Edited version of private ruling

Authorisation Number: 1011806756248

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Ruling

Subject: Residency

Are you a resident of Australia for taxation purposes since commencing a long term contract in a foreign country?

No

This ruling applies for the following period

Year ended 30 June 2011

Year ended 30 June 2010

The scheme commenced on

1 July 2010

Relevant facts

You are a citizen of Australia.

You are employed by an Australian company.

You left Australia to carry out a project management contract for a foreign company in a foreign country.

The contract can be extended by the mutual agreement of the foreign country and yourself.

You were granted a work visa in the foreign country.

Your spouse and children are living with you in the foreign country. You have a 2 year lease on a unit in the foreign country.

Prior to moving to the foreign country you and your spouse were living in your own house which is mortgaged in both your names.

The house is now rented (rent free) by family friends while you are living in the foreign country.

You and your spouse have retained a bank account in Australia and own some shares.

Neither you nor your spouse have been employees of the Commonwealth Government.

You have maintained your sporting membership with an Australian sporting club.

You also maintain sporting connections in the foreign country and have joined a rugby club and workplace sports club. You have a bank account in the foreign country and own a car in the foreign country which is registered in your spouses' name.

You and your family children returned to Australia for a Christmas break and the only other trip planned back to Australia is a short holiday.

At the completion of your current employment contract (and possible extensions) you and your family intend to return to Australia.

You are over 16 years of age as at 1 July 2009.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)
Income Tax Assessment Act 1997 Subsection 995-1(1)

Reasons for 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).

Subsection 6(1) of the ITAA 1936 defines the terms 'resident' and 'resident of Australia' in respect of individuals to mean:

(a) a person 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 of Australia;

(ii) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that his usual place of abode is outside Australia; or

(iii) who is an eligible employee for the purposes of the Superannuation Act 1976 or is the spouse or a child under 16 years of age of such a person.

The above definition provides four tests to assist in determining whether you are a resident of Australia for income tax purposes. The four tests comprise:

1. residence according to ordinary concepts (primary test);

2. domicile and permanent place of abode test (first statutory test);

3. 183 day rule (second statutory test); and

4. Commonwealth superannuation test (third statutory test).

Where one or more of the above tests is satisfied, an individual will be an Australian resident for tax purposes.

Taxation Ruling IT 2650 also provides guidelines for determining whether individuals who leave Australia temporarily to live overseas on temporary work assignments cease to be Australian residents for income tax purposes during their overseas stay. IT 2650 focuses on the first two tests referred to above being tests most widely applicable to persons who leave Australia temporarily and are not actually living in Australia during the income year.

The four tests will be applied to your circumstance.

1. Residence according to ordinary concepts test

The ordinary meaning of the word 'reside', according to the Shorter Oxford English Dictionary, 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 are on a 2 year assignment by an Australian company to work with its strategic partner in a foreign country. This contract can be extended by mutual agreement between yourself and the company. You and your spouse moved your required personal belongings to the foreign country and are living in a unit with your children. In addition, you still own your home in Australia and family friends are residing there rent free.

During the period you are working in the foreign country, you are not living in Australia, and therefore you are not considered to be residing in Australia according to ordinary concepts.

2. Domicile and permanent place of abode test

A person will be a resident of Australia if he or she has an Australian domicile, unless the Commissioner of Taxation can be satisfied that the person has established a permanent place of abode outside of Australia.

Domicile

Taxation Ruling IT 2650 states at paragraph 21 that persons leaving Australia temporarily would be considered to have maintained their Australian domicile unless it is established that 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 his or her home indefinitely in that country, for example, through having obtained a migration visa. A working visa, even for a substantial period of time such as 2 years, would not be sufficient evidence of an intention to acquire a new domicile of choice.

You are a citizen of Australia and as you have not indicated an intention to make your home indefinitely in the foreign country (at the completion of the contract, you intend to return to Australia) you have not acquired a new domicile of choice.

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

A permanent place of abode does not have to be 'everlasting' or 'forever', or an abode in which a person intends to live for the rest of their life. A person living overseas who intends to return to Australia in the foreseeable future is not prevented in the meantime from setting up a permanent place of abode elsewhere.

Paragraph 23 of IT 2650 sets out the following factors which help determine a taxpayer's permanent place of abode. The weight given to each factor will vary depending on the circumstances of each case and no single factor is conclusive.

1. The intended and actual length of the taxpayer's stay in the overseas country.

You advised that you left Australia to take up a 2 year contract in a foreign country. This contract can be extended by mutual agreement between you and the company.

1. 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.

You have a 2 year contract to work in a foreign country. Your intention after this time is to return to Australia.

2. Whether the taxpayer has established a home (in the sense of a dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia.

During your overseas stay you and your spouse and children have been living in a unit.

3. Whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence.

You have maintained ownership of your home in Australia. You have family friends living there while you are overseas.


4. The duration and continuity of the taxpayer's presence in the overseas country.

Your current employment contract is initially for 2 years and may be extended by the mutual agreement of yourself and the company. You advised that you plan to visit Australia for a short period for holiday purposes.

5. 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.

The durability of your association with Australia is supported by the ownership of property, your bank account, and sporting ties. Your association with the foreign country is through your employment, a bank account, vehicle, your spouse being there and the personal effects needed in the foreign country that you took with you to the foreign country.

IT 2650 provides some examples where residency has been discussed and determined in various situations. Your circumstances are similar to those discussed at paragraph 33 of IT 2650:

33. A bank manager was posted to the New Hebrides for 2 years. During that time he and his family lived in a furnished house provided by the bank. The taxpayer's home in Australia was let. On leaving Australia, the taxpayer expected a further overseas posting after his 2-year period. He advised the Department of Social Security that the family was leaving Australia permanently and child endowment payments should cease. The taxpayer was considered to have abandoned his place of residence in Australia and to have formed the intention to, and in fact did, reside outside Australia. His place of abode in Vila was not merely temporary or transitory; rather, it was intended to be and was in fact his home for the time being (Case S19 85 ATC 225; 28 CTBR (NS) Case 29).

Result: non-resident.

Based on the above facts, you have abandoned your place of abode in Australia and established a permanent place of abode in the foreign country with your spouse.

Therefore you are not a resident of Australia for tax purposes under this test as you have established a permanent place of abode outside of Australia.

3. The 183-day test

Under the 183-day test, a person will be considered an Australian resident if they are present in Australia for 183 days or more during the year of income unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

You left Australia to carry out a 2 year assignment in a foreign country. You have only returned to Australia for a short holiday period since that time.

As the Commissioner considers that your usual place of abode is outside Australia, you are not a resident under this test.

4. The superannuation test

Under the superannuation test, a person will be considered an Australian resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person.

Neither you nor your spouse are members of the relevant Superannuation Schemes. In addition, you are over 16 years of age. Accordingly, you are not an Australian resident under this test.

Conclusion

You are not an Australian resident for income tax purposes from the time you left Australia.