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Ruling

Subject: Residency

Question

Were you an Australian resident for taxation purposes during the period you lived and worked in Country X?

Answer

No

This ruling applies for the following period

Year ending 30 June 2011

Year ending 30 June 2012

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You are an industrial designer.

You obtained a 12 month working visa for Country X.

You worked in Country X as a consultant for a company, under a series of contracts, until the expiration of your visa.

You intended to live and work indefinitely in Country X, and believed your visa could be extended.

You took out a lease on an apartment in Country X, where you lived during your entire stay in Country X.

You established and maintained a relationship with a partner in Country X.

You returned to Australia when your visa could not be extended.

You own a property in Australia which is a rental property.

You did not own a main residence in Australia but lived at your parents' home until you left for Country X.

You are not a contributing member of a Commonwealth superannuation scheme.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

Residency

Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident as a person who is a resident of Australia for the purpose 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 an Australian resident for income tax purposes. These tests are:

· The resides test

· The domicile test

· The 183 day test

· The superannuation 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 an Australian resident for income 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 dictionary meaning, 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.

As you lived in Country X, you are not considered to be residing in Australia under this 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 a new domicile of choice in a country outside Australia has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country, for example, through having obtained 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.

Taxation Ruling IT 2650 states that 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.

The leading case on whether a permanent place of abode is outside Australia is FC of T v Applegate (79 CTC 4307; (1979)). The Federal Court said that in the context of the definition of resident for taxation purposes, for a place of abode to be permanent it does not have to be everlasting or forever.

The following factors, listed at paragraph 23 of IT 2650, have been considered relevant by the Courts, Boards of Review and Administrative Appeals Tribunal and regarding a taxpayer's permanent place of abode. They include:

  (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 then move on to another country or return to Australia at some definite point of 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 taxpayers presence in the overseas country; and

(f) the durability of association that the taxpayer has with a particular place in Australia for example, maintaining bank accounts, informing government departments such as Centrelink that he or she is leaving Australia permanently and that any benefits such as family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

IT 2650 states that 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. Applegate's case seems to indicate, however, that greater weight should be given to factors (c), (e) and (f)

In your case, you are an industrial designer. You intended to live and work indefinitely in Country X and obtained a 12 month working visa, believing your visa could be extended. You took out a lease on an apartment, and lived there for your entire stay. You established and maintained a relationship with a partner.

You own a property in Australia which is a rental property. You did not own a main residence in Australia but lived at your parents' home until you left for Country X.

Based on these facts, it is considered that while you maintained your Australian domicile, you did establish a permanent place of abode outside of Australia.

Therefore, you are not considered an Australian resident for taxation purposes under the domicile test.

The 183-day test

This test does not apply to you as it has been identified that your permanent place of abode was in Country X.

The superannuation test

An individual is still considered an Australian resident for tax purposes if that person is eligible to contribute to a Commonwealth superannuation scheme such as the PSS or the CSS, or that person is the spouse or child under 16 of such a person. 

This test does not apply to you.

Your residency status

In your case, you are not considered an Australian resident for tax purposes under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936.

Accordingly, you are deemed a foreign resident for the period you lived and worked in Country X.

Note

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a foreign resident includes all ordinary income, such as employment or rental income, derived from all Australian sources during the income year.

Where a person becomes, or ceases to be, an Australian resident for tax purposes in an income year, the tax free threshold is pro rated to the number of months, including part months, in the income year during which the person was a resident.