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Ruling

Subject: Residency status

Question and answer:

Will you be a resident of Australia for income tax purposes for the period that you will living in country T?

Yes.

This ruling applies for the following period:

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commenced on:

1 July 2013

Relevant facts

You were born in country T and are citizen of country T and Australia.

You have a spouse and children.

You, your spouse and children intend to leave Australia to travel to country T for an extended period of time.

The purpose of you travelling to country T is to travel around and for you, your spouse and children to experience new cultures.

When you arrive in country T you intend to rent a residence for the duration of your stay in country T.

During the summer school break and on week-ends you intend to travel around.

You currently operate a business in Australia which services Australian based clients.

During the period that you will be overseas you will continue to service your Australian clients and be paid into your Australian bank account.

You do not intend to return to Australia for the duration of your stay in country T.

Your assets in Australia consist of your family home, personal furnishings and a motor car.

Other than a bank account that you will open on arrival in country T you will not own any overseas assets.

While you are overseas your family home will be rented out fully furnished.

You have a network of family and friends in both Australia and country T.

You were an employee of the Commonwealth Government of Australia and were a contributing member of the PSS, however you left the Commonwealth Government of Australia and are no longer eligible to contribute to the fund.

Your spouse has never been a Commonwealth Government of Australia employee.

You intend to return to Australia after an extended period.

Relevant legislative provisions

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

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

Reasons for decision

An Australian resident for tax purposes is defined in subsection 995-1(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

· 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 a resident of Australia for tax purposes if they satisfy the conditions of one of the other three tests.

The resides test

The first question to be asked in considering the residency status of a person is whether he or she can be considered to reside in Australia. If the test of residence according to ordinary concepts is satisfied, there is no need to apply any of the other tests. The person is a resident of Australia for income tax purposes.

The ordinary meaning of the word 'reside', according to the Shorter Oxford English Dictionary, 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.

Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia considers the residency status of individuals entering Australia and states that the period of physical presence or length of time in Australia is not, by itself, decisive when determining whether an individual resides here. However, an individuals behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here.

The quality and character of an individual's behaviour while in Australia assist in determining whether the individual resides here.

All the facts and circumstances that describe an individual's behaviour in Australia are relevant. In particular, the following factors are useful in describing the quality and character of an individual's behaviour:

· intention or purpose of presence;

· family and business/employment ties;

· maintenance and location of assets; and

· social and living arrangements.

No single factor is necessarily decisive and many are interrelated. The weight given to each factor varies depending on individual circumstances.

Although Tax Ruling 98/17 deals with individuals arriving in Australia the same principals can be applied when determining whether individuals leaving Australia are in fact residing overseas.

In your case, you intend leave Australia and travel to country T for the purpose of travelling and experiencing new cultures. While in country T you intend to rent a property and use the property as a base to travel around. During this period you will continue to service your Australian business clients and maintain your family home in Australia which primarily is the main asset that you own. In addition, you have a network of family and friends in Australia.

In considering the above factors, the main purpose for travelling to country T is to have a holiday and travel while still continuing to maintain your business ties to Australia. Therefore it is considered that you will continue to reside in Australia under the 'resides test'.

Accordingly, for the period that you will live in country T you will continue to reside in Australia and so continue to be an Australian resident for taxation purposes under subsection 995-1(1) of the ITAA 1997 and subsection 6(1) of the ITAA 1936.

Although you are a resident of Australia for income tax purposes under the 'resides test', due to the facts that you have provided it is also worthwhile considering your residency status under the 'domicile 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.

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. In order to show that an individual's domicile of choice has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country.  From the information that you have provided, your domicile of origin is Country X however you moved to Australia and gained Australian citizenship, adopting Australia as your domicile of choice. As your intention is to return to Australia after a 15 month stay, it is considered your adopted Australian domicile will remain unchanged.

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 you intend to live for the rest your 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.

For the period that you will live in country T it is considered that you will be an Australian resident for taxation purposes under the domicile test for the following reasons:

· you intent to leave Australia to live in country T for approximately for a set period;

· you intend to rent a house in country T and use this as a base so that you and your family can travel;

· you will continue to run your Australian business, service your Australian clients and receive remuneration from your service into your Australian bank accounts while in country T;

· you will rent your Australian home fully furnished while you are out of Australia;

· with the exception of a bank account that you will open on arrival in country T, you will have no other overseas assets.

As mentioned, the expression 'place of abode' refers to where a person lives and sleeps at night. Based on the above, it is considered that you will not establish a permanent place of abode outside of Australia for the period that you live in country T and therefore will remain a resident of Australia under the 'domicile test'.

Accordingly, you will be considered to a resident of Australia for income tax purposes for the period that you live in country T, under subsection 995-1(1) of the ITAA 1997 and subsection 6(1) of the ITAA 1936.

As you will be a resident of Australia under both the 'resides test' and 'domicile test' there is no need to consider the remaining 2 tests.