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Ruling

Subject: Residency - Working Overseas

Question and answer

Are you a resident of Australia for income tax purposes for the years ended 30 June 2006, 2007, 2008, 2009, 2010, 2011, 2012 and 2013?

No.

This ruling applies for the following periods:

Year ended 30 June 2006

Year ended 30 June 2007

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commences on:

1 July 2005

Relevant facts and circumstances

You are a citizen of Australia.

Country X is your country of origin.

You have lived and worked overseas since 1993.

You have obtained work permits to enable you to work in the overseas countries you have been employed in.

You worked in Country Y under a contract of employment from early 2005 to late 2007.

During your employment in Country Y you rented an apartment.

You intended to continue working overseas during this period.

You had been negotiating to work in Country Z since early 2007 and you visited Country Z in late 2007 as part of this process.

You returned to Australia in late 2007 and stayed until early 2008. You stayed with friends and did not work during this period.

You worked in Country Z from early 2008 to late 2011.

During your employment in Country Z you stayed in employer provided accommodation as you worked at a remote site and this was the only practicable option.

You intended to continue working overseas during this period.

While working in Country Z you had a circle of friends in that country and also in other parts of the country. You played golf and tennis, attended church and generally socialised together.

You returned to Australia in late 2011 and stayed until early 2012.

You accepted a new position in Country Y after you returned to Australia in late 2011, but had been in discussions with a recruiter for several months prior to that.

Prior to your return to Country Y you undertook employment in Australia between late 2011 and early 2012.

In early 2012 you returned to Country Y to take up an employment contract for an initial period of two years with the possibility of an extension beyond that time.

When your employment contract in Country Y ceases you intend to remain in Country Y and establish a consulting business.

You intend to remain in Country Y indefinitely.

You have no intention of returning to Australia at any time in the future.

You and your spouse separated in 2005 prior to you leaving for Country Y early in that year.

Prior to you and your spouse separating in 2005 you lived in Country W and had no permanent Australian address.

You and your ex-spouse have children who live with your ex-spouse in Australia.

While working overseas you have visited Australia on average three times per year to visit your children and holiday with them. These trips have lasted for no more than two weeks at a time.

From now on you intend to meet your children overseas in order to spend time with them.

In addition to your children you have other family and friends who live in Australia.

You are currently in a de facto relationship with a partner who resides in Country Y.

You are treated as one of the family by your partner's relatives.

You and your partner have not had any children together; however your partner has a child who you consider to be like one of your children.

You have an informal half ownership interest in an apartment in Country Y.

When you returned to Country Y early in 2012 you had the intention of renting an apartment in which you would live with your partner and their child.

In the future you intend to purchase an apartment in Country Y in which you will live.

In Country Y you have a circle of friends comprising of expatriates and local people. You practice traditional sport in local competitions and are interested in the local wrestling and horse racing.

You paid tax on your income in the overseas countries you worked in and are currently paying tax on your income in Country Y.

You have not lodged an Australian income tax return since the financial year ended 30 June 2005.

Your salary has always been paid into an overseas bank account with the only transfers to Australia being for the support of your children.

You currently have a bank account in Country Y into which your salary is paid.

You and your ex-spouse jointly owned a rental property in Australia from which you were receiving rental income until late 2011. This property has/is being transferred to your ex-spouse as part of a divorce settlement.

You own a block of vacant land in Australia which does not produce any income.

You purchased a quantity of Australian shares in the financial year ended 30 June 2008. These shares were subsequently sold.

You have a bank savings account and a 'credit account' in Australia.

You have never been employed by the commonwealth of Australia, and you are not a spouse of a person who is a member of the Public Sector Superannuation Scheme.

Relevant legislative provisions

Income Tax Assessment Act 1936 - Subsection 6(1)

Income Tax Assessment Act 1997 - Section 6-5

Reasons for decision

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

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 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 will be considered to be a resident of Australia for 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 Macquarie Dictionary, 2001, rev. 5^th edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; have 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'.

In your case, you have been working full time and living in Country Y and Country Z. You have only returned to Australia for relatively short periods of time and have always intended to continue working overseas. You intend to live in Country Y indefinitely and do not intend to return to Australia in the future. Since you have been, and will continue to be, physically present overseas, you are not considered to be residing in Australia according to ordinary concepts 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 your case, your domicile of origin was Country X and you obtained a new domicile in Australia by choice when you became an Australian citizen.

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 their home indefinitely in 'that country'.

Domicile

2011-12 and 2012-13 income years

In relation to your return to Country Y in early 2012 you have stated that:

· you have an employment contract for a minimum period of two years;

· although you worked in Australia during the period late 2011 to early 2012 you had already decided to return to Country Y to work;

· you are in a relationship with a Country Y partner and you intend to live with their in Country Y;

· you are maintaining social and sporting contacts in Country Y; and

· you intend to work and live in Country Y indefinitely.

Based on these facts it is considered that from early 2012 you adopted a new domicile in Country Y. Therefore, you will be a non resident for the 2011-12 and 2012-13 income years under the domicile test.

Domicile

2005-06, 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11 income years

For you to show that you adopted a new domicile of choice in a country outside Australia you must be able to prove that you intended to make your home indefinitely in Country Y when you worked there from early 2005 to late 2007, and then in Country Z when you worked there from early 2008 to late 2011.

Based on the facts provided, it is considered that you have not proven that you intended to make your home indefinitely in either of those countries. Consequently you retained your Australian domicile for the 2005-06, 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 income years. Therefore it must now be considered whether your permanent place of abode was outside Australia for those years.

Permanent Place of Abode

2005-06, 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11 income years

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 their 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 have maintained an association with Australia through your children, other family members, friends and your property. However, your association with Country Y and Country Z is considered to be more significant because:

· you worked overseas in Country Y and Country Z under two separate employment contracts from early 2005 to late 2011 with a break of no more than three months between contracts;

· you always intended to continue working overseas during those periods;

· you had a permanent place to live in both Country Y and Country Z during your periods of employment;

· you maintained social and sporting contacts in Country Y and Country Z during those periods;

· you have assets in Country Y consisting of a bank account and an informal half ownership interest in an apartment;

· you are in a relationship with a Country Y partner;

· you separated from your former spouse in 2005;

· you have not maintained a residence or family home in Australia; and

· the only transfers from your salary that you make to Australia are for the support of your children.

Based on these facts, it is considered that you established and maintained permanent places of abode outside Australia for the 2005-06, 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 income years. Therefore, you will be a non resident for those income years under the domicile test. 

The 183-day test 

You will not be treated as a resident under this test as you were not present in Australia continuously or intermittently for more than one-half of any income year during the period of this ruling.

The superannuation test 

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

You will not be treated as a resident under this test as you are not a member of the PSS or the CSS, a spouse of such a person, or a child under 16 of such a person. 

Your residency status 

As you are not deemed to be an Australian resident for income tax purposes under any of the residency tests outlined in subsection 6(1) of the ITAA 1936, you are not an Australian resident for taxation purposes for the 2005-06, 2006-07, 2007-08, 2008-09, 2009-10, 2010-11, 2011-12 and 2012-13 income years