Edited version of private ruling

Authorisation Number: 1011802949943

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Ruling

Subject: Residency for taxation purposes

Question and answer:

Were you a resident of Australia for tax purposes for the income years ended 30 June 2008, 2009 and 2010?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

The scheme commenced on:

1 July 2007

Relevant facts:

You were born in Country X.

You are a citizen of Country X and Australia.

You have lived in Australia for nearly 20 years.

You own multiple investment properties in Australia.

You own your main residence in Australia.

You accepted a temporary contract in Country Y and left Australia in the income year ended 30 June 2007.

You worked in Country Y for just over one year and then returned to Australia.

You took a leave of absence from your employer in Australia whilst in Country Y as you intended to return to your position there.

On your return to Australia, you found your old position had been abandoned. You were offered a new position there but found it did not suit you.

You decided to extend your contract in Country Y by several months and left Australia again a short time later.

While in Country Y, you stayed with relatives for the several months and then rented a unit for approximately one year.

On completion of the contract you returned to Australia and started looking for a job.

You departed for Country X a short time later when you learnt that a relative was very sick.

You took care of your relative full time while in Country X and did not work or buy any assets such as property or investments there.

You lived with your relative while in Country X.

You returned to Australia in the income year ending 30 June 2011.

In relation to both trips, it was always your intention to return to Australia.

No immediate family members accompanied you on either trip. You were single at the time and had children who were living and working in Australia.

You rented out your main residence while you were away in order to meet mortgage repayments, on the advice of your accountant.

You continued to pay your private health insurance membership while you were away.

You have many friends and some relatives in Australia.

You developed no social or sporting connections during your time in Country Y.

You developed very few social or sporting connections during your time in Country X.

You are not and have not been an employee of the Commonwealth Government of Australia.

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: 

the resides test,

the domicile test,

the 183 day test, and

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. 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'.

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 were not residing in Australia according to ordinary concepts during the income years ending 30 June 2008, 2009 or 2010.

Therefore, you were 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:

· the domicile of origin

· the domicile of choice, and

· 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 of origin is Country X because this is where you were born. Your domicile of choice however is Australia. You moved to Australia almost 20 years ago, became an Australian citizen and intended to make Australia your home permanently.

Therefore, your domicile is Australia.

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:

(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 to 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, 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

It was never your intention to leave Australia permanently. Your contract in Country Y was only temporary and you took a leave of absence from your position in Australia rather than resigning. You spent a year in Country Y before returning to Australia. Your intention was to stay in Australia at that time however the position you once held had been abandoned and the new position you were offered did not suit you. Therefore, you decided to return to Country Y for a period of several months.

Both periods in Country Y were not sufficient to establish a permanent place of abode. You spent several months living with relatives and approximately one year in rented accommodation. You did not make any social or sporting connections during your time there. Your immediate family did not accompany you to Country Y.

Your sole purpose for travelling to Country X was to care for your sick relative and you lived with them for the duration of your stay. You did not make many social connections whilst in Country X, you did not work and you did not purchase any assets such as property or investments there. Your immediate family remained in Australia and did not accompany you to Country X.

During both trips, you continued to pay your private health insurance fees and you maintained strong social connections with Australia through many friends and some relatives. Your children continued to reside in Australia throughout your absences. You rented out your main residence in Australia whilst away, on advice from your accountant, in order to meet mortgage repayments. You have significant assets in Australia in the form of several investment properties.

In summary, you did not establish a permanent place of abode in either Country Y or Country X.

Therefore, you were 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 were not physically present in Australia for more than 183 days in the income years in question.

Therefore, you were 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

Neither you, nor your spouse, have ever been Commonwealth government employees and therefore you are not able to contribute to the abovementioned superannuation schemes.

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

Your residency status

As your domicile is in Australia and you have not satisfied the Commissioner that you established a permanent place of abode outside Australia, you remained a resident of Australia for tax purposes for the years ending 30 June 2008, 2009 and 2010.

As such, according to section 6-5 of the ITAA 1997, your assessable income for the period includes income gained from all sources, whether in or out of Australia.