Edited version of private ruling

Authorisation Number: 1011683490669

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Ruling

Subject: Residency

Question

Will you be a resident of Australia for tax purposes following your departure to a place outside Australia (overseas location)?

Answer: No

This ruling applies for the following periods:

Year ended 30 June 2010

Year ending 30 June 2011

Year ending 30 June 2012

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You are a citizen of Australia.

Your country of origin is Australia.

You were living in Australia before your relocation to the overseas location.

You married your current spouse in the overseas location.

You were living in rental accommodation before leaving Australia.

You are living with your wife in an independent one bed room unit provided by your employer.

You have children from your earlier relationship and your former spouse has custody of the children and they are living in former place. You do not receive any form of payment from Centrelink.

You and your wife operated the X business in the former place.

You sold the business in the year ended June 2010.

You sold all your household effects you own in Australia other than those shipped to overseas location. You purchased replacement household effects in the overseas location.

You have been in a profession for 25 years and spend much of the time teaching the profession.

You moved to the overseas location in 2009 to take up the position with the employer and ceased work in your business as a result.

Your wife joined you later and has obtained employment with the same employer currently working under probation.

You are employed as a manager and professional. You have an annual contract of employment with the employer. The current employment contract expires in February 20xx. You advised that this contract was extended to February 20yy. You have a12 month residency work visa which expires in February 20xx.

You are contributing to a superannuation fund in the overseas country and have a bank account there.

You intend to purchase property in the overseas location and hope to develop your own business in the overseas location or similar island country.

You do not have any assets in Australia. You will not retain any investments in Australia except for superannuation which you are unable to withdraw because of the release conditions.

You have only returned to Australia once since moving overseas, for four days to finalise the sale of the business previously operated by you and your spouse.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5 and

Income Tax Assessment Act 1936 subsection 6(1).

Detailed reasoning

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source.

Therefore, in order to determine whether your income will be assessable in Australia it is necessary to first determine your residency status for tax purposes.

The term '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:

· Residence according to ordinary concepts;

· The domicile and permanent place of abode test;

· The 183 day test; or

· The Commonwealth superannuation fund test.

The 'resides' test is the primary test. If you reside in Australia according to the ordinary meaning of the word, the other tests do not need to be considered.

The other three tests are known as statutory tests. Where you are unable to satisfy the 'resides' test, you may still be considered to be a resident of Australia for tax purposes if you meet the conditions of one of the statutory tests.

The resides test

The word 'reside' is not defined in the Australian Tax Law. Therefore it is necessary to consider the ordinary meaning of the word. 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'. 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'.

Therefore the ordinary meaning of the word 'reside' 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 Courts have referred to and taken into accounts various factors to determine whether a person resides in a particular place and they are included in Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.

They are:

· Intention and purpose of presence

· Family and business/employment ties

· Maintenance and location of assets

· Social and living arrangements

In accordance with the factors it is considered that you were not residing in Australia after you moved to the overseas location for the following reasons:

You do not intent to return to Australia and plan to purchase property and set up your business in the overseas location.

You are holding a full time job with the employer in the overseas location, outside Australia. You have disposed of your business and personal effects in Australia. You do no own any other assets in Australia.

You with your wife maintain a residence in the overseas location provided by your employer. You have a bank account there and are contributing to a superannuation fund in overseas country.

Your former wife and children and are living in the former location. You do not have custody of your children. You are now living with your present wife in the overseas location. You have only returned briefly for four days to finalised the sale of your business in the former location.

The domicile test

To be a resident under this test your domicile must be in Australia and your permanent place of abode is not outside Australia.

Taxation Ruling IT 2650 Residency - permanent place of abode outside Australia (IT 2650) provides the Commissioner's guidelines on the factors to be considered in determining residency of an individual.

The first part of this test requires you to have a domicile in Australia. IT 2650 states in paragraph 8, that 'domicile' is a legal concept, determined according to the Domicile Act 1982 and the common law rules.

Paragraph 8 states:

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 origin unless and until he or she acquires a domicile of choice in another country…

Paragraph 9 of IT 2650 states:

The primary common law test of domicile of choice has now been restated in section 10 of the Domicile Act which provides:

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.

Australia is your domicile of origin. You have stated your intention not to return to Australia but have not determined in which country you will set home indefinitely. Therefore you are considered to have maintained Australian domicile.

Paragraph 6(1)(a)(i) of the Income Tax Assessment Act 1936 (ITAA 1936) states:

6(1) In this Act, unless the contrary intention appears:

'resident' or 'resident of Australia' means:

(a) a person, other than a company, 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 Australia;

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 surrounding 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 his or her 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.

It is clear from the case law that a person's permanent place of abode cannot be ascertained by the application of any hard and fast rules. It is a question of fact to be determined in the light of all circumstances of each case.

The Courts have considered a person's 'place of abode' is where they consider 'home'. In R v Hammond (1982) ER 1477, Lord Campbell CJ stated that, "a man's residence, where he lives with his family and sleeps at night, is always his place of abode in the full sense of that expression."

A place of abode must exhibit the attributes of a place of residence or a place to live, as contrasted with the overnight, weekly or monthly accommodation of a traveller.

Paragraph 23 of IT 2650 sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode:

(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 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

(f) the durability of association that the person has with a particular place in Australia, ie maintaining bank accounts in Australia, informing government departments such as the Department of Social Security that he or she is permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

In relation to the weight to be given to each of the above factors, paragraph 24 of IT 2650 states:

The weight to be given to each factor will vary with the individual circumstances of each particular case and no single factor will be decisive… however… greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant.

In your case you state that:

You do not intend to return to Australia. You will remain in the overseas location for more than 2 years and you intend to purchase property and develop your own business.

You have established a home in the overseas location with your wife in a unit of accommodation provided as part of your employment package. You maintain no residence in Australia having relinquished your rented accommodation when you left.

Your employment contract has been extended to February 20yy. Your work visa will expire in February 20xx and you expect to apply for extension for a further two years. You have returned to Australia for only four days to finalise the sale of your business in the former location. On the basis of your new employment contract your stay in the overseas location will exceed 2 years if your circumstances remain unchanged.

You have established a bank account and are contributing to a superannuation fund in the overseas country. You have no assets in Australia.

You have children from your previous relationship and do not have custody of the children. You are not in receipt of any payment from Centrelink. You have sold your business and your household effects in Australia.

Applying your circumstances to the factors for permanent place of abode, it is considered that you have established a permanent place of abode in the overseas location.

The 183 day test

Under the 183 day test, a person is a resident of Australia if they are actually physically present in Australia for more than 183 days in an income year unless the Commissioner is satisfied that their usual permanent place of abode is outside of Australia and they have no intention of taking up residence here.

You will not be present in Australia for more than 183 days in either 2010, 2011 or 2012 financial years.

The Superannuation test

A person will be considered a resident under the Commonwealth superannuation fund test if they currently contribute to certain superannuation funds for Commonwealth government employees. The eligible funds are funds:

· Established under the Superannuation Act 1976 (such as the Commonwealth Superannuation Scheme), or

· Established under the Superannuation Act 1990 (such as the Public Sector Superannuation Scheme), or

· The spouse or child under 16 of a person covered b y either of the above funds.

In your case, you are not a current Commonwealth government employee and therefore you are not a contributor to the abovementioned superannuation schemes, this test does not apply to you.

Residency status

Based on the above discussion, it is concluded that you have established a permanent place of abode outside Australia and you will not be present in Australia for more than 183 days therefore you have become a non-resident of Australia for taxation purposes for the 2010, 2011 and 2012 financial years.

As you are not a resident of Australia under section 6-5 of the ITAA 1997, your assessable income should only include income gained from sources in Australia and will not include the income you derived from the overseas country.