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Ruling

Subject: Residency for taxation purposes

Questions and answers:

1. Were you a resident of Australia for taxation purposes in the 2010-11 income tax year?

Yes

2. Is the income you earned in Australia assessable in Australia in the 2010-11 income tax year?

Yes.

3. Are you entitled to the tax free threshold on the assessable income you earned in Australia in the 2010-11 income tax year?

Yes.

This ruling applies for the following period:

1 July 2010 to 30 June 2011.

The scheme commenced on:

1 July 2010

Relevant facts and circumstances:

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

You are not a citizen of any other country.

You left Australia for a few months and travelled to Country A where you visited friends and relatives in different cities before returning to Australia.

You were living in Australia before you left to travel to Country A.

After you returned to Australia from Country A, you earned employment and you lived with relatives.

You left Australia again to live in Country B.

You are not employed overseas and you did not earn any income from overseas employment between 1 July 2010 and 30 June 2011.

You do not pay tax in any other country.

You do not have a permanent place to live either in Australia or overseas.

You do not have any assets overseas.

Your only asset in Australia is a bank account.

Since you have been living overseas you have maintained connections with family and friends in Australia.

You have no social or sporting connections in Country B.

You intend to return permanently to Australia in the near future.

Your 2010-11 income tax return indicated to us that you were a non-resident of Australia for income tax purposes.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Section 995-1(1).

Income Tax Assessment Act 1936 Subsection 6(1).

Income Tax rates Act 1986 Schedule 7, Part 1.

Income Tax rates Act 1986 Schedule 7, Part 2.

Reasons for decision

Residency for taxation purposes - general

Section 995-1 of the Income tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the 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 and permanent place of abode test,

· the 183 day test, and

· the superannuation test.

If any one of these tests is met, an individual will be a resident of Australia for taxation purposes.

The resides test is the primary test for determining the residency status of an individual. If residency is established under the resides test, the remaining three tests do not need to be considered.

If residency is not established under the resides test, an individual will still be a resident of Australia for taxation purposes if they meet the conditions of one of the other three tests.

The resides test

The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside' which is defined in The Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01 as:

'to dwell permanently or for a considerable time; have one's abode for a time'.

There are a number of factors to be considered in assessing whether or not a person is a resident of Australia for taxation purposes under this test.

Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia specifies that while the length of time an individual is in Australia is relevant, it is not necessarily decisive in determining whether an individual is residing in Australia.

Instead, Taxation Ruling TR 98/17 notes it is the behaviour of an individual in Australia (rather than length of time) that has more relevance in determining if there is any degree of continuity, routine or habit in their behaviour that is consistent with residing here.

In assessing an individual's behaviour in Australia, the Commissioner considers a number of factors, including:

· intention or purpose of presence,

· employment and family ties,

· maintenance and location of assets, and

· social and living arrangements.

Looking at your circumstances in the 2010-11 income year we consider that you were a resident of Australia under the resides test from 1 July 2010 until the time you left Australia to travel to Country A, and again between the period from when you returned from Country A in late 2010 until the time in early 2011 that you left Australia to live in Country B.

This is the case because, apart from the fact that you were residing in Australia before travelling to Country A, between the period from when you returned from Country A until you left Australia to live in Country B your behaviour in Australia was consistent with that of a person residing here according to the normal meaning of the word. This is especially so when we consider that during this time you lived with and relatives and earned income from employment.

Having established that you were a resident of Australia for at least part of the 2010-11 income tax year under the resides test, it is necessary for us to consider the remaining tests of residency to determine your residency status for the remainder of the 2010-11 income tax year.

The domicile and permanent place of abode test

Under this test, a person with an Australian domicile will be a resident of Australia for taxation purposes unless the Commissioner is satisfied the person's permanent place of abode is outside Australia.

A person's domicile is generally the country they were born in unless they have obtained a new domicile by choice in another country. To acquire a new domicile in another country, a person must have an intention to make their home indefinitely in that country.

Taxation Ruling No. IT 2650 Income Tax: residency - permanent place of abode outside Australia (which contains the Australian Tax Office (ATO) view on whether or not a person has a permanent place of abode overseas) specifies that a person with an Australian domicile who is living outside Australia will retain their Australian domicile if they intend to return to Australia on a 'clearly foreseen and reasonably anticipated contingency' - at the end of a specific period for example.

You were born in Australia and have an Australian domicile.

During the periods you were overseas in the 2010-11 income tax year we consider you retained your Australian domicile because:

· you left Australia to travel through Country A for several months then you returned to Australia, and

· you left Australia again in to live in Country B but have stated you intend to return to Australia permanently the near future.

As you retained your Australian domicile during the 2010-11 income tax year during the periods you were overseas, it is therefore necessary to consider whether or not you had a permanent place of abode overseas during the 2010-11 income tax year.

Taxation Ruling No. IT 2650 notes that the term 'permanent' in the context of a having a permanent place of residence overseas does not mean everlasting or forever but rather, is used in the sense of being contrasted with temporary or transitory. That is, someone considered to have a temporary or transitory association with a country would not be considered to be residing permanently in that country, even though they may be living there.

In regard to the period you travelled to Country A, IT 2650 notes that an individual travelling from town to town (while on holidays for example) in another country has a purely temporary or transitory association (rather than a permanent one) with that country. That is, an individual travelling throughout a country on holidays would not be considered to be living in that country permanently.

When you were in Country A you travelled from place to place. Accordingly, we consider that your association with Country A during this period was temporary or transitory and that you did not establish a permanent place on abode in Country A while you were travelling there.

In regard to the period you have lived in Country B, IT 2650 specifies that determining whether or not a person has a established a permanent place of abode overseas is a question of fact to be considered in the light of all the circumstances of each case.

Some of the factors which have been considered relevant by the Courts and Boards of Review/Administrative Appeals Tribunal and which are used by the ATO in reaching a state of satisfaction as to a taxpayer's permanent place of abode include:

a. The intended and actual length of the taxpayer's stay in the overseas country. IT 2650 notes that generally an overseas stay for a duration of less than two years is considered as being of a transitory nature.

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 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.

f. The durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts in Australia, family ties and so on.

In view of the above, we do not consider that you have established a permanent place of abode in Country B because:

· You intend to return to Australia in the near future and will spend less than 12 months living in Country B.

· You have stated you have no permanent place to live overseas.

· Although you have also stated you have no permanent place to live in Australia, you have maintained ties with Australia through family and friends, you have a bank account in Australia and you intend to return permanently to Australia in the near future. Accordingly, we consider the durability of your association with Australia is greater than it is with Country B.

As you have maintained your Australian domicile and not established a permanent place of abode overseas, we consider that you were a resident of Australia for taxation purposes under this test during the periods in the 2010-11 income year that you were overseas.

Your residency status for 2010-11 income tax year

You were a resident of Australia for income tax purposes for the whole of the
2010-11 income tax year.

Assessable income and tax rates for residents and non-residents

The assessable income of individuals who are residents of Australia for taxation purposes includes the income they earn from all sources, in or out of Australia during an income year.

However, there is a tax free threshold of $6,000 which applies to individuals who are residents of Australia for taxation purposes. The effect of this threshold is that the first $6,000 of assessable income earned by a person who is a resident of Australia is not taxable.

The tax free threshold does not apply to persons who are non-residents of Australia for income tax purposes and non-residents are subject to higher rates of tax than persons who are residents of Australia for taxation purposes.

In the 2010-11 income tax year, your taxable income was $2,426 and your income tax return indicated to us that you were a non-resident of Australia for income tax purposes.

Accordingly, you have been assessed as a non-resident on your assessable income - that is, the tax free threshold has not been applied to your assessable income for the 2010-11 income year and the non-resident tax rates have been applied to you.

Conclusion

In the 2010-11 income tax year you were a resident of Australia for income tax purposes.

You have been assessed and taxed as a non-resident of Australia on the income you earned in the 2010-11 income tax year.

As the tax free threshold of $6,000 should have applied to you as a resident for taxation purposes, you should not have paid any tax on the income you have declared for the 2010-11 income tax year.