Edited version of private ruling

Authorisation Number: 1011678057261

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Ruling

Subject: Residency

Question

Are you an Australian resident for income tax purposes?

Answer

No.

This ruling applies for the following periods:

Income year ending 30 June 2011

Income year ending 30 June 2012

Relevant facts and circumstances

You are an Australian citizen and you were an Australian resident for income tax purposes until 1995.

You moved to foreign country X for work on a permanent basis in 1995.

You owned a property in Australia that was rented out.

You have since married a foreign country X's resident and have a three dependant children.

You have established a business in foreign country X and have also recently purchased land and in the process of building a new business premise scheduled to be completed early 2011.

In recent years your spouse suffered from an addition. In order to assist your spouse and protect your family structure, you moved your spouse and children to Australia.

Your children will attend school in Australia and your intention is for them to stay in Australia for approximately three to five years.

Your spouse and youngest child moved to Australia in September 2010 and they were living with your parents for the short term. You will return to Australia with your two older children in December 2010 for the Christmas period. You will rent a premise in Australia for your spouse and children to live in Australia for longer term.

You will stay in Australia for approximately a couple weeks and then you will spend the majority of your time in the next twelve months in foreign country X co-ordinating the completion of your new business premises.

You expect to visit Australia and your spouse for a couple weeks in month and half gap and if the business develops you would increase your visits to Australia. However, you expect your spouse and children to spend school holidays in foreign country X.

You have no intention nor are you practically able to be in Australia for 183 days in a given year whilst you have the responsibilities and commitment of your business, building development and other reinvestments in foreign country X.

You envisage that over the next two to three years you will be able to get the business into a position where it can be sold and then at that time you would move to Australia permanently.

If however your spouse recovers from the addiction and if it suits the children, your family may move back to foreign country X.

However your intention for the long term is to move to Australia permanently.

You continue to maintain a home in foreign country X where you will live and where the family will join you during the many trips they will make to foreign country X during the school holidays.

Except for a small investment property you have in Australia, all your financial interests are in foreign country X.

You stated that the Commonwealth Superannuation test is not applicable to you.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 subsection 6(1)

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our 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 taxation purposes. These tests are:

· The resides test

· The domicile test

· The 183 day test

· The superannuation test .

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 taxation purposes if they meet the conditions of one of the other three tests.

Taxation Ruling IT 2650 provides guidelines for determining whether individuals who leave Australia to live overseas, for example, on temporary overseas work assignments, cease to be Australian residents for income tax purposes during their overseas stay.

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'.

You have not been living in Australia since 1995. In 2010-11 and the 2011-12 income years, you plan to continue to live in foreign country X where you have a home and considerable business interest that require your attention. While you plan to visit your spouse and children in Australia regularly, due to your business interest you will not be able to stay for long period in Australia. The intentions and purpose of your visit to Australia during the 2010-11 and the 2011-12 income years would not amount to you residing in Australia. Accordingly, you will not be considered to be an Australian resident under this test.

The domicile test

'Domicile' is a legal concept determined according to the domiciles Act 1982 and the common law rules which the courts have developed. 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. A person retains the domicile of his or her origin unless and until a domicile of choice in another country is acquired or the person acquired another domicile by operation of law.

The common law test for domicile of choice is in section 10 of the domicile Act which provides that:

'The intention that a person must have in order to acquire a domicile of choice in a country is the intention to make his home indefinitely in that country.'

Paragraph 10 of IT 2650 provides that 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 ( for example at the end of his or her employment). On the other hand, if that person has in mind only a vague possibility of returning to Australia, such as making a fortune or some sentiment about dying in the land of his or her forebears, such a state of mind is consistent with the intention required by law to acquire a domicile of choice in the foreign country.

In your case, your country of origin is Australia but you have been living in foreign country X for over fifteen years. You stated that your long term intention is to move to Australia permanently. You envisage that over the next two to three years you will be able to get your business into a position where it can be sold and then you would move to Australia permanently. Based on the facts presented you would have retained your Australian domicile. Although you have been living in foreign country X for many years, your intention is to return to Australia at a foreseeable future time.

Under the domicile test, a person will be considered an Australian resident if they are considered to have their domicile in Australia, unless the Commissioner is satisfied they have a permanent place of abode outside of Australia. Therefore we need to consider whether you have a permanent place of abode outside of Australia.

Paragraph 12 of IT 2650 provides that the expression 'place of abode' refers to a persons residence, where one lives with one's family and sleeps 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.

The term "permanent" is interpreted by the Courts in the context of resident definition as something that does not have to be 'everlasting' or 'forever'. It means something less than a permanent place of abode outside Australia. It should be contrasted with a temporary or transitory place of abode outside of Australia. The Federal Court found that the taxpayer's intention regarding the duration of his stay overseas was only one factor to be taken into account. Of more importance is the nature and quality of use which the taxpayer makes of a particular place of abode overseas (paragraph 14 of IT 2650).

Paragraph 23 of IT 2650 provides some of the factors which have been considered relevant by the Courts in reaching a state of satisfaction as to a taxpayer's permanent place of abode, such as:

· the intended and actual length of the taxpayer's stay in the overseas country;

· 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;

· whether the taxpayer has established a home outside Australia;

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

· the duration and continuity of the taxpayer's presence in the overseas country; and

· the durability of association that the person has with a particular place in Australia, that is maintaining bank accounts in Australia, place of education of the taxpayer's children, family ties and so on.

Paragraph 24 of IT 2650 provides that the weight to be given to each factor will vary with individual circumstances and no single factor will be decisive. However, greater weight should be given to factors (c),(e) and (f) than to the remaining factors.

In your case, you have been living in foreign country X with your family for many years and have established a home and a successful business operation. For the income years 2010-11 and 2011-12 you will continue to live in your home in foreign country X where you will be overseeing your business and establish new business premises. However, during this period your spouse and children will be living in Australia where your children will attend school but will spend their school holidays in foreign country X in your home. Apart from your family and a small rental property you retained in Australia, all your business interests and investments are in foreign country X . While you will visit your spouse and children in Australia regularly, your considerable business ties in foreign country X for the income years under consideration will not allow you to stay in Australia for long periods.

Based on these facts, we consider that you have continued to maintain a permanent place of abode outside Australia for the two income years under consideration. Accordingly, although you have an Australian domicile, since you have established a permanent place of abode outside Australia, you are not considered to be an Australian resident under the domicile test.

183 days test

For the purposes of the extended definition of 'resident of Australia' in subsection 6(1) of the ITAA 1936 a person will reside in Australia if they have been in Australia either continuously or intermittently during more than one half of the income year, unless their usual place of abode is outside of Australia and they do not intend to take up residence in Australia.

For the two income years under consideration, you will not be in Australia either continuously or intermittently for more than 183 days in the income year, therefore, you are not considered to be a resident under this test.

Commonwealth Superannuation test

A person will be considered a resident of Australia for income tax purposes if that person is:

An eligible employee for the purposes of the Superannuation Act 1976; or

A member of Public Sector Superannuation Scheme (PSS) established under the Superannuation Act 1990; or

The spouse or a child under 16 of a person covered by the CSS or PSS.

You stated that this test is not applicable to you. Therefore, you are not an Australian resident by virtue of the Commonwealth superannuation test in subsection 6(1) of the ITAA 1936.

Your residency status

Since you are not considered to be an Australian resident under any of the four tests outlined above, you are a not a resident of Australia for income tax purposes for the 2010-11 and 2011-12 income years.