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Ruling

Subject: residency

Question and answer:

Were you a resident of Australia for taxation purposes while you were in Australia, and travelling and living in a hostel?

Yes.

Were you a resident of Australia for taxation purposes from the date you moved into a shared flat in a foreign country?

No.

This ruling applies for the following period:

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

1 July 2010 to X December 2010

The scheme commenced on:

1 July 2007

Relevant facts and circumstances

You were born in Australia and are an Australian citizen.

You departed Australia. You travelled for a few months overseas and then settled in a foreign country.

You returned to Australia.

The purpose of your trip was part holiday and to experience live in another country. You had no fixed plans when you left Australia apart from a booked flight to the foreign country and the a flight to another foreign country a bit later. If you could find work in your chosen profession then you would stay for as long as you could.

You obtained a working holiday visa in the foreign country. It was valid for several months. You decided to stay longer than your working holiday visa would permit so you applied for a different type of visa. You were granted this visa which allowed you to work as in your chosen profession as well as another type of employment. This visa was valid until you returned to Australia.

You worked on contract. The contract could have been extended if you had decided to stay (indefinitely, visa permitting).

While overseas you did not make any return trips to Australia.

You lived in temporary accommodation for a short period, and then in rented accommodation.

You had no assets overseas.

You had no assets in Australia.

You have no family overseas.

You had a bank account in the foreign country.

Before departing Australia you lived in rented accommodation.

While overseas, you retained bank accounts in Australia.

You have your family in Australia but none overseas.

You are single.

You had no social or sporting connections with the foreign country.

No family accompanied you overseas.

You are not and have never been a Commonwealth of Australia employee.

You are more than 16 years of age.

Relevant legislation provisions:

Income Tax Assessment Act 1997 Subsection 995-1(1)

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

An Australian resident for tax purposes 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).

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 test

§ the 183-day test

§ the superannuation test.

The first two tests are examined in detail in Taxation Ruling IT 2650 Income tax: residency - permanent place of abode outside Australia.

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. 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'.

Taxation Ruling IT 2650 provides guidelines for determining whether individuals who leave Australia temporarily to live overseas, for example, on temporary overseas work assignments or on overseas study leave, cease to be Australian residents for income tax purposes during their overseas stay.

The principles and guidelines adopted in IT 2650 can also be used for individuals who intend to reside overseas indefinitely. Paragraph 19 of IT 2650 states:

The first question to be asked in considering the residency status of a person temporarily leaving Australia is whether he or she can be considered to reside in Australia. If the test of residence according to ordinary concepts is satisfied, there is no need to go any further. The person is a resident of Australia for income tax purposes.

In your case, for a short period, you were living in Australia so it is considered that you are a resident of Australia under the resides test.

As you have passed one of the four residency tests for this period, it is not necessary to consider the remaining tests of residency for this period.

You departed Australia and for a time you travelled and lived in a temporary accommodation. Then you were living and working in the foreign country. For most of this time you worked on a renewable contract and lived in rented accommodation.

Accordingly, it is considered that as you were overseas during this time and so not present in Australia, you were not a resident of Australia under the resides test.

The domicile test

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

In order to show that an individual's domicile of choice has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country.

In your case, as you are still an Australian citizen while living in the foreign country, your domicile is Australia and remains unchanged.

The expression 'place of abode' refers to a person's residence, where they live with their family and sleep 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 to be 'everlasting' or 'forever'. It does not mean an abode in which you intend to live for the rest your life. An intention to return to Australia in the foreseeable future to live does not prevent you in the meantime setting up a permanent place of abode elsewhere.

Some of the factors which have been considered relevant by the Courts, Boards of Review and 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:

§ the intended and actual length of the taxpayer's stay in the overseas country

§ 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

§ 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

§ whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence

§ the duration and continuity of the taxpayer's presence in the overseas country and

§ 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 your case, when you departed Australia you were travelling and then living in a temporary accommodation. During this period it cannot be said that you had established a permanent place of abode outside of Australia. Your domicile during this period remained Australia. Therefore, you remained a resident of Australia for taxation purposes during this period under the domicile test.

As you have passed one of the four residency tests for this period, it is not necessary to consider the 183-day and superannuation tests for this period.

During the period from when you moved into your shared accommodation until you returned to Australia:

§ lived and worked in the foreign country

§ had a renewable work contract

§ maintained a residence in the foreign country in shared accommodation

§ had a bank account the foreign country and two accounts in Australia

§ had no fixed plan to return to Australia.

On balance and based on the above, the Commissioner is satisfied that you had established a permanent place of abode outside of Australia during this period. Therefore, you were not a resident under the domicile test during this period.

The 183-day test

Under the 183 day test you are considered a resident of Australia if you are present in Australia for a total period of more than half of the year of income, i.e. 183 days, unless the Commissioner is satisfied that your usual place of abode is outside Australia and you do not intend to take up residence in Australia.

During the period from when you moved into your shared accommodation until you returned to Australia you did not make any return trips to Australia. Accordingly, you were not present in Australia for more that 183 days in any income year, during this period. Therefore, you are not a resident of Australia under the 183-day test for this period.

The superannuation test

An individual is considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Service Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person. To be eligible to contribute to those schemes, you must be or have been a Commonwealth Government employee.

You have stated that you are single and have never worked for the Commonwealth Government of Australia. As such, you were not eligible to contribute to the PSS or CSS superannuation schemes. Further, you are more than 16 years of age. Therefore, you were not a resident of Australia under the superannuation test during the period from when you moved into your shared accommodation until your return to Australia.

Conclusion

For the period you were living in Australia, you remained a resident of Australia for taxation purposes under the resides test.

For the period you were travelling and living in a hostel, you remained a resident of Australia for taxation purposes under the domicile test.

For the period you were living in shared accommodation in the foreign country, as you were not a resident of Australia under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, you are not considered to have been an Australian resident for taxation purposes.