Edited version of private ruling

Authorisation Number: 1011799973717

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Ruling

Subject: Residency for taxation purposes

Question and answer:

Are you a resident of Australia for tax purposes?

No.

This ruling applies for the following period:

Year ending 30 June 2011

The scheme commenced on:

1 July 2010

Relevant facts:

Your country of birth is Australia.

You are an Australian citizen.

You departed Australia in the income year ending 30 June 2010 to take up employment in Country X.

You have entered a contract with an employer in Country X for an initial period of more than two years.

You intend to seek an extension of this contract and expect it will be granted by your current employer. If not, you will seek another position in the region of Country X.

You intend to return to Australia eventually but have no firm plans to do so.

Your entire family (your spouse) moved to Country X with you.

You have returned to Australia for several short trips since departing. You have spent a total of just over a month in Australia since departing.

Your contract provides for 2 return trips to Australia (or another nominated destination) per year. You do not intend to return to Australia outside these arrangements.

You and your spouse have set up a new home in rented accommodation in Country X. Your rent is funded by your employer as part of your contract.

You have opened a bank account with a local bank in Country X.

Your Australian residence is being rented out during you absence.

Your other Australian assets include an investment property, small share portfolio and preserved superannuation.

You are not a member of any sporting or social clubs in Australia.

You have made enquiries to join a local sporting club in Country X but have been advised it will take some time.

You were employed by a Commonwealth Government department in the past.

The Commonwealth Government superannuation account you held from this period of employment was transferred into a State Government superannuation fund when you ceased this position and took up employment in a State Government position.

Your spouse has never been a Commonwealth Government employee.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) 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. 

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: 

1. the resides test,

2. the domicile test,

3. the 183 day test, and

4. 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'.

Although the question of whether a person resides in a particular country is a question of fact, the courts have referred to and taken into account various factors considered to be relevant. These are:

· whether the person is physically present in that country at some time during the year of income

· the history of the person's residence and movements

· if the person is a visitor to the country, the frequency, regularity, duration and purpose of the visits

· if the person is outside the country for part of the relevant income year, the purpose of the absences

· the family and business ties which the person has with the particular country, and

· whether a place of abode is maintained by the person in the relevant country or is available for his or her use while there.

Taxation Ruling IT 2650 emphasises the intended and actual length of the individual's stay in an overseas country, any intention to return to Australia or travel elsewhere, the establishment or abandonment of any residence, and the durability of association that the individual maintains with a particular place in Australia as the main factors to be considered when determining the residency status of individuals leaving Australia.

Application to the facts of the case

You have not resided in Australia since your departure in the income year ending 30 June 2010. You have established a permanent place of abode in Country X with your family and rented out your Australian home. You have only made brief visits back to Australia.

Therefore, you are not a resident of Australia under this test.

The domicile test

Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia, unless the Commissioner is satisfied that their permanent place of abode is outside of Australia.

Domicile

Domicile is a legal concept, determined according to the Domicile Act 1982 and common law rules established by private international law cases.

There are essentially 3 types of domicile that an individual can have:

1. the domicile of origin

2. the domicile of choice, and

3. the domicile of dependency.

Basically, the domicile of origin is where the individual was born. 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. In relation to domicile of dependency, such a domicile will normally only exist in relation to minors or individuals who are of unsound mind.

Application to the facts of the case

Your domicile is Australia because your country of birth is Australia and you are an Australian citizen.

Permanent place of abode

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 the 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.

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.

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:

· 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 (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;

· 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, i.e. maintaining bank accounts in Australia, informing government departments such as the Department of Social Security that he or she is leaving 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.

Application to the facts of the case

You have an employment contract for more than two years and it is your intention to extend your contract further. You and your family have established a permanent residence in Country X in a rental property. You have not maintained your residence in Australia but instead have rented the property out while you are away. You only intend to visit Australia during the holidays allowed under your employment contract. You have not maintained any sporting or social connections with Australia and have attempted to join a sporting club in Country X. You intend to return to Australia at some point in the future but have no firm plans to do so.

In conclusion, you have established a permanent place of abode outside of Australia.

Therefore, you are not a resident of Australia under this test.

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 of abode is outside of Australia and they have no intention of taking up residence here.

Application to the facts of the case

You will not be physically present in Australia for more than 183 days in the income year ending 30 June 2011.

Therefore, you are not a resident of Australia under this test.

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 by either of the above funds.

Application to the facts of the case

You were employed by a Commonwealth Government department many years ago. When you ceased employment with the Commonwealth Government, your superannuation fund was transferred into a State Government superannuation fund. Therefore, you are no longer a member of a Commonwealth Government superannuation fund and cannot contribute to such a fund.

Your spouse has never been a Commonwealth Government employee and is therefore unable to contribute to the abovementioned superannuation schemes.

Therefore, you are not a resident of Australia under this test.

Your residency status

As you do not meet any of the above tests, you are not a resident of Australia for tax purposes.

As you are not a resident of Australia, according to section 6-5 of the ITAA 1997, your assessable income only includes income gained from sources in Australia.