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Edited version of your private ruling
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Ruling
Subject: Residency
Question:
Are you an Australian resident for taxation purposes?
Answer: No.
This ruling applies for the following periods:
Year ended 30 June 2011
Year ending 30 June 2012
The scheme commenced on:
1 July 2010
Relevant facts
You are a citizen of country A.
You are holding an Australian permanent residence visa.
You were employed with a business in Australia before travelling to country A.
You left Australia with your family to travel to country A.
The purpose of the trip was to gain work experience in country A and to provide an opportunity for your family members to experience country A's culture.
Other family members live in country A.
You are employed on a fixed term contract in country A for a substantial period of time.
You intention is to return to Australia after your employment contract has expired to reside permanently with your family.
You live in a rented apartment in country A.
You do not own any assets in country A but operate an everyday bank account while living in country A.
Your child attends school in country A.
You have not returned to Australia since leaving to live in country A.
You did not own a home in Australia as you lived in rented accommodation.
You are in regular contact with friends in Australia.
You have maintained a number of bank accounts in Australia.
Neither you nor your spouse are employees of the Commonwealth government.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 995-1.
Income Tax Assessment Act 1936 subsection 6(1).
Reasons for decision
Residency
Residency status is a question of fact. Your residency status is relevant in determining your liability to Australian income tax.
The term 'Australian resident' is defined in section 995-1 of the Income Tax Assessment Act 1997 to mean a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).
Subsection 6(1) of the ITAA 1936 provides four tests to determine whether a person is a resident of Australia for income tax purposes. These tests are:
· the resides test
· the domicile and permanent place of abode test
· the 183 day test
· the Commonwealth superannuation fund test.
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 satisfy 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'.
In your case, you and your family travelled to country A and intend to stay in country A for a period of time. You are not considered to be residing in Australia.
The domicile test
A person is a resident of Australia for tax purposes under the domicile test if their domicile is in Australia. However, a person is not a resident of Australia under the domicile test if the Commissioner is satisfied that their permanent place of abode is outside Australia (subsection 6(1) of the ITAA 1936).
Generally, a person who temporarily leaves their country of origin maintains their domicile unless they acquire a different domicile of choice or by operation of law (paragraph 21 of Taxation Ruling IT 2650).
To obtain a different domicile of choice, a person must intend to make their home indefinitely in another country and also be able to prove this (usually by applying for a migration visa). A working visa, even for a substantial period of time such as two years, would not be sufficient evidence of an intention to acquire a new domicile of choice (paragraph 21 of IT 2650).
In your case, you are a citizen of country A but you hold a visa which allows you to reside in Australia. You don't intend to permanently reside in country A as you will be returning to Australia to live here. Therefore, it is considered you retained your Australian domicile while overseas and will be considered a resident of Australia for tax purposes under the domicile test unless you established a permanent place of abode overseas.
Permanent place of abode
The expression 'place of abode' refers to a person's residence, where one lives with one's family and sleeps 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 the meaning of everlasting or forever. It does not mean an abode in which a person intends to live for the rest of his or her life. Rather, it is used in the sense of being contrasted with a temporary or transitory place of abode outside Australia. The nature and quality of use which a taxpayer makes of a particular place of abode overseas is important (F.C. of T. v. Applegate 79 ATC 4307; (1979) 9 ATR 899).
Paragraph 23 of IT 2650 provides that the following factors are considered in determining a taxpayer's permanent place of abode:
(a) the intended and actual length of the taxpayer's stay in the overseas country;
(b) any intention either to return to Australia at some definite point in time or to travel to another country;
(c) the establishment of a home outside Australia;
(d) the abandonment of any residence or place of abode the individual may have had in Australia;
(e) the duration and continuity of the individual's presence in the overseas country; and
(f) the durability of association that the individual has with a particular place in Australia.
The ruling also makes the point that the weight given to each factor will vary with the individual circumstances of each case and no single factor is conclusive.
The Commissioner says that where a taxpayer leaves Australia for an unspecified or a substantial period (about 2 years or more) and establishes a home in another country, that home will represent a permanent place of abode of the taxpayer outside Australia, subject to a consideration of the other factors listed above in points (a) to (f), (paragraph 25 of IT 2650).
Applying the facts of your situation to the above criteria, you left your Australian employment and travelled to country A to take up employment on a fixed contract. While your intention is to return to Australia, you will be out of Australia for a substantial period of time. You do not have a home in Australia. Your rented accommodation in country A is your place of abode for the period you are in country A and is not considered temporary or transitory.
While you maintained an association with friends in Australia, your association with country A are more significant than those with Australia due to your employment, the bank account held for your daily living expenses, your association with other family members and your child attending school in country A. These circumstances support the view that your permanent place of abode is outside Australia during this period. Therefore, you are not considered to be a resident of Australia for tax purposes under the domicile test.
The 183 day test
When a person is present in Australia for 183 days during the year of income the person will be a resident, 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 were not present in Australia for the 2010-11 income year nor have you indicated you will be returning to Australia in the 2011-12 income year. The 183 day test is not applicable in your circumstances.
The Superannuation test
An individual is still considered to be a 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 and your spouse are not employed by the Commonwealth and therefore are not members of the PSS or CSS. Therefore the Commonwealth superannuation fund test will not apply.
Residency status
In conclusion it is considered that for the period you lived in country A you are not a resident of Australia for tax purposes as you have not passed any of the four tests to meet the definition of a resident.