Edited version of private ruling

Authorisation Number: 1011673529055

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Ruling

Subject: Residency

Questions and answers

1. Are you a resident of Australia for taxation purposes?

Yes.

2. Are you required to declare your income derived in another country in your Australian tax return?

Yes.

This ruling applies for the following period

Year ended 30 June 2013.

The scheme commenced on

1 July 2011.

Relevant facts

You have duel citizenship with Australia and an overseas country.

Your Australian employer is intending on sending you overseas to a third country for a period of time.

You intend to rent your house out in Australia.

You and your spouse are not and have never been Commonwealth Government employees.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 6-5

International Tax Agreements Act 1953 section 4

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).

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. 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 an Australian resident for tax purposes if they satisfy the conditions of one of the three other tests.

The resides test

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3rd 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'.

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.

In your case, you intend to leave Australia to reside in another country part way through the recent year. As you will not be living in Australia, you would therefore not be considered to be residing in Australia according to ordinary concepts.

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 domicile outside of Australia.

"Domicile" is a legal concept to be determined according to the Domicile Act 1982 and to the common law rules which the courts have developed in the field of private international law. The primary common law rule is that a person acquires at birth a domicile of origin, being the country of his or her father's permanent home. This rule is subject to some exceptions. For example, a child takes the domicile of his or her mother if the father is deceased or his identity is unknown. A person retains the domicile of origin unless and until he or she acquires a domicile of choice in another country, or until he or she acquires another domicile by operation of law (Henderson v. Henderson [1965] 1 All E.R.179; Udny v. Udny L.R.1 Sc.& Div. 441; Bell v. Kennedy [1868] L.R.1 Sc.& Div. 307 (H.L.)).

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.

Generally speaking, 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 2 years, would not be sufficient evidence of an intention to acquire a new domicile of choice.

In your case:

· You intend to return to Australia at the end of a particular subsequent year.

· You will be renting an apartment overseas.

· You have substantial assets in Australia.

· You will rent out your house while overseas.

· You will be gone for 18 months

Based on these facts, you will not have established a permanent place of abode outside Australia. Your family and economic ties are stronger with Australia than in the other country.

Consequently, you satisfy the domicile test.

As you satisfy the domicile test it is not necessary for the 183 day test or superannuation test to be considered.

You are a resident of Australia for taxation purposes for the period you intend to be in the other country.

Your income overseas

Australian residents are assessable on income earned both inside and outside Australia pursuant to section 6-5 of the Income tax Assessment Act 1997.

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements contained in the International Tax Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that both Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

The Double Tax Agreement with the relevant overseas country gives that country the right to assess the income as well as Australia

However, to avoid double taxation you will be entitled to a foreign tax credit for tax paid in the overseas country limited to the amount of Australian tax payable on the income, as per the relevant Article of the Double Tax Agreement with the overseas country.