Edited version of private ruling

Authorisation Number: 1011907426512

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Ruling

Subject: Residency for tax purposes

Questions and answers:

Were you a resident of Australia for tax purposes from 1 July 2006 to date C?

Yes

Were you a resident of Australia for tax purposes from date C to 30 June 2010?

No

Are you required to lodge tax returns for the 2006-07, 2007-08 and 2008-09 financial years?

Yes

Are you required to lodge tax return for the 2009-10 financial year?

No

This ruling applies for the following periods:

Year ending 30 June 2007

Year ending 30 June 2008

Year ending 30 June 2009

Year ending 30 June 2010

The scheme commenced on:

1 July 2006

Relevant facts and circumstances

You were born in Australia and you are an Australian citizen.

On date A you departed Australia on a Holiday Working visa for Country X.

You intended to work and travel around Country X for a period of one to five years.

You were single and holidaying with your friends.

On date B you found a job with a company in Country X.

On date C your employer in Country X asked you if you would be interested in working for them beyond the expiry of your Working Holiday visa.

After speaking to your family you decided to take up your employer's offer.

It took you a few weeks to sort out the paper work needed to acquire a permanent position with your employer for a period of up to five years.

You visited Australia for 3 weeks to change your visa status from Holiday Working to Work Permit.

Your Work Permit was valid for five years.

You only worked for one employer in Country X.

You again visited Australia from two weeks for Christmas holidays.

You returned to Australia for good on date D.

You shared various rental properties in Country X.

You held a bank account with a bank in Country X.

You lived with your parents in Australia.

You had bank accounts with two banks in Australia.

The only income you received from Australia while you were in Country X was interest from Australian banks.

You had a twelve month work contract with your employer in Country X that could only be extended with an employer sponsored Work Permit.

You paid tax in Country X on your income earned there.

You socialise with your friends in Australia.

You did not have any social or sporting connections in Country X.

Your Australian superannuation fund account remained active while you were in Country X. However you did not make or receive any contributions into the account during this period.

You have never been an employee of the Commonwealth Government of Australia.

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. 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.

As you were living in Country X, it is considered that you were not residing in Australia during the 2006-07, 2007-08, 2008-09 and 2009-10 financial years.

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.

Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence.

Your domicile is Australia because you were born in 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.

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.

From 1 July 2006 to date C

You were working, renting and travelling in Country X. You went there with a Holiday Working visa that would expire after one year. Your initial intention was to be in Country X for around a year.

You are considered to be a resident of Australia during your initial stay in Country X as you intended to stay there for a period of only one year at that stage. One year is not sufficient period to establish a permanent place of abode outside of Australia.

Therefore you meet the domicile test for this period. As you meet this test you were a resident of Australia during this period.

From date C to 30 June 2010

This intention changed on date C when your employer asked you to stay with them for longer than twelve months and you decided to get a five year Work Permit. It is considered that you had a permanent place of abode outside of Australia from date C.

Therefore, you were not a resident of Australia from date C 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 place of abode is outside of Australia and they have no intention of taking up residence here.

You were not present in Australia for more than 183 days during any of the financial years.

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.

You have never been a Commonwealth government employee and therefore you are not eligible to contribute to the abovementioned superannuation schemes.

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

Your residency status

From July 2006 to date C

As you meet the domicile test from July 2006 to date C you were a resident of Australia for this period.

As you are a resident of Australia, according to section 6-5 of the ITAA 1997, your assessable income includes income gained from all sources, whether in or out of Australia.

From date C to June 2010

As you do not meet any of the above tests, you are not a resident of Australia for tax purposes from date C to June 2010.

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

Lodging your tax returns for the years you were a resident

You were a resident of Australia for the first few months in the UK from July 20XX to date C.

As a resident of Australia your assessable income includes income gained from all sources, whether in or out of Australia. Therefore you need to lodge a tax return for the 20XX-XX financial year.

Part-year residency

Where a taxpayer is a resident for only part of the year, their income will be taxed entirely at resident rates. In other words, a person is not required to pay tax at resident and non-resident rates in one income year.

As a result, the following will apply to a part-year resident taxpayer: 

· the foreign source income received by that person during the non-resident period is not assessable in Australia, and

· the tax-free threshold will be apportioned based on the number of months in the income year that the person was a resident.

Lodging your tax returns for the years you were a non-resident

You were a non-resident of Australia from date C to June 2010.

You received interest income from Australian sources during the time you were a non-resident.

Australian sourced income derived by non-residents is taxed in one of two ways, on an assessment basis or on a withholding tax basis.

Withholding tax is levied on the dividend, interest or royalty income paid to non-residents. A flat rate of ten per cent on the gross amount of interest paid is levied on interest income. Withholding tax is usually deducted at source; therefore the tax on bank interest would be deducted by the bank and forwarded on to the Australian Taxation Office.

In the case of a non-resident only receiving Australian sourced income that is subject to withholding tax, it is not required to lodge an income tax return as the tax withheld represents the final taxation liability. However if you do not provide your overseas address to your bank and they do not withhold any tax on your interest income then you are required to lodge a tax return.