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Ruling

Subject: Residency

Questions and answers:

1. Were you a resident of Australia for tax purposes?

No

2. Do you need to lodge an Australian tax return for the 2010-11 financial year?

Yes

This ruling applies for the following period:

Year ending 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances:

You were born in Australia and are an Australian citizen.

You are single with no dependants.

You departed Australia on mid 2010 to work in Country X

You have a work visa for Country X that is valid until mid 2013.

You have been working in Country X.

You have a yearly contract with your employer that can be extended for up to three years.

Since mid July 2010 you have returned to Australia twice to see your family for a period of two weeks or less at a time.

You plan to permanently return to Australia in mid 2013.

In Country X you stay at an accommodation where you don't have to pay any rent. This is a fully furnished house where you live alone. You plan to live in this house till the end of your employment in mid 2013.

You have a Post bank account in Country X which does not accrue any interest.

You do not have any investment in Country X.

Before moving to Country X you were renting a room in Australia.

When you visit Australia you live with your relatives.

You have left most of your belonging in Australia at your relatives' house.

You have a bank account in Australia. You informed the bank that you were going overseas but you did not provide them with your overseas address. No tax has been withheld from your interest income.

You have no other investments in Australia.

You pay tax on your employment income in Country X.

Your friends and family live in Australia.

You do not have any sporting connections in Australia.

You are the sports coordinator for a volunteer group in Country X.

You were working part time for the Australian Government. The Government did not provide you with any superannuation contributions.

You were also working for a company in Australia.

You stopped working in Australia in June 2010. Since then you have not contributed to any superannuation fund.

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. 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 have been living in Country X you are not considered to be residing in Australia.

Therefore, you are 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.

You are single with no dependants. You have been living at an accommodation provided by your employer in Country X. You do not have any property or investments in Australia other than a bank account that accrues interest. You visit Australia a few times every year to see your family and friends. You have made sporting connections in Country X. You intend to live in Country X for a period of three years until mid 2013. The Commissioner is satisfied that you have established a permanent place of abode outside of Australia.

Therefore, you are not 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 place of abode is outside of Australia and they have no intention of taking up residence here.

In your case you were not physically present in Australia for more than 183 days.

Therefore, you are 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 stopped working for the Australian Government in mid 2010. You have stated that the Government never made any superannuation contribution to you.

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

Your residency status

As you do not meet any of the above tests, you are not a resident of Australia for tax purposes.

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

Lodging an Australian tax return

You received interest income from an Australian bank during the 2010-11 financial year.

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, there is no need 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.

You did not provide your overseas address to the bank and no withholding tax was levied on your interest income.

Therefore you need to lodge a tax return for the 2010-11 financial year and declare your Australian sourced interest income.