Edited version of your private ruling

Authorisation Number: 1012516352273

Ruling

Subject: Residency

Question and answer:

Are you a resident of Australia for taxation purposes for the period you are in the overseas country?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

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

You have gone to an overseas country on a working holiday.

You have a working holiday visa for a couple of years.

You intend to return to Australia at the end of the working holiday.

Prior to leaving on your working holiday you lived with your parents and you intend on returning to live with them when you return from overseas.

You have not returned to Australia since leaving for overseas.

You live in a share house in the overseas country.

You left all your belongings in Australia at your parent's home.

You took one suitcase of clothes with you to the overseas country.

You have a bank account in the overseas country.

You have a bank account, credit card and household items in Australia.

You have had a couple of jobs since arriving in the overseas country.

You have no dependants.

You have never been a Commonwealth Government employee.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1).

Income tax Assessment Act 1997 Section 6-5.

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

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia.  However, where you are a foreign resident, your assessable income includes only income derived from an Australian source. 

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 (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 Income Tax: Residency - permanent place of abode outside Australia (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 a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.

 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 IT 2650 and Taxation Ruling TR 98/17 residency status of individuals who enter 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 have gone to the overseas country on a working holiday, will return to Australia at the end of the working holiday and will return to your home in Australia. You have not returned to Australia since leaving.

Although you will not be physically present in Australia for the period, you have a place in Australia that you intend to return to and that you consider your home.

(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 were living in Australia with your parents prior to going on the working holiday in the overseas country.

(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.

You have gone to the overseas country on a working holiday and you live in shared accommodation in the overseas country. You have had a couple of jobs since arriving in the overseas country.

(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 have not returned to Australia since leaving for your working holiday in the overseas country.

(vi) Purpose of visits to or absences from Australia

You left Australia for the overseas country on a working holiday. Your work visa is for a couple of years and you will return at the end of the visa.

(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 went to the overseas country on your own on a working holiday.

Your parents remain in Australia.

Business or economic ties

You are on a working holiday in the overseas country. You had a couple of jobs since arriving in the overseas country.

Assets

You have a bank account in the overseas country.

You have a bank account, credit card and household belongings in Australia.

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 lived with your parents prior to leaving Australia. You will return to your parent's home to live at the end of the working holiday.

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.

There are several factors outlined above which indicate that you have not ceased to be a resident of Australia. Specifically;

· You have gone to the overseas country on a working holiday.

· You have a work visa for a couple of years.

· You intend to return to Australia at the end of the working holiday.

· You live in shared accommodation in the overseas country.

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

As you are a resident under the resides test, it is not necessary to consider the remaining tests of domicile, 183 day and superannuation.