Edited version of your private ruling

Authorisation Number: 1012535751849

Ruling

Subject: Residency status

Questions and answers:

Are you a resident of Australia for income tax purposes from your arrival in Australia?

Yes.

This ruling applies for the following periods:

Year ending 30 June 2012

Year ending 30 June 2013

The scheme commenced on:

1 July 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You were born in Australia and are a citizen of both Australia and country Y.

You have a spouse and dependant.

Your spouse was also born in Australia and is a citizen of Australia.

You have lived in the country Y for many years.

You are a co-owner/director of a business which is based in country Y.

Your business activities have required you to frequently travel internationally.

Due to the excessive amount of international travel that you are required to undertake a considerable strain had been placed on your relationship with your spouse.

This strain led to your spouse expressing a desire to return to Australia to live.

Shortly after you, your spouse and dependant moved to Australia.

To accommodate this move you disposed of your family home in country Y and purchased a home in Australia for you, your spouse and dependant to live in.

Although you and your family returned to Australia, you have continued to travel frequently in and out of Australia for business purposes.

You spend a number of weeks living in Australia with your family and a number of weeks travelling internationally living in both country Y and other international destinations for business purposes.

You have disposed of your home in country Y and are intending to downsize to a small flat to live in while engaged in your business activities in country Y.

At present when you are engaged in business activities in country Y you stay in short term leased apartments or hotels dependant on the duration of your stay. When you travel to business destinations outside of country Y you stay in hotels.

Your assets in country Y consists of a share in business, and a bank account.

The only foreign sourced income that you receive is from your business.

Your assets in Australia consist of a;

· rental property

· family home;

· self managed super fund; and

· bank account.

There have been no contributions made to the self-managed super fund.

Your spouse is currently training to gain employment in Australia.

You have no social or sporting ties to either Australia or the country Y.

You have remained a resident of country Y for income tax purposes and have continued to lodge income tax returns in country Y.

Your remuneration derived from country Y is being transferred to Australia to cover cost of living expenses and to service your home mortgage repayments.

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

You intend to continue to travel abroad until such time that you can dispose of the country Y business at which time you intend to return to Australia permanently.

You anticipate that it will take some time to dispose of the business.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1936 Subsection 6(1)

Reason for decision

Residency

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 NO. IT 2650 INCOME TAX: 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 a resident of Australia for tax purposes if they satisfy the conditions of one of the other three tests.

The resides test

In FC of T v Miller (1946) 73 CLR 93 at page 99-100 and Subrahmanyam v FC Of T [2002] AATA 1298; 2002 ATC 2303; (2002) 51 ATR 1173 at paragraph 43-44, it was determined that the word 'resides' should be given the widest meaning.

Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia, identifies a number of factors which assist in determining the residency status of a taxpayer who is entering Australia. Although you were born in Australia, as you are returning to Australia having spent many years living in country Y, the principles established in this ruling are relevant to your particular circumstances.

According to paragraph 20 of TR 98/17 factors to be considered in determining residency in Australia are:

· intention or purpose of presence;

· family and business/employment ties;

· maintenance and location of assets; and

· social and living arrangements.

Paragraph 21 of TR 98/17 further states that:

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

Recent case law decisions have expanded on the list of factors identified in TR 98/17.  Case 5/2013 and Sneddon v FC of T (Sneddons Case), for example, considered the following factors in relation to whether the taxpayer resided in Australia:

(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 

Each of these factors will be considered in turn, with reference, where relevant, to recent Australian case law decisions in which the taxpayer was determined to be a resident of Australia in accordance with subsection 6(1). 

Physical presence in Australia  

A person does not necessarily cease to be a resident of a particular place just 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 (Joachim v Federal Commissioner of Taxation 2002 ATC 2088, at 2090).

In recent cases taxpayers were found to be residents of Australia for income tax purposes even though they had only spent a minimal period in Australia.  

In Iyengar v. Federal Commissioner of Taxation 2011 ATC 10-222, (2011) AATA 856 (Iyengar's case), it was indicated that there is a requirement that you at least be physically present in Australia for part of an income year. Further in this case it was considered that the taxpayer remained a resident of Australia for income tax purposes even though during the period he was working overseas (2 years and 7 months) he had only returned to Australia for a two week period and for a 10 day period.

When applying the principles established in Iyengars case to your particular circumstance, you are physically present in Australia for a considerable period per year. Consistent with the principles established in the Iyengar case, we consider that this is sufficient to demonstrate that you had established and are maintaining a continuity of association with Australia post your arrival.

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 a factor that is considered along with all of the circumstances of each case.

You are a citizen of both Australia and country Y, therefore your citizenship does not apply to clearly identify whether or not you are a resident of Australia for income tax purposes.

History of residence and movements  

In Iyengar's case, the Tribunal noted that both past and subsequent history of a person's residence may be relevant in determining whether that person is ordinarily resident (for taxation purposes) in a country in a particular income year.

You were born in Australia and moved to country Y where you have lived for many years. Recently, you and your family returned to Australia to live permanently. Although you have returned to Australia, you have continued to frequently travel internationally for extended periods. Noteworthy is that you travel internationally exclusively for business purposes. Therefore it can be concluded that had it not been for the business, you would remain in Australia.

In light of the above and consistent with the principles established in Iyengar's case, your history of residence and movements are consistent with someone who's residence lies where there family are located which in your case is in Australia. Although you have continued to travel internationally for business purposes, during periods of business inactivity you return to your home which is clearly where your family reside in Australia.

(iv) Habits and "mode of life"

In recent cases a taxpayer's habits and mode of life in the country where they are/had been living were considered when determining whether a taxpayer continued to be a residence of Australia for income tax purposes.

You, your spouse and dependant left country Y to live in Australia permanently. To facilitate this move you have disposed of your home in country Y and purchased a home in Australia. While you are conducting business activities you are continuing to travel internationally, however during periods of business inactivity, you return to Australia to be with your spouse and dependant. While conducting business activities outside of Australia you live in short term leased apartments and hotels. Further you have no social or sporting ties overseas.

In considering the above, your habits and mode of life are not consistent with someone who is a resident outside of Australia for income tax purposes. 

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

In Lysaght v Inland Revenue Commissioners (1928) 13 TC 511 (Lysaght's case) the Court noted that mere fact that visits to a country are of short duration does not of itself exclude residence in that country.

You return to Australia while you are not engaged in business activities and spend a number of weeks a year to be with your spouse and dependant. Consistent with the views express in Lysaght's Case, this is considered to be a significant period of time.

Therefore considering the above and the principles established in Lysaght's case, we do not consider that the amount of time that you spend away from Australia is sufficient to preclude you from being considered a resident of Australia for taxation purposes. 

(vi)  Purpose of visits to or absences from Australia  

The details of your return trips to Australia are discussed above. The fact that you return to Australia be with your spouse and dependant is a clear indication of the depth of your links that you have with Australia which in turn demonstrate the continuity of association that you are maintaining with Australia. In contrast the purposes of your absences from Australia are exclusively for business purposes.

Therefore your actions are sufficient to preclude you from being considered a non resident of Australia for taxation purposes from October 2011.

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

Family

You have a spouse and a dependant, both of whom have returned to Australia to live permanently.

It is significant that in the recent decisions regarding the residency status of persons working overseas, including Beizuidenhout, Case 5/2013, and Iyengar's case, the taxpayers had both family residing permanently in Australia. There is particular emphasis placed in these decisions on the taxpayers' Australian residence being the 'family home'.

The Macquarie Dictionary defines 'family' as:

· parents and their children, whether dwelling together or not.

· one's children collectively.

· any group of persons closely related by blood, as parents, children, uncles, aunts, and cousins.

Consistent with the findings in Case 5/2013 and Iyengar, and the definition of family provided by the Macquarie Dictionary the fact that your spouse and dependant are living in Australia indicate that your family ties are far more significant in Australia than overseas.

Business or economic

You are the co-owner of a business based in country Y and derive assessable in come from this business, therefore you have strong overseas business ties.

Your business and economic ties in Australia consist of your investment property and self managed superannuation fund. Significantly, income that you derive from your overseas business is being transferred to Australia to service your ongoing mortgage.

From the information that you have provided without having in depth financial knowledge of your business it is inconclusive where the strength of your business or economic lies.

Assets

As previously discussed your assets in Australia consists of an investment property, a family home and a bank account, while your while overseas assets consist of your share of a business based in country Y and a country Y bank account.

Without information detailing the value of the company it is difficult to determine in which country your ties in terms of assets is stronger, however noteworthy is the fact that you are continuing to grow your asset wealth in Australia through transferring your foreign sourced income service your Australian mortgage repayments.

Maintenance of Place of abode

On return of you, your spouse and dependant to Australia you purchased a home to live in. When you are not conducting business activities you return to this home to be with your family. In contrast you have disposed of your country Y residence and stay in short term lodgings during times that you are engaged in business activity outside of Australia.

From these actions it can therefore be concluded that you are maintaining a place of abode in Australia rather than outside of Australia.

Conclusion

It is acknowledged that you have business ties overseas, and that your assets in terms of your business are located in the country Y In addition it is also acknowledged that you are a citizen of country Y as well as Australia.

With regards to the remaining factors and the findings in recent case's including Sneddon's case, Iyengar's case and case 5/2013, all of whom were found to be residents of Australia for income tax purposes the following are significant. You have purchased a home in Australia for you and your family to live in. You spend a number of weeks per year living with your family in Australia. The purpose of your departures from Australia is exclusively for business purposes and while you are overseas your family remains in Australia. You have ties in terms of material assets in Australia and further you are continuing to grow these ties by transferring your foreign sourced income to Australia to service your mortgage repayments.

In applying the principles established under the resides test to the factors outlined above, it is concluded that you are a resident of Australia under the resides test from the date that you and your family returned to Australia.

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 Australia and therefore you have an Australian domicile. From the information you moved to country Y and became a citizen of country Y, therefore electing country Y as your domicile of choice. After living in country Y for many years, you disposed of your country Y assets with the exception or your share of your business and moved with your family back to Australia, therefore re-electing Australia as your domicile of choice.

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.

Paragraph 23 of IT 2650 sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode:

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

b) 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;

c) 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;

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

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

f) 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 relation to the weight to be given to each of the above factors, paragraph 24 of IT 2650 states:

The weight to be given to each factor will vary with the individual circumstances of each particular case and no single factor will be decisive… however… greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant.

From you and your families' arrival in Australia your circumstances are as follows:

· you and your family returned to Australia to live permanently;

· due to your business being located in country Y, you spend a number of weeks in Australia per year with your family with the remainder of the time spent overseas for business purposes;

· you intend to remain in Australia permanently once you have disposed of your share of your business which you anticipate will be some time in the future;

· you have disposed of your residence in country Y and purchased a home in Australia for you and your family to live;

· while your business is based in country Y, you will continue to be required to travel overseas countries;

· when you travel overseas you live in short term rental apartments or hotels;

· your assets in country Y consists of a share of a business and a bank account;

· your assets in Australia consists of an investment property, self managed superfund, family home and a bank account; and

· you are using your foreign sourced income to service your Australian assets.

Based on these facts and the greater weight applied against factors (c), (e) and (f), your pattern of behaviour is not consistent with someone who has a permanent place of abode outside of Australia.

Significant in reaching this conclusion is the fact that you have dispose of your home in country Y and have purchased a home for you and your family in Australia. It is your intension to dispose of your country Y business sometime in the future and return to Australia permanently. Your business is the last remaining tie that you have with country as you do not have any social or sporting ties in count. Further you are continuing to service and grow your Australian assets by transferring your foreign sourced income to Australia to service your mortgage repayments. These factors indicate a lack of a permanent place of abode outside of Australia as well as a strong durability of association that you have with Australia.

Accordingly, as your Australian domicile has been re-established and the Commissioner is not satisfied that you have a permanent place of abode outside of Australia, you will be a resident of Australia for income tax purposes post you and your families arrival, under this test.

Conclusion

As it has been established that you are a resident of Australia for income tax purposes under both the resides test and the domicile test, there is no need to consider the remaining 2 tests. Therefore you are a resident of Australia for income tax purposes from the time you and your family arrived in Australia under subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997.

The country Y convention

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The country Y Convention is listed in section 5 of the Agreements Act.

The country Y convention is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The country Y convention operates to avoid the double taxation of income received by residents of Australia and country Y.

Article X of the country Y convention provides a tie breaker test where a situation arises where an individual is determined to be a resident for tax purposes of both Australia and country Y, in effect settling which country has the taxing rights.

Article X of the country Y convention advises that where a person is a resident for tax purposes of both Australia and country Y, the residency status of that individual will be determined by which country the individual has a permanent home. Should the person have a home in both states other tests will apply to determine the individual's residency status.

In your case, you disposed of your residence in country Y and purchased a home in Australia for you and your family to live. Therefore as the only permanent home that you have is located in Australia, for the purposes of the Article X of the country y convention you are a resident of Australia for income tax purposes.

Accordingly, for the country Y convention you are a resident of Australia for income tax purposes.