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Ruling

Subject: Residency - Living and working overseas

Question and answer

Are you an Australian resident for income tax purposes?

No.

This ruling applies for the following periods:

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

The scheme commences on:

1 July 2007

Relevant facts and circumstances

You were born in Australia and are an Australian citizen.

For personal reasons you both decided to move to Country X, initially for a period of 18 months, and did so some years ago.

You moved into your partner's residential house property in Country X and you continue to live together in Country X.

A short time later you undertook contract employment in Country X . This became permanent the following year.

You and your partner decided to continue living and working in Country X instead of Australia as you needed to support yourselves financially, and your partner did not wish to work in Australia.

You were granted leave to stay in Country X indefinitely . This approval was subject to you being absent from Country X for no more than two years at a time.

You applied for and were granted Country X citizenship in 2010. You applied for citizenship so that you could be absent from Country X for more than two years at a time without any re-entry problems.

Your partner was granted permanent Australian residency in 200X and again a few years later for a period of five years. Your partner is reapplying for Australian residency in the recent year.

You and your partner have decided to continue working until you retire when you will divide your time between Australia and Country X.

When you retire, you and your partner initially intend to visit Australia for a few months. This may occur sometime in the recent year.

You state that you have always regarded your stay in Country X as temporary and have never intended to remain there indefinitely; you regard Australia as your home.

You visited Australia on a number of occasions for periods of between three and five weeks each between late 200Y and a recent year.

During your visits to Australia your activities included visiting family and friends, participating in family events, inspecting your real estate and visiting your stockbroker.

Your have numerous blood relatives in Australia.

You have no blood relatives in Country X.

You have a circle of friends in Australia that you keep in touch with.

Your partner has relatives in Country X and also has a circle of friends in that country.

In Australia you used to live in a property you own. The property is currently being rented out.

In the future you intend to reoccupy your property.

Your other Australian assets include:

· a residential unit (rented out);

· a car parking space (rented out);

· a share portfolio;

· personal possessions and furniture in a storage facility; and

· a number of bank accounts, a cash management trust account and a credit card.

You have a number of mortgage loans associated with your Australian properties.

You are a co-director of an Australian private company which is the trustee of a hybrid trust and a self-managed superannuation fund. You are the sole beneficiary of the trust and self-managed superannuation fund.

Your income from Australian sources comprises of rent, interest, dividends, trust distributions, a Commonwealth Superannuation pension and a self-managed superannuation fund pension.

The assets you own in Country X include bank accounts, a pension fund, clothing, books and photographs.

Your income from Country X sources comprises of salary from your employment, bank interest and a pension.

You previously worked for the Australian Commonwealth government and were a contributing member of the CSS. This is no longer the case.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1), and

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 may still be considered to be a resident of Australia for tax purposes if they meet the conditions of one of the other three tests. 

1. 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 lived and worked in Country X for the 2008, 2009, 2010, 2011 and 2012 and have only made a small number of relatively brief visits to Australia during that period.

Therefore, as you were physically present overseas for the majority of the 2008, 2009, 2010, 2011 and 2012 financial years you are not considered to have been residing in Australia according to ordinary concepts during those years.

The other tests of residency must now be considered.

2. 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. 

Domicile

"Domicile" is a legal concept to be determined according to the Domicile Act 1982 and to the common law rules which the courts have developed in the field of private international law. The primary common law rule is that a person acquires at birth a domicile of origin, being the country of his or her father's permanent home. This rule is subject to some exceptions. For example, a child takes the domicile of his or her mother if the father is deceased or his identity is unknown. A person retains the domicile of origin unless and until he or she acquires a domicile of choice in another country, or until he or she acquires another domicile by operation of law.

In your case, you were born in Australia and are an Australian citizen. Therefore your domicile of origin is Australia.

Generally speaking, persons leaving Australia temporarily would be considered to have maintained their Australian domicile unless it is established that they have acquired a different domicile of choice or by operation of law. 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; for example, by obtaining 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.

A person with an Australian domicile but living outside Australia will retain that domicile if he or she intends to return to Australia on a clearly foreseen and reasonably anticipated contingency, for example, the end of his or her employment. On the other hand, if that person has in mind only a vague possibility of returning to Australia, this state of mind will be consistent with the intention required by law to acquire a domicile of choice in the foreign country.

In your case, you:

· have been residing in Country X for some years.

· have been working in Country X for some years since 200X;

· were granted leave to stay in the Country X indefinitely in the following year;

· were granted Country X citizenship in 2010; and

· state that you intend to divide your time between Australia and Country X after you retire, however there is no clear indication as to when or if you will physically 'reside' in Australia again.

Based on these facts, it is considered that as from 2010 you have proven an intention to make your home indefinitely in Country X and have therefore acquired a domicile of choice in Country X. We consider that the granting of citizenship of another country (regardless of any underlying reason) is a significant indication of acquiring a different domicile by choice. This factor, combined with the duration of your stay in Country X and the fact that there does not appear to be any clear indication of future Australian residency brings us to this conclusion.

Therefore, under this test you are a not a resident for income tax purposes for the financial years ended 2010, 2011 and 2012 as you have adopted a domicile of choice in a country outside Australia.

We will accept that you had an Australian domicile for the financial years ended 2008 and 2009 and will now consider whether your permanent place of abode was outside Australia for those years.

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.

A person's permanent place of abode cannot be ascertained by any hard and fast rules. It is a question of fact to be determined in the light of all the circumstances of each case.

IT 2650 examines various factors that are taken into account in determining whether a person who leaves Australia to live overseas has established a permanent place of abode outside Australia. These factors include:

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

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

· whether the taxpayer has established a home (in the sense of a dwelling place, a house or 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; and

· the durability of association the person has with a particular place in Australia, that is, maintaining bank accounts, family ties and so on.

The longer an individual's stay in any one particular place, the more permanent in nature and quality of use is likely to be the stay in that place of abode. Where a taxpayer leaves Australia for an unspecified or a substantial period and establishes a home in another country, that home will represent a permanent place of abode of the taxpayer outside Australia, subject to a consideration of all other relevant factors applying to the individual's circumstances. As a broad rule of thumb, a taxpayer who is overseas for two years or more would generally be regarded as having a permanent place of abode outside Australia and would therefore be regarded as a non-resident. This factor, however, must be considered in light of all other identified factors. For example, an individual would not be considered to have adopted a permanent place of abode outside Australia if they moved from one country to another, or moved constantly within the one country.

The fact that an individual has established his or her home (in the sense of a dwelling place; a house or other shelter that is the fixed residence of a person, family or household) in an overseas country would tend to show that the place of abode in the overseas country is permanent. On the other hand, individuals or a family group who "make do" in temporary accommodation with limited resources and facilities such as in barracks, singles' quarters, aboard ships, oil rigs, or mining towns, will be less likely to be considered to have established a permanent place of abode overseas.

In your case, you have considerably more assets in Australia than in Country X, have numerous Australian sourced income streams and have strong family ties with Australia. However, after consideration of all the relevant factors it is considered that you established a permanent place of abode outside Australia because:

· you have been residing in Country X for some years.

· you have been working in Country X since 200X.;

· you were granted leave to stay in Country X indefinitely in the following year;

· you have only made relatively brief visits to Australia during the time you have been living in Country X; and

· you have been living with your partner in your partner's house for the entire time you have been living in Country X.

It is considered that the duration and continuity of your presence in Country X is substantial and that you maintained a fixed residence with your partner in Country X. Consequently, the Commissioner is satisfied that you established a permanent place of abode outside Australia for the 2008 and 2009 financial years.

Therefore, under this test you are not a resident for income tax purposes for the financial years ended 2008 and 2009 as you had a permanent place of abode outside Australia.

Conclusion - domicile

You are not an Australian resident for income tax purposes for the 2008, 2009, 2010, 2011 and 2012 financial years under the domicile test.

3. The 183-day test 

An individual may be considered to be an Australian resident for income tax purposes under this test if that person is present in Australia continuously or intermittently for more than half the income year.

In your case, 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.

4. The superannuation test 

An individual is considered to be an Australian resident for income tax purposes 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. 

In your case, you will not be treated as a resident under this test as you are not eligible to contribute to the PSS or the CSS, and you are not a spouse or a child under 16 of a person who is eligible to contribute to the PSS or the CSS.

Your residency status

As you are not an Australian resident for income tax purposes under any of the tests of residency as outlined in subsection 6(1) of the ITAA 1936, you are not an Australian resident for taxation purposes for the 2007-08, 2008-09, 2009-10, 2010-11 and 2011-12 income years.