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Ruling

Subject: Residency

Question and answer:

Are you a resident of Australia for taxation purposes?

Yes.

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commenced on:

1 July 2011

Relevant facts

You are a citizen of and were born in Australia.

You went overseas to work.

You have a work contract for less than a year.

The contract may be extended if required.

You will pay tax on this income overseas.

You intend to return to Australia at the end of your work overseas.

Your spouse and child have accompanied you overseas.

You are renting an apartment overseas.

You are renting your home out in Australia.

You earn income in Australia from shares and property.

Neither you nor your spouse are or have ever been commonwealth government employees.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1).

Income tax Assessment Act 1997 Section 6-5

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

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) advises that where you are an Australian resident for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a non-resident of Australia for taxation purposes, your assessable income includes only income from an Australian source.

Subsection 995-1(1) of the 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 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: 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 an Australian resident for tax purposes if they satisfy the conditions of one of the three other 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'.

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.

In your case you left to work overseas. You are therefore not residing in Australia according to ordinary concepts and you are not a resident of Australia for tax purposes according to this test.

The domicile test

If a person has 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.

Domicile

There are essentially 3 types of domicile that an individual can have:

§ the domicile of origin;

§ the domicile of choice; and

§ The domicile of dependency.

Basically, the domicile of origin of an individual is where the individual was born. In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country. In relation to domicile of dependency, such a domicile will normally only exist in relation to minors or individuals who are of unsound mind.

In your case, you were born in Australia and you are a citizen of Australia, your domicile of origin is Australia. You do not have permanent residency or citizenship of any other country. Therefore, you have not proven an intention to make the overseas country your home indefinitely and your domicile remains Australia.

As your domicile is Australia, you will be a resident of Australia for tax purposes unless the Commissioner is satisfied that you have a permanent place of abode outside of Australia.

Permanent place of abode

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 a person intends to live for the rest of his or her life. An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a permanent place of abode elsewhere.

In your case:

You left Australia to work overseas for a short period.

You have a home in Australia which you are renting out.

You are renting an apartment overseas.

You have assets in Australia which you derive income from.

The Commissioner is not satisfied that you have established a permanent place of abode outside Australia therefore you are a resident under this test.

As you meet the domicile test it is not necessary to look at the 183 day test and the superannuation test.

Your residency status

As you meet the domicile test of residency, you are a resident of Australia for taxation purposes.

You are required to declare all your income derived both in and out of Australia in your Australian tax return.