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Ruling

Subject: Residency

Question 1

Are you a resident of Australia for income tax purposes in the 2010-11 income year?

Answer: Yes.

Question 2

Is the income from your Australian salary continuance policy included in your assessable income?

Answer:

Yes.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You have lived and worked in Australia for over 40 years.

You left Australia for country X over two years ago for a holiday and to get married and bring your spouse home.

You intended to return to Australia after six months but were unable to do so as you fell ill.

You have been in and out of hospital since then.

Your doctor in country X has provided a letter stating that you are not fit to travel due to your medical condition.

For the past four months you have been living in a rented flat with your spouse.

Previously you had lived in your spouse's house which was shared with her son and his family.

You have a bank account in country X which is used to transfer funds from your Australian account for living expenses.

You do not have any other assets in country X.

You do not have family in country X other than your spouse.

You have no social connections and nothing in common with country X except for your spouse.

In Australia you have children, a sibling and their family and other relatives.

You did not retain any personal items in Australia as these were left to your ex-wife and your children.

In Australia you are connected to your children's' sporting clubs and other activities. All your friends are in Australia.

You have a salary continuance policy which is a sickness and accident policy payable every three months.

Neither you nor your spouse has been a Commonwealth Government of Australia employee.

The Immigration Department have given you an extended visa till you are able to return to Australia.

There is a tax treaty between Australia and country X.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

An Australian resident for tax purposes is defined in subsection 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to be a person who is a resident of Australia for the purposes 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, and

· the superannuation test.

The primary test for deciding the residency status of an individual is whether the individual resided in Australia according to the ordinary meaning of the word resides. If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established.

Where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be an Australian resident if they meet the conditions of one of the other tests.

The resides test

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

You have been living in country X since 2009 and accordingly you are not residing in Australia.

As you do not meet the resides test, we will need to consider whether you meet any of the other three tests of residency.

The domicile test

Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia, unless the Commissioner is satisfied that their permanent place of abode is outside of Australia.

Domicile

Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence.

In order to show that a new domicile of choice in a country outside of Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country.

Your domicile is Australia because you are an Australian citizen and you always intended to return to Australia.

Therefore, you will be a resident of Australia unless the Commissioner considers you have established 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.

Paragraph 23 of Taxation Ruling IT 2650 Residency - Permanent place of abode outside Australia sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode:

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

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

· 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;

· whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;

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

· the durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments such as Centerlink that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

The Commissioner is not satisfied that you have a permanent place of abode outside of Australia because:

You always intended to return to Australia after your holiday in country X.

Your return to Australia has been prevented due to your medical condition.

Your association with Australia is stronger than with country X.

Conclusion

You are considered to be an Australian resident for income tax purposes in the 2010-11 income year under the domicile test. Accordingly, the income you receive from your Australian salary continuance policy is included in your assessable income.