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Ruling

Subject: Residency

Questions and answers:

1. Were you a resident of Australia for taxation purposes for the year ended 30 June 2011 while you had a dependant child living in Australia?

Yes.

2. Were you a resident of Australia for taxation purposes for the year ended 30 June 2011 after your dependant child living in Australia ceased dependency?

No.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commenced on:

1 July 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

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

You departed Australia in the 2008-09 financial year with an employment pass for a three year contract with an overseas educational institution.

When the three year employment term finished you extended the contract by another year.

You will finish this job in the 2011-12 financial year.

You are paid in foreign currency of country X and you are taxed there.

You are renting a unit in country X.

You do not intend to reside in country X permanently. When you finish your current job you will not be returning to Australia; you are going to visit one of your children who is living in country Z.

You are officially separated from your spouse with no possibility of reconciliation. No family members accompanied you overseas.

You have other children in different parts of the world and you intend to travel around and visit them.

At the time of departure in the 2008-09 financial year you had a house in which your dependant student child and one other child lived in.

You maintained this house until it was sold in the 2010-11 income year.

Your dependant child finished their studies and gained full time employment during the 2010-11 financial year; they were no longer a dependant child.

You acquired another property in Australia in the 2009-10 financial year as an investment with the view of eventually moving in once you returned from overseas.

You tried to sell this property as you were no longer sure of when you would return to Australia.

You still have the property, as it was not an ideal time to sell. It is currently being rented out and is not available for your use when you visit Australia.

You also have managed investments, bank accounts and an Australian self managed superannuation fund to which you are not contributing in Australia.

You have current registration with an association in Australia which is required to carry out your work at the overseas educational institution.

You have not formed any major social or community associations in country X as you have been taking advantage of the ease of travelling, using country X as a base.

In country X you have investments and you contribute to a pension fund.

You are unsure of when you will return to Australia on a permanent basis.

You return to Australia 2 to 3 times per year to check on your investments and to visit family and friends.

You stay with family members when you are in Australia.

Neither you nor your spouse have ever been employed by the Commonwealth Government of Australia.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6(1)

Reasons for decision

Residency status

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 contains four tests which help us ascertain whether you were a resident of Australia for income tax purposes for the year ended 30 June 2011. These tests are:

(i)   residence according to ordinary concepts;

(ii)  the domicile/permanent place of abode test;

(iii)   the 183 days/usual place of abode test; and

(iv)   the Commonwealth superannuation test.

The main test for deciding your residency status is whether you reside in Australia according to the ordinary meaning of the word resides.  However, where you do not reside in Australia according to ordinary concepts, you may still be a resident of Australia for tax purposes if you satisfy the conditions of one of the other three tests.

The residence according to ordinary concepts test

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3^rd edition, 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'.

There have been several court cases where residence according to ordinary concepts has been examined in detail. Overall, residence includes two elements: physical presence in a particular place and the intention to treat the place as home, at least for the time being, not necessarily forever.

In a recent case Iyengar and Commissioner of Taxation [2011] AATA 856 (30 November 2011) (Iyengar's case) the AAT found the individual was a resident of Australia under the resides test because of his continuity of association with Australia by maintaining his jointly owned home in Australia and the fact that this spouse remained in that home in Australia.

In reaching its conclusion the Tribunal considered the following factors:

Physical presence

o his family remained in Australia;

o he transferred his employment income to Australia to pay his mortgage;

o he returned to his home in Australia during holidays;

o he retained most of his personal items in Australia;

o his temporary and fixed employment contract (2 years); and

o he did not purchase any substantial items of personal property whilst overseas.

Nationality

Ordinarily, the nationality of an individual does not weigh significantly in deciding the residency status of an individual. However, in borderline cases, this factor may play a role.

In Iyengar's case the taxpayer and his family became Australian citizens in June 2003.

Maintenance of a place of abode

In Iyengar's case the taxpayer maintained a place of abode in Australia, being his family home, whilst he was employed overseas. The taxpayer also left behind in Australia some of his personal items, such as two motor vehicles, furniture and appliances, clothing and other household items. These factors were found to be indicative of him remaining an Australian resident.

Family and business ties with a country

Case law has established that the family or business ties that an individual retains with a country are relevant in determining whether an individual has remained or ceased to be a resident.

In Iyengar's case the following ties that the taxpayer had with Australia were such that he remained a resident of Australia:

o his family remaining in Australia (except for the short trip to Dubai by his wife);

o he maintained his family home in Australia;

o he used all his foreign income to make additional payments on his mortgage; and

o his holidays in Australia were at his family home.

Application to your circumstances

You left Australia in the 2008-09 financial year to take up an employment contract in country X that was initially for a period of 3 years. At the expiration of the initial 3 year period you extended the contract for a further year.

You have resigned from that employment and you will cease working in the 2011-12 financial year at which time you intend to travel to country Z to visit your adult child. From there you will continue to travel and visit your children who are located in various countries.

Until you sold your family home in the 2010-11 financial year you were maintaining your home and your dependant child while he continued his studies in Australia.

When we examine your circumstances as they relate to Iyengar's case you retained a continuity of association with Australia while you were maintaining your family home until you sold it. In addition, the continuity of association endured until your dependant child ceased studies and gained full time employment. At this time, they were no longer dependant and your continuity of association diminished.

In line with this discussion, you remained a resident of Australia for taxation purposes under the residence according to ordinary concepts test until your continuity of association diminished when your dependant child ceased dependency.

From that period your circumstances changed and we will examine them in line with the tests of residency.

Period of diminished continuity of association with Australia (end of 2010 until 30 June 2011)

The residence according to ordinary concepts test

As you were working and living in a rented unit in Singapore from when your continuity of association with Australia diminished for this period, you were not a resident of Australia for tax purposes under this test.

The domicile/permanent place of abode test

Domicile

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

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

o the domicile of origin;

o the domicile of choice; and

o the domicile of dependency.

Basically, your domicile of origin is the where you were born; being the country of your father's permanent home. As you were born in Australia, your domicile of origin is Australia.

In order to show that you have chosen a new domicile of choice in a country outside Australia, you must be able prove an intention to make your home indefinitely in that country, for example, change of citizenship or permanent residency. You have not stated an intention to apply for permanent residency in any other country; you will therefore retain your Australian domicile.

In relation to domicile of dependency, such a domicile will normally only exist in relation to minors or individuals who are of unsound mind.

You were born in Australia and you have not chosen a new domicile of choice, therefore your domicile remains in Australia. According to this test you will be a resident of Australia unless the Commissioner is satisfied that you have established a permanent place of abode outside 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 you in the meantime setting up a permanent place of abode elsewhere.

Income Tax Ruling IT 2650 lists the following relevant factors to be taken into account in determining a person's permanent place of abode:

· the intended and actual length of the individual's stay in the overseas country;

· whether the individual intended to stay in the overseas country only temporarily and then move on to another country or to return to Australia at some definite point in time;

· whether 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) has been established outside Australia;

· abandonment of residence or place of abode in Australia;

· duration and continuity of the individual's presence in overseas country; and

· durability of association that the individual has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments he or she is leaving permanently, family ties and so on.

The weight given to each factor varies with the circumstances of each individual taxpayer. When we apply your circumstances to the above criteria:

You left Australia for an initial period of 3 years to take up employment in country X. You extended your contract for a further year.

You have remained in country X for the duration of your employment contract which will end in the 2011-12 financial year. You will then be travelling around various countries visiting your children.

You have been renting a unit in country X.

You were maintaining your family home in Australia while your dependant child was living there until it was sold in the 2010-11 financial year. Your dependant child finished studies and gained full time employment.

You have an investment property in Australia which is currently rented and not available for your use. You have investments, bank accounts and a self managed superannuation fund in Australia. You are not contributing to your self managed superannuation fund.

Apart from family members and registration with a professional organisation, you do not have any social or sporting connections with Australia.

You have not established any social or sporting associations in country X. When you are not working you travel.

Because you had arranged accommodation for yourself in the form of a rented unit in country X, the Commissioner is satisfied that you established a permanent place of abode outside Australia.

The 183-day test

You are a resident under this test if you will actually be in Australia, continuously or intermittently, during more than one-half of a year of income, unless the Commissioner is satisfied that your usual place of abode is outside Australia.

You were not in Australia for more than 183 days during the year ended 30 June 2011.

You were not a resident of Australia for taxation purposes under this test.

The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the Commonwealth Superannuation Scheme (CSS) or Public Service Superannuation Scheme (PSS), or that person is the spouse or child under 16 of such a person.

In your case, neither you nor your spouse have ever been employed by the Commonwealth Government of Australia and therefore you are not members of the CSS or the PSS.

You were not a resident of Australia for taxation purposes under this test.

Conclusion - your residency status

For the reasons outlined above you remained a resident of Australia for taxation purposes until your dependant child ceased dependency on ceasing studies and gaining full time employment.

From then until 30 June 2011 you ceased to be a resident of Australia for taxation purposes.