Edited version of your private ruling

Authorisation Number: 1012496743103

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Ruling

Subject: Residency and exemption from Medicare and Medicare levy surcharge

Questions and answers:

1. Are you a resident of Australia for income tax purposes for period 1 and period 3?

Yes.

2. Are you a resident of Australia for income tax purposes for period 2?

No.

3. Are you exempt from the Medicare levy and the Medicare levy surcharge for period 1 and period 3?

No.

4. Are you exempt from the Medicare levy and the Medicare levy surcharge for period 2?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commenced on:

1 July 2010

Relevant facts

You were born in Australia and are a citizen of Australia.

You are over 55 years of age.

You have a spouse who was born in country T.

You have no dependants.

You and your spouse began planning to move to country T for an indefinite period.

After a period of planning you and your spouse left Australia and moved to country T.

Prior to leaving Australia you and your spouse lived in your family home Australia.

You disposed of the majority of your household effects in Australia including motor vehicles, etc prior to leaving Australia.

You did not remove your name from the Australia Electoral Office or advise Medicare or any other government agencies of your departure from Australia.

You cancelled your Australian medical insurance policy when you departed Australia in favour of taking up health insurance in country T.

On arrival in country T, you lived with relatives before moving to a long term rental accommodation.

While in the country T you set up bank accounts and purchased various household effects to establish your home in country T.

Your Australian bank accounts remained open during your absence from Australia for the purposes of maintaining your home loan.

You are employed by an international company and have exercised your employment at a number of sites around the world.

For the income years included in this ruling you have worked in a number of overseas countries.

The nature of your employment is such that you work a number of weeks (overseas) on, followed by a number of weeks off.

While working overseas you lived in basic one room with facilities employer provided accommodations.

You paid income tax on your employment income in the respective countries where you performed you employment duties.

During the periods that you were engaged in your overseas employment activities, your spouse remained in your established homes in Australia or in country T.

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

You have a wide circle of family and friends in Australia.

You have a child who lives in country T.

You and your spouse have close family and friends in country T.

You have never been a Commonwealth Government of Australia employee.

After a period, due to family issues you and your spouse returned to Australia indefinitely.

Between the time that you left Australia and returned, you and your spouse made 1 trip to Australia for a short period. During this period you stayed with relatives, friends and in hotels.

When you departed the country T, you disposed of all your household items and closed all your country T bank accounts.

On arrival in Australia you reapplied for Australian private health cover.

After re-establishing your home in Australia, your spouse once again lived in your family home while you continued to work overseas. Further on completion of an employment rotation you returned to your home in Australia.

You do not have a Medicare levy exemption certificate for the years contained within this ruling.

Relevant legislative provisions

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

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

Income Tax Assessment Act 1997, Subsection 6-5(3).

Income Tax Assessment Act 1936, Section 251S.

Income Tax Assessment Act 1936, Section 251T.

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 ordinary meaning of the word reside, according to the dictionary meaning, 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 specifies that the period of physical presence in Australia and an individual's behaviour while present in Australia are important factors for the purpose of the resides test and may reflect a degree of continuity, routine, or habit that is consistent with residing here.

Whether a considerable time has elapsed to demonstrate that an individual's behaviour has the required continuity, routine or habit is a question of fact and the Commissioner's view of the law is that six months is a considerable time when deciding whether an individual's behaviour is consistent with residing in Australia.

When behaviour consistent with residing here is demonstrated over a considerable time, an individual is regarded as a resident for taxation purposes from the time the behaviour commences. In considering an individual's behaviour while in Australia, the

Commissioner considers a number of factors, including:

1. intention or purpose of presence;

2. family and business/employment ties;

3. maintenance and location of assets;

4. social and living arrangements.

Ordinarily, where a taxpayer leaves Australia to work overseas and their family remains in Australia the taxpayer is generally viewed as continuing to reside in Australia for tax purposes. This is because, it would be considered that they have maintained their settled or usual place of residence in Australia, and therefore their residency status would be generally considered to have remained unchanged.

In a recent case Iyengar and Commissioner of Taxation [2011] AATA 856 (30 November 2011) (Iyengar's Case) the AAT found the individual was a resident of Australia under the resides test because of his continuity of association with Australia by maintaining his jointly owned home in Australia and the fact that his spouse remained in that home in Australia.

In reaching its conclusion the Tribunal considered the following factors:

Physical presence

· his family remained in Australia;

· he transferred his employment income to Australia to pay his mortgage;

· he returned to his home in Australia during holidays;

· he retained most of his personal items in Australia;

· his temporary and fixed employment contract (2 years); and

· he did not purchase any substantial items of personal property whilst overseas.

Nationality

Ordinarily, the nationality of an individual does not weigh significantly in deciding the residency status of an individual. However, in borderline cases, this factor may play a role.

In Iyengar's case the taxpayer and his family became Australian citizens in June 2003.

Maintenance of a place of abode

In Iyengar's Case the taxpayer maintained a place of abode in Australia, being his family home, whilst he was employed overseas. The taxpayer also left behind in Australia some of his personal items, such as two motor vehicles, furniture and appliances, clothing and other household items. These factors were found to be indicative of him remaining an Australian resident.

Family and business ties with a country

Case law has established that the family or business ties that an individual retains with a country are relevant in determining whether an individual has remained or ceased to be a resident.

In Iyengar's Case the following ties that the taxpayer had with Australia were such that he remained a resident of Australia:

· his family remaining in Australia (except for the short trip to Dubai by his wife);

· he maintained his family home in Australia;

· he used all his foreign income to make additional payments on his mortgage; and

· his holidays in Australia were at his family home.

Prior to departure from Australia (period 1) and post your return to Australia (period 3)

Applying the principles established in Iyengar's Case to your particular circumstances for this period, you are resident of Australia for tax purposes under the resides test for the following reasons;

· You own a home in Australia which your spouse continued to live in while you were engaged in foreign employment;

· In the periods that you were not engaged in foreign employment you returned to your residence in Australia.

· You remained a citizen of Australia

· You have a bank account in Australia which you used to pay your mortgage.

· Your assets in Australia include a family home, motor vehicles, etc.

· Your social and sporting connections with Australia include a wide circle of family and friends.

· You travelled overseas specifically for work purposes;

Based on these facts, you are a resident of Australia under 'the resides' test as your behaviour in Australia reflects a degree of continuity, routine or habit that is consistent with residing here for these 2 periods.

As you are a resident of Australia for income tax purposes for these 2 periods, there is no need to consider the remaining residency tests for these periods.

Post your departure from Australia (period 2)

Applying the principles established in Iyengar's Case to your particular circumstances for this period, you are not a resident of Australia for tax purposes under the resides test for the following reasons;

· You established long term rental accommodation in the country T, which your spouse lived in while you were engaged in foreign employment;

· You and your spouse left Australia to live in country T for an indefinite period;

· Prior to leaving, you disposed of household items including cars etc.;

· You purchased personal items to furnish your country T residence;

· In the periods that you were not engaged in foreign employment you returned to the residence in country T;

· You opened bank accounts and took up private health insurance in country T;

· You and your spouse had a wide circle of family and friends (including your child) in the country T;

Based on these facts, you are not a resident of Australia under the resides test as your behaviour does not reflect a degree of continuity, routine or habit that is consistent with residing in Australia.

Accordingly, you are not a resident of Australia for income tax purposes under the resides test for this period.

As you are not a resident under the resides test for this period we will continue with the remaining tests for residency.

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, you did not demonstrate an intention to become a citizen of the country T and were still a citizen of Australia. Therefore it is considered your Australian domicile 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.

For period 2, your circumstances were the following:

· you and your spouse left Australia on a date with the intention of living indefinitely in country T;

· you established long term rental accommodation and purchased furnishings in country T;

· although you continued with your foreign employment, during the periods that you were not working you returned to your residence in country T;

· you established bank accounts and health insurance in country T;

· you had a wide circle of family and friends (including your child) in country T; and

· you only returned to Australia on one occasion for a period of less than 30 days.

Based on these facts, it is therefore considered that you had established a permanent place of abode in the country T

Accordingly, for the period 2 you are a not a resident of Australia for income tax purposes under the domicile test.

The 183 day test

Under the 183 day test, a person is a resident of Australia if they are actually physically present in Australia for more than 183 days in an income year unless the Commissioner is satisfied that their usual permanent of abode is outside of Australia and they have no intention of taking up residence here.

You were only physically present in Australia for a short period for period 2.

Therefore, you are not a resident of Australia under the 183 day test for this period.

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.

In your case, neither you nor your spouse have ever been a Commonwealth Government of Australia employee and therefore you are not able to contribute to the above mentioned superannuation schemes.

Therefore, you are not a resident of Australia under the superannuation test.

Conclusion

Residency status Period 1 and Period 3

As you were a resident of Australia under the resides test outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997 for these 2 periods, you are an Australian resident for income tax purposes.

Residency status Period 2

As you were not a resident of Australia under any of the tests 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 this period.

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 fulfill 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' criteria cited above. Therefore only for the period that you were not an Australian resident for income tax purposes will you be exempt from the Medicare levy and the Medicare levy surcharge.

Accordingly, you are exempt from the Medicare levy and the Medicare levy surcharge only for Period 2, under section 251U of the ITAA 1936 and section 251T of the ITAA 1936.