Edited version of private ruling

Authorisation Number: 1011706495242

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Ruling

Subject:

Residency

What this ruling is about:

Are you a resident of Australia for income tax purposes?

Ruling:

Are you a resident of Australia for income tax purposes?

No.

This ruling applies for the following periods:

Income year ending 30 June 2008

Income year ending 30 June 2009

Income year ending 30 June 2010

Income year ending 30 June 2011

Income year ending 30 June 2012

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.

Some years ago you left Australia and commenced full time employment with an international company.

For about 3 years you resided full time in Country Y, leasing an apartment there. Your only return to Australia during this period was on annual leave to visit close family.

You returned to Australia in the particular year on a specific contract as an employee of an international company to instruct foreign national trainees. This assignment was for under one year in duration and you returned to Country Y at the completion of the assignment.

You continued your employment with the international airline before obtaining employment with a different international company.

After joining that international company you moved to Country Z where you are still residing to date. Your employer issued you with a residency/employment certificate for Country Z upon your arrival.

In late 2010 you purchased an apartment in Country Z.

You have a housing mortgage with a bank in Country Z, hold a driver's licence in that country and have acquired credit cards in that country.

You have advised that you separated from your spouse prior to your move overseas and your visits to Australia to visit close family are as a 'visitor' and not as a 'resident'.

You have stated that you do not have any liquid assets in Australia. You have, however, declared rental income in your Australian tax returns over the relevant periods.

Relevant legislative provisions

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

Subsection 6-5(3) of the Income Tax Assessment Act 1997

Section 359-35 of Schedule 1 to the Taxation Administration Act 1953

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 and permanent place of abode 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 have been living and working outside Australia since late 2003, you are not considered to be residing in Australia under this test.

Domicile and Permanent Place of Abode

Even if a person is found not to 'reside' in Australia within the ordinary meaning of the word, he or she may still fall within the extended definition of 'resident'. 

Domicile

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.

Generally, persons leaving Australia temporarily would be considered to have maintained their Australian domicile unless it is established 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 their home indefinitely in that country.

In your case, you maintained your Australian domicile when moving to Country Z. However, your recent behaviour indicates an intention to remain indefinitely in Country Z. You have purchased an apartment in that country, have taken out a mortgage with a bank in that country, hold a Country Z driver's licence and use that country's credit cards. Therefore, it is considered that you have acquired a domicile of choice in Country Z from late in the recent year.

Permanent place of abode

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 persons dwelling place or the physical surroundings in which a person lives.

Taxation Ruling IT 2650 also explains that a permanent place of abode does not have to be everlasting or forever, where it does not have to be where 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.

In your case, although you maintain an association with Australia through your family ties and rental properties, your associations in Country Z are more significant as you have been residing and working there since early in a particular year. You have recently purchased an apartment in Country Z indicating an intention to reside in that country for the foreseeable future.

Based on these facts, it is considered that you have established a permanent place of abode in Country Z. As a result, you would be considered to be a non-resident of Australia for income tax purposes under the domicile and permanent place of abode test. 

The 183-day test

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

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 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.

Source of Income

Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) states:

If you are a foreign resident, your assessable income includes:

(a) the ordinary income you derived directly or indirectly from all Australian sources during the income year; and

(b) other ordinary income that a provision includes in your assessable income for the income year on some basis other than having an Australian source.

In your case, income derived from all sources inside Australia (and any other income that is included by a specific provision) is assessable income in Australia. That is, the income earned whilst in Australia on the specific employment contract with an international airline is assessable as Australian sourced income.

Any income derived from sources outside Australia, unless it is included in your assessable income under a specific provision, is not assessable in Australia. This means any foreign rental income, foreign dividend income, foreign interest income, and income derived from overseas trusts (including when the trustees dispose of assets and distribute the gains from the disposal to you) will not be assessable in Australia.

Tax Rates

As you are considered to be a foreign resident for tax purposes for the years in question, any Australian sourced income derived by you will be subject to tax at non-resident tax rates. These tax rates do not include a full or pro-rata tax free threshold.