Edited version of private ruling

Authorisation Number: 1011884352795

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Ruling

Subject: Residency

Questions and answers:

1. Were you an Australian resident for tax purposes for the year ended 30 June 2010?

No.

2. Were you an Australian resident for tax purposes for the year ended 30 June 2011?

No.

3. Are you required to pay PAYG income tax instalments for the year ended 30 June 2010 if your Australian sourced interest income has had non-resident withholding tax withheld?

No.

4. Are you required to pay PAYG income tax instalments for the year ended 30 June 2011 if your Australian sourced interest income has had non-resident withholding tax withheld?

No.

This ruling applies for the following periods:

Year ended 30 June 2010
Year ended 30 June 2011
The scheme commenced on:

1 July 2009
Relevant facts and circumstances

You are a citizen of Australia and country B.

You have been living and working in country X on a 5 year working visa.

You are employed by a local government organisation in country X.

When you first went to country X you were paid from Australia on a research funded fellowship administered by a University in Australia.

You were subsequently unemployed for a short time.

Since the 2009-10 income year you have been employed directly by the overseas government organisation and you have been paying tax in country X.

Your contract is for at least 2 more years and can be extended depending on your performance and willingness to stay.

You visit Australia once or twice per year for holidays and weddings etc. Each occasion has been between 3 days and 2 weeks depending on whether you can get holidays).

You are single and no family members accompanied you overseas.

You do not have any property in Australia apart from some personal effects being held in a storage facility and have no idea if or when you will return.

You were renting a property before you left Australia.

You are renting an apartment in country X.

You have two savings accounts in Australia which earn interest each month.

You have a bank account in country X.

You have friends and family around various states in Australia. You do not have any sporting connections with Australia.

You have friends in country X but no sporting connections.

You were previously employed by two separate universities in Australia.

You were not a member of the PSS or CSS.

You have been receiving PAYG quarterly instalment notices for your interest payments.

You changed your mailing address at your Australian financial institutions to your overseas address during the 2010-11 income year.

You submitted your last Australian tax return for the year ended 30 June 2009. You stopped paying the PAYG after this date because you believed you were a non-resident and haven't submitted a tax return for the year ended 30 June 2010.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 6(1)
Income Tax Assessment Act 1936 Section 128B(2)
Income Tax Assessment Act 1936 Section 128D
Income Tax Assessment Act 1997 Section 995-1(1)
Taxation Administration Act 1953 Division 45 Sch1
Reasons for decision

An Australian resident is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to be a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936). Residency is determined under the following four statutory tests listed under subsection 6(1) of the ITAA 1936:

· residence according to ordinary concepts (primary test);

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

· 183 day rule (second statutory test); and

· Commonwealth superannuation test (third statutory test).

The residence 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 last three tests are known as the statutory tests, and only need to be considered in cases where a taxpayer is unable to satisfy the residence test.

Residence according to ordinary concepts

Taxation Ruling TR 98/17 explains that the residence test involves determining whether the taxpayer resides in Australia according to the ordinary meaning of the word resides.

According to Macquarie Dictionary (Rev. 3^rd Edition), the ordinary meaning of the word reside is 'to dwell permanently or for a considerable time; have one's abode for a time'. This means that under the resides test, a person is a resident of Australia for tax purposes when their behaviour over a considerable time (generally six months or more) demonstrates a degree of continuity, routine or habit that is consistent with residing here.

You have not been residing in Australia since you departed. When you were living in Australia you were renting accommodation. In addition, you organised to have some personal effects placed in a storage facility and you have no idea if or when you will return to Australia to live. You have and will return to Australia for the purpose of holidays and visiting family and each occasion be between 3 days and 2 weeks, depending on whether you can get holidays from work.

These characteristics do not indicate that you are a resident of Australia under this test.

Domicile and permanent place of abode test

If a person is considered to have their domicile in Australia they will be an Australian resident unless the Commissioner is satisfied they have permanent place of abode outside of Australia.

There are three types of domicile:

· domicile of origin;

· domicile of choice; and

· domicile by operation of law.

The primary common law rule is that you acquire a domicile of origin at birth. You retain that domicile of origin unless and until you acquire a domicile of choice in another country, or until you acquire another domicile by operation of law. For example, a child's domicile changes when the parents' domicile changes. In practice, an individual who has always lived in Australia will retain a domicile here when absent overseas, unless they choose to permanently migrate to another country.

Your domicile is the place that is considered by law to be your permanent home. You may in fact have no fixed place of abode but the law requires you to have a domicile.

Taxation Ruling IT 2650 points out that in order to show that a new domicile of choice in a country outside Australia has been adopted, you must be able to prove an intention to make your home indefinitely in that country, for example through having obtained a migration visa.

IT 2650 advises further that if an individual with a usual place of abode in Australia has no fixed or habitual place of abode overseas but moves from one country to another or moves constantly within the same country (for example, from town to town or even from suburb to suburb) any association with a particular place overseas would be purely temporary or transitory and he or she would not be considered to have adopted an alternative domicile of choice or a permanent place of abode outside Australia.

In such circumstances, if the person could not be said to have acquired a domicile of choice outside Australia, the taxpayer would be a resident of Australia under subparagraph 6(1)(a)(i) of the definition of 'resident' in the ITAA 1936.

The determining factors in your case are:

· you are a citizen of both Australia and country A;

· you were living in rented accommodation in Australia before you left;

· you placed some personal effects in a storage facility;

· you have a 5 year working visa in country X;

· you have a contract for employment for at least 2 more years which can be extended depending on your performance and willingness to stay;

· you intend to return to Australia visit family and for holidays for between 3 days and 2 weeks at a time;

· you are renting accommodation in country X;

· you have family in two separate states of Australia and friends in a third state;

· you have friends in country X;

· you have 2 bank accounts in Australia;

· you have a bank account in country X;

· you do not have any definite plans to return to Australia to live at any time in the future.

As you have not indicated an intention to apply for permanent residency in Japan and your working visa is for 5 years, you are not considered to have chosen a new domicile of choice.

In addition, the determining factors listed above would also indicate that you have established a permanent place of abode outside Australia.

You are not a resident of Australia under the domicile and permanent place of abode test.

The 183-day test

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

You have returned to Australia once or twice per year for holidays and special occasions such as weddings. These visits have been for 3 days or 2 weeks depending on whether you are able to get holidays from your work.

As you were not present in Australia for more than 183 days during the 2009-10 or 2010-11 income years you are not a resident of Australia under the 183 day test.

The superannuation test

Under the superannuation test, a person will be 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.

You are not a member of the PSS or the CSS. Therefore, you are not a resident under this test.

Conclusion

According to the facts provided, you were not an Australian resident in the 2009-10 or 2010-11 income years as you do not satisfy any of the four residency tests listed in subsection 6(1) of the ITAA 1936.

As you did not notify your Australian financial institutions of your overseas address until during the 2010-11 income year you will need to continue to lodge an income tax return in Australia until the institutions commence withholding non-resident withholding tax from your interest income.

Australian sourced interest, dividend and royalty income
Section 128D of the Income Tax Assessment Act 1936 (ITAA 1936) advises that interest upon which withholding tax is payable shall not be included in assessable income. Interest withholding tax is payable on interest derived in Australia by non-residents under subsection 128B(2) of the ITAA 1936.

Once you have notified all your Australian sourced interest, dividend and royalty institutions of your non-resident address, any income derived will be subject to the withholding tax provisions as a final tax and will not need to be included in your tax return.

Alternatively, if you have not had withholding tax deducted from your Australian-sourced interest income you would be required to include this interest income and lodge a tax return in Australia.

Pay as you go income tax instalments

Pay as you go income tax instalments (PAYG ITI) is a system for paying instalments towards your expected tax liability on your business and investment income for the current income year.

Your actual tax liability is worked out when your annual income tax return is assessed. Your PAYG instalments for the year are credited against your assessment.

When you lodged your 2006-07 income tax return you included an amount of gross interest. When added to your assessable income, it increased your tax liability and resulted in you having a debt as you had not paid enough tax through the year to cover the extra income.

The PAYG ITI system is meant to ease the burden of having a large debt by spreading your expected tax debt over the year in four equal instalments. The instalments will be credited to you when you lodge your income tax return and if you have paid too much tax, you will receive a refund.

When you receive your quarterly PAYG ITI activity statement you have the opportunity to vary the amount up or down, according to what you believe your expected liability will be over the year. If you do vary the amount, you must lodge the activity statement and pay the amount by the due date or the pre-printed amount will automatically finalise and raise the relevant debt on your account to be paid by you.

You should note that you may be liable to pay a general interest charge (GIC) if you vary your instalments and any of the following conditions apply:

· you vary downwards and your varied instalment amount is based on an estimate that is less than 85% of the actual tax payable on your business and investment;

· your varied rate is less than 85% of the instalment rate that you should have;

· you vary your instalment amount to zero but have business and investment income for the year and tax payable on this income.

As discussed previously, if you provide your financial institutions with your overseas address, they are required to withhold non-resident withholding tax from any interest payments they make to you as a non-resident. If this is the case, you would no longer be required to pay quarterly instalments towards your expected liability as the tax will already have been paid.

Additional information

Changing from resident to non-resident during an income year

If your status changes from resident to non-resident before the end of an income year you should answer 'yes' to the question 'Are you an Australian resident?' on your tax return for that year. This ensures you are taxed at resident rates for that part of the tax year you were resident in Australia.

Your non-residency for part of the year will be taken into account by a reduction in your tax-free threshold for that year. You will be entitled to a pro-rata tax-free threshold for the number of months you were an Australian resident during the income year. To do this, you will need to complete question A2 on your tax return 'Part-year tax-free threshold'