronwyn, her husband and three children decide to make the move.

They retain their property in Australia, as they intend to return one day.

The house will be rented out during their absence.

Bronwyn is uncertain whether she will extend the option to stay after three years, and will decide later, depending on how the family like the life there.

While overseas, they will rent a house with an accommodation allowance provided under her contract.

Outcome: why is Bronwyn considered a non-resident?

The following table outlines the reasons why the four residency tests were not satisfied.

Test	This test is not satisfied because...
Residency - the resides test	the length of Bronwyn's physical absence from Australia and the surrounding circumstances (such as establishing a home overseas with her family and renting out her family home in Australia) are not consistent with residing in Australia, even though she has retained the family home in Australia.
Residency - the domicile test	her permanent place of abode is outside Australia due to: o the length of time she has committed to spending overseas o establishment of a home overseas, and o her family accompanying her. the fact that she will not be selling the home in Australia, although relevant, is not persuasive enough to overcome the finding on the basis of the other factors. it is arguable that she has abandoned her home in Australia for the duration of her stay, by renting it out.
Residency - the 183 day test	this does not apply from the date of her departure for overseas.
Residency - the superannuation test	this does not apply.

Applying the residency tests to your circumstances, you are not considered to be an Australian resident for taxation purposes for the period commencing Month/Year and ending Month/Year.

This is because for this period you do not satisfy any of the four residency tests listed in subsection 6(1) of the ITAA 1936:

you were not residing in Australia according to ordinary concepts as you were not physically present in Australia. You left Australia with the intention of working in the overseas country for the foreseeable future (at least for a period of 2 years) and you did not have a fixed date of return

your permanent place of abode was outside Australia as you lived and worked and intended to live and work in the overseas country indefinitely. You took out a long-term lease on an apartment indicating the establishment of a home outside Australia You established a place of abode/home there for almost five years

you had been away in the overseas country for more than 183 days continuously working there

you were not a contributing member of a Commonwealth superannuation fund.

For the period commencing Month Z/Year Z

From the date of your return to Australia, you satisfy the residency tests listed in subsection 6(1) of the ITAA 1936 and accordingly are considered an Australian resident for the period commencing Month Z/Year Z.