Edited version of your private ruling

Authorisation Number: 1012506711359

Ruling

Subject: Residency

Question and Answer:

Were you an Australian resident for taxation purposes for the year ended 30 June 2009?

Yes

This ruling applies for the following periods:

Year ended 30 June 2009

The scheme commences on:

1 September 2007

Relevant facts and circumstances

You are an Australian citizen.

You have worked for company X for almost 10 years.

You have never lived outside of Australia until xxx when you moved to Country X.

You were in Country X on a work visa (due to an inter company transfer) this allowed you to stay for up to 3 years with the possibility of an extension.

You departed Australia on xxx to work in the overseas sales office of X. You were sent there on the understanding that you would stay for 2-3 years and that at some point you would return to Australia.

You ended up returning to Australia after 2 years due to budgetary issues.

You were single when you left Australia. You met your now spouse about half way through your stay in Country X and they moved in with you.

You returned to Australia on three occasions during your time spent living in Country X:

You returned to Australia with your spouse xxx.

When you left Australia you are 99% sure you selected ‘departing Australia permanently’ on your outgoing passenger card.

You rented out your home in Australia when you left to try and recoup some of your mortgage expenses.

You stored your furniture in a storage facility in Australia.

You maintained your Australian bank account to deal with your rental property and you received payments from X Australia into this account.

You sold your motor vehicle prior to leaving Australia and purchased a vehicle in Country X.

Your employer provided you with an allowance for a rental property whilst you were living in Country X.

You paid tax in Country X on your income.

Your employer incorrectly reported income for the xxx and xxx year to the ATO, you are in the process of having this corrected.

You joined a local club in Country X, you also purchased various sporting equipment.

You are reasonably sure you informed both Medicare and the AEC that you were no longer a resident. You recall reapplying for a Medicare card when you returned to Australia.

Relevant legislative provisions

Section 6-5 of the Income Tax Assessment Act 1997

Section 6(1) of the Income Tax Assessment Act 1936

Section 23(AG) of the Income Tax Assessment Act 1936

Reasons for decision

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.

The definition offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the:

· ‘resides’ test (ordinary concepts test)

· domicile and permanent place of abode test;

· 183 day test; and

· Commonwealth superannuation fund test.

The primary test for deciding the residency status of each individual is whether they reside in Australia according to the ordinary meaning of the word resides.  Where it is determined that a taxpayer 'resides in Australia' in accordance with the first test, there is no requirement to consider the other tests. The other three tests operate to broaden the definition of resident beyond the resides test.

The resides (ordinary concepts) test

The outcomes of several Administrative Appeals Tribunal (AAT) cases have determined that the word 'resides' should be given the widest meaning and there have been a number of factors identified which can assist in determining if a particular taxpayer is a resident of Australia under this test.

Recent case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the ‘resides’ test:

(i) Physical presence in Australia

(ii) Nationality

(iii) History of residence and movements

(iv) Habits and "mode of life"

(v) Frequency, regularity and duration of visits to Australia

(vi) Purpose of visits to or absences from Australia

(vii) Family and business ties to different countries

(viii) Maintenance of Place of abode.

These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in Taxation Ruling TR 98/17 residency status of individuals who enter Australia, and Taxation Ruling IT 2650 residency status of individuals who temporarily live outside Australia.

It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances.

(i) Physical presence in Australia

A person does not necessarily cease to be a resident because he or she is physically absent from Australia.

In relation to this the AAT has stated that:

"Physical presence and intention will coincide for most of the time but few people are always at home. Once a person has established a home in a particular place, even involuntary, a person does not necessarily cease to be resident there because he or she is physically absent. The test is, whether the person has retained a continuity of association with the place, together with an intention to return to that place and an attitude that the place remains home."

You departed Australia on xxxx and returned on xxxx. You were not physically present in Australia during the 2009 financial year except for a one week period.

(ii) Nationality

The nationality of a person is rarely a decisive factor in deciding whether or not a person resides in a location, however it is one factor that is considered along with all of the circumstances of each case.

You are an Australian Citizen.

(iii) History of residence

You have lived in Australia all of your life and had never lived outside of Australia until you moved to Country X.

(iv) Habits and "mode of life"

The Commissioner regards a person's habits and daily routines in regard to their domestic and business arrangements as strongly indicative of residency status. This is particularly relevant to determining the residency of a person who enters Australia, but is also relevant in assisting to determine the residency status of a person who leaves Australia.

"Where the day to day behaviour of individuals, considered over time, is relatively similar to their behaviour before entering Australia, they are likely to be regarded as residing here. Even when their behaviour over time is different from their behaviour before entering Australia, they are likely to be regarded as residing here, when the facts of their presence indicate a routine establishing they are living in Australia." (TR 98/17).

· You purchased a motor vehicle in Country X.

· You met and married your now wife in Country X.

· You and your now spouse lived together in a ‘normal couple lifestyle’.

(v) Frequency, regularity and duration of visits to Australia

Where a person is living in a country and visits another, the frequency and regularity of their visits is an important factor to be considered in determining whether or not they are resident in that other country.

Case law has shown that a taxpayer can be a resident of a country even if they only spend a short period of time in that country, for example the AAT found a taxpayer to reside in Australia despite the fact that he had only been present in Australia in the relevant income year for separate periods of only two weeks, three weeks and two and half weeks. A further decision found a taxpayer who had only been present in Australia for two separate periods of two weeks and ten days during a period of two years and seven months to be residing in Australia.

You were living in Australia until you left in xxx.

You returned to Australia on three occasions during your time spent living in Country X:

(vi) Purpose of visits to or absences from Australia

You were absent from Australia for a period of time to work in Country X.

(vii) Family and business ties to Australia and the overseas country or countries

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.

Family

You were single prior to leaving Australia. you met and married your now spouse whilst working in Country X.

Business or economic

You worked for company X in Australia for almost ten years prior to moving to Country X to take up a short term contract with the Country X overseas department of the company.

Assets

· You have a house in Australia which you rented out whilst you were in Country X,

· You purchased a motor vehicle in Country X,

· You maintained your Australian bank account,

· You stored your furniture in a storage facility in Australia.

(viii) Maintenance of Place of abode

The maintenance of a place of abode in Australia is an important factor when considering the residency status of a taxpayer.

You own a house in Australia which you rented out whilst you were in Country X

Summary

As stated above it is important that not one single factor is decisive and the weight given to each factor depends on individual circumstances.

Although you settled into life in Country X and spent your time working there, there are several factors outlined above which indicate that you have not ceased to be a resident of Australia.

Specifically:

· You only intended to be in Country X for a short period of time 2-3 years, and in fact were only there for 2 years.

· You only went to Country X on an intercompany transfer to work.

· You had a place in Australia that you rented out whilst you were away to recoup some mortgage costs and that you intended to return.

· You returned to Australia on three occasions during the time you were living in Country X.

Based on a consideration of all of the factors outlined above you are a resident of Australia according to the resides (ordinary concepts) test as you maintained a continuity of association with Australia for the relevant period.

Other residency tests

Where a taxpayer is found to be a resident under the resides test the other tests of residency do not need to be considered.

Conclusion

You are a resident of Australia under the resides (ordinary concepts) test. You are assessable in Australia on both your Australian sourced and world wide income for the year ended 30 June 2009.

Exempt income – year ended 30 June 2009

Subsection 23AG(1) of the ITAA 1936 provides that where a resident taxpayer is engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived will be exempt from tax in Australia.

'Foreign service' includes service in a foreign country in the capacity as an employee and 'foreign earnings' includes income consisting of salary and wages (subsection 23AG(7) of the ITAA 1936).

Subsection 23AG(2) of the ITAA 1936 provides that the exemption in subsection 23AG(1) of the ITAA 1936 will not apply where the income is exempt from income tax in the foreign country only because of any of the following reasons:

· A double tax agreement or a law of a country that gives effect to such an agreement (paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936)

· A law of that foreign country which generally exempts from, or does not provide for, the imposition of income tax on income derived in the capacity of an employee, income from personal services or any other similar income (paragraphs 23AG(2)(c) and 23AG(2)(d) of the ITAA 1936, and

· A law or international agreement dealing with privileges and immunities of diplomats or consuls or of persons connected with international organisations (paragraphs 23AG(2)(e), 23AG(2)(f) and 23AG(2)(g) of the ITAA 1936.

You earned income in Country X in the capacity of an employee and paid tax on the income in Country X, you worked for a period exceeding 91 days. This period was only broken whilst you were on leave for 2 occurrences of one week each during the 2009 financial year.

Exemption by progression

Subsection 23AG(3) of the ITAA 1936 provides that foreign earnings exempt under this section must be taken into account in calculating the tax payable on other income derived by a taxpayer.  This method of calculation - referred to as "exemption with progression" - prevents the exempt income from reducing the Australian tax payable on the other income.

Tax on the non-exempt income is calculated by applying to that income the notional average rate of tax payable on the sum of exempt income and non-exempt income.

The amount of tax payable on the non-exempt income is calculated using the following formula:

        Notional gross tax / Notional gross taxable income x Other taxable income

Notional gross tax is the tax (in whole dollars) that would be assessed (including the Medicare levy but excluding any rebates) on the amount that would be the total taxable income if the exempt amount was assessable income. 

Notional gross taxable income is the amount (in whole dollars) that would be the total taxable income if the exempt amount was assessable income (ie total income from all sources less all deductions). Accordingly, any deductions that relate to the exempt income are allowed as if the exempt income was assessable income (eg employment-related expenses are deducted from the exempt employment income).

Other taxable income is the amount remaining after deducting from assessable income any allowable deductions that relate exclusively or appropriately to that assessable income. These deductions include a proportion of deductions ("apportionable deductions") which are allowed without having any connection with the production of assessable income (eg gifts).

The income that you earned in Country X is exempt income and you will not pay tax on this income in Australia. However, the income does need to be included in your return for the purposes of calculating the tax payable on any other income.