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Ruling

Subject: Residency status

Questions and answers:

Are you a resident of Australia for income tax purposes?

No.

Are you exempt from paying the Medicare levy and Medicare levy surcharge?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You were born in country Z, migrated to Australia and became an Australian citizen.

You posses an Australian passport and an OCI card of country Z which allows you to stay in country Z for an unlimited period of time.

You, your spouse and child moved back to country Z temporarily for the main purpose of your spouse receiving medical treatment and to also spend some time with your family.

Since departing Australia you have not returned.

You have an employment contract in country Z. The employment contract can be extended which means that you would have been employed in country Z for a significant period of time.

You have been tax by the country Z authorities on the income that you have derived in country Z.

For the period that you returned to country Z you have been living in long term rental accommodation.

The assets that you hold in Australia consist of a property. This property was your primary residence when you were living in Australia, however it is currently being rented out during your stay in country Z. The rental property is currently making a loss.

You do not hold any assets overseas.

You do not have any social or sporting ties with both Australia and country Z.

Neither, you nor your spouse have been Commonwealth Government of Australia employees.

You intend to return to Australia permanently.

Relevant legislative provisions

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

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

Income Tax Assessment Act 1936, Subsection 251T.

Income Tax Assessment Act 1936, Subsection 251U.

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:

ð the resides test

ð the domicile test

ð the 183 day test

ð the superannuation test.

The first two tests are examined in detail in Taxation Ruling IT 2650.

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 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'.

Taxation ruling IT 2650: residency - permanent place of abode outside Australia, provide guidelines for determining whether individuals who leave Australia temporarily to live overseas, for example, on temporary overseas work assignments or on overseas study leave, cease to be Australian residents for income tax purposes during their overseas stay.

The principles and guidelines adopted in IT 2650 can also be used for individuals who intend to reside overseas indefinitely. Paragraph 19 of IT 2650 states:

The first question to be asked in considering the residency status of a person temporarily leaving Australia 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 go any further. The person is a resident of Australia for income tax purposes.

In your case, you, your spouse and son left Australia for the purpose of your wife receiving medical treatment and to visit your family in country Z. While in country Z you live in long term rental accommodation and have been employed for an extended period. As you, your spouse and son have been living in country Z for what is considered a significant period of time and you have been engaged in long term employment, you are not considered to have been residing in Australia.

Accordingly, you are not a resident of Australia for income tax purposes under the 'resides 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.  In your case, you were born in country Z, migrated to Australia and became an Australian citizen, therefore electing Australia as your domicile of choice. From the information that you have provided you intend to return to Australia permanently, therefore it is considered that your Australian domicile has remained 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.

Some of the factors which have been considered relevant by the Courts, Boards of Review and Administrative Appeals Tribunal and which are used by the ATO in reaching a state of satisfaction as to a taxpayer's permanent place of abode include:

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

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

ð 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;

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

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

ð 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 the Department of Social Security 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.

In your case you:

ð your spouse and child departed for the purpose of your spouse receiving medical treatment and to visit family in country Z;

ð intend on returning to Australia after a spending a significant period of time in country Z;

ð have not returned to Australia since first leaving;

ð entered country Z on a visa that allows you to stay in country Z indefinitely;

ð and your family live in long term rented accommodation in country Z;

ð have secured long term employment in country Z; and

ð have family ties in country Z.

On the balance and based on the above, the Commissioner is satisfied that you have a permanent place of abode outside of Australia and so considers that you are not a resident for taxation purposes under the 'domicile test'.

The 183-day test

Where a person is present in Australia for more than183 days during the year of income the person will be a resident, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

You did not return to Australia during the income year in question. As you were not in Australia for a period greater than 183 days you are therefore you are not considered to be a resident of Australia for income tax purposes under this test.

Accordingly, you are not a resident of Australia for income tax purposes under 'the 183-day test'.

The Superannuation test

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

Neither you or your spouse have never been a Commonwealth of Australia Government employee, therefore you are not a resident of Australia under this test.

Accordingly, you are not a resident of Australia under 'The Superannuation Test'.

Your residency status

As you are not a resident of Australia under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, you are not an Australian resident for income tax purposes for the 2011-12 income year.

Medicare levy and Medicare levy surcharge

Section 251S of the ITAA 1936 provides that the Medicare Levy shall be paid on the taxable income of an individual who is a resident of Australia at any time during the income year.

Section 251T of the ITAA 1936 provides that any person who is a 'prescribed person' during the whole of the year is not liable for any Medicare Levy.

Section 251U of the ITAA 1936 defines a 'prescribed person' and lists six classes of persons who may be entitled to the Medicare Levy exemption. Paragraph 7 of

Taxation Ruling IT 2615 summarises the six classes of persons as follows:

1. A person who is entitled to free medical treatment as a member of the Defence Force or as a relative of, or was otherwise associated with, a member of the forces.

2. A person entitled under the Veteran's Entitlements Act 1986 or the Seamen's War Pensions and Allowances Act 1940 to free medical treatment.

3. A person entitled to coverage for health care by reason of being entitled to a Health Care Card, a Pensioner Health Benefits Card or a Health Benefits Card on a non-income-tested basis.

4. A person who is not an Australian resident.

5. Certain foreign government representatives and their staff and families where they are not Australian citizens and are not ordinarily resident in Australia.

6. A person in respect of whom the Minister for Community Services and Health has certified is ineligible for Medicare benefits. The Department of Community Services and Health has advised that the circumstances in which such a certificate is issued are quite limited.

To qualify as a prescribed person you must fulfil one of the specific criteria in the categories listed above.

Taking the facts of your particular situation into account, you fall into category four of the 'prescribed person' cited above. For the income year in question it has been determined that you were not a resident of Australia for income tax purposes, therefore you are deemed to be a 'prescribed person'.

Accordingly, as you are deemed a prescribed person under section 251U of the ITAA 1936 for the 2011-12 income year you are entitled to a Medicare levy and Medicare levy surcharge exemption for 2011-12 income year under section 251T of the ITAA 1936.