Edited version of your private ruling

Authorisation Number: 1012569422115

Ruling

Subject: Residency

Question and answer

Are you an Australian resident for taxation purposes?

Answer

Yes.

This ruling applies for the following periods

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

The scheme commences on

1 July 2013.

Relevant facts and circumstances

You and your spouse intend to move permanently overseas to Country X to work and live.

You are a citizen of Australia and an unrelated overseas country.

You have been a permanent resident of Australia since the mid 2000's and you became a citizen recently. You have lived in Australia since the early 2000's, initially as a student and then as a resident.

Prior to this time you lived in an unrelated overseas country, which is also your country of origin.

You will be taking up an offer of an international expatriate assignment. You have been working for this company for approximately 9 years.

The employment offer is for initial period of X years with the option of extending for a further year. You intend to seek out other roles with the same employer or different employment in Country X or overseas.

You have provided a draft of the Expatriate offer from your employer as well as a worksheet of your assets.

You will be entering Country X on an employment sponsored visa which does not allow you to stay permanently.

You intend to live in Country X for at least the next X years through to the end of 201X. After this time you may move to further your career.

At this stage you have no fixed date to return to Australia.

You do not hold a return airline ticket.

You are intending to return to Australia once a year to visit family and friends. The duration will be no more than 4 weeks.

Prior to moving to Country X you will be disposing of motor vehicles, terminating health cover and cancelling sports memberships.

You will be shipping your personal household items overseas.

You will continue to hold financial and real estate investments in Australia, until such time as when it is appropriate to dispose of them.

Overseas you will be living in rented house/apartment. This accommodation is not provided by your employer, but they will assist you to locate suitable accommodation.

You will be opening an overseas bank account. The company will provide you with a motor vehicle, and you may purchase another.

You own two houses in Australia and will be renting both out on a permanent basis when you leave.

You have Australian investments and will be receiving Australian sourced income whilst you are overseas.

You intend to set up sporting memberships overseas.

You and your spouse will be notifying the electoral office that you are moving overseas to have your names removed from the electoral roll.

You intend to notify banks, investment funds, Medicare and health insurance of your non residency status.

You intend to lodge a tax return with the Country X authorities for your earnings there.

You intend to fill your Australian Immigration Outgoing passenger card as an 'Australian resident departing Australia permanently'.

You do not believe that you will have a capital gains tax event L1 to your assets when you cease to be an Australian resident.

Neither you or your spouse are or have been Commonwealth Government of Australia employee for superannuation purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997 - subsection 995-1(1)

Income Tax Assessment Act 1936 - subsection 6(1)

Reasons for decision

Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident as a person who is a resident of Australia for the purpose 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:

1. the resides test

2. the domicile test

3. the 183 day test

4. 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.

However, where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be an Australian resident for tax purposes if they satisfy the conditions of one of the three other tests.

The resides test

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3rd 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'.

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 Income tax: residency status of individuals entering Australia. It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances.

In the recent case of Iyengar v FCT [2011] the Administrative Appeals Tribunal held that the taxpayer was a resident of Australia, even though he was working overseas. The taxpayer's family ties, his intention (to complete his contract) and motive (to pay off his mortgage), and his maintaining an Australian place of abode while working overseas, were all indicative that he was an Australian resident during the relevant period.

The fact that the taxpayer's visits to Australia in the relevant income years were relatively short in duration compared to the time spent abroad in those years, did not preclude him from being an Australian 'resident' in those income years.

The taxpayer's intention was to go to Country X (and later Country Y) and work for an a company for as long as it took to complete his contract and then to return to Australia, which he did. His motivation for doing so was to use the money he earned under the contract to pay down the mortgage on the family home as soon as possible. Such an intention (and motive) was indicative that the taxpayer was an Australian 'resident' in the relevant period.

The taxpayer's conduct subsequent to the period he spent in the Country Z, taken together with his continuity of association with Australia and his intention to return to Australia upon completion of the contract, was consistent with him being a 'resident' of Australia.

In the recent case of Pillay v FCT [2013] the Administrative Appeals Tribunal held that the taxpayer was a resident of Australia even though his spouse accompanied him overseas to live and work.

The taxpayer was born in Country A and was an Australian citizen. He was a doctor who had been working in Country B since 2006. Since then, he was physically present in Country B for between 9 and 11 months each year, and between 6 to 8 weeks in Australia each year. When in Country B, the taxpayer stayed in a self-contained apartment supplied by his employer.

Together with his wife, he purchased a property in Bali which they called home. They also owned a property in Australia, which was left vacant for most of the time and appeared to be occupied only during the few weeks of the year when the taxpayer was visiting Australia. During his visits to Australia, the taxpayer divided his time between the Australian property and visiting his children and grandchild. The taxpayer had Australian bank accounts which he used to meet his living expenses. Further, there were circumstances to indicate that he intended to divide his time between Country C and Australia when his employment in Country B ends.

What was significant in this matter was the 'continuity of association' that the taxpayer had retained with Australia. Although he had been working for an extensive period in Country B, and although he had an apartment to stay in while he had been working there, he did not seem to have brought himself to regard Country B as home.

Indeed, he and his wife regarded the Country C property as home, despite the fact that they had little time to spend there together. His connection with Country B appeared to be one based almost entirely on his employment arrangement. He did not express an intention to remain in Country B after his employment ends. Rather, he expressed an intention to divide his time between Country C and Austraila - hardly an indication that his ties with Australia had been broken.

Factors relevant to the question of whether the taxpayer resided in Australia included his;

· physical presence in Australia;

· his nationality,

· history of residence and movements,

· habits and 'mode of life',

· frequency, regularity and duration of visits to Australia,

· purpose of visits to or absences from Australia,

· family and business ties with Australia, and

· maintenance of a place of abode in Australia.

The Commissioner submitted that the taxpayer maintained a continuity of association with Australia in the relevant years despite being physically absent for significant periods. On the other hand, the taxpayer submitted that he had a permanent place of abode in Country B and that he was a non-resident of Australia.

(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.

In recent court 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 FC of T (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.

· You have gained employment with your current employer of X years on an international expatriate assignment on secondment for a period of X years with the option to extend a further year. You intend to seek out other roles with the same employer or different employment in Country X or overseas.

· You are intending to return to Australia once a year to visit family and friends. The duration will be no more than 4 weeks.

(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 a citizen of Australia and your overseas employment contract recognises this fact. You are also a citizen of an unrelated 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 currently live with your spouse and work in Australia,

· You are going overseas for work purposes. You have a work visa which does not allow you to live permanently in Country X.

· Your spouse will be living with you overseas. You intend to get some sporting memberships. You are going to be supplied a car by your employer, you may decide to buy an additional car.

· You are currently retaining Australian assets including a bank account, investments, and your home and investment property.

· You are selling cars, and renting your home and investment property. You will ship household possessions overseas.

(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.

When considering the issue of return visits to Australia by a taxpayer who was living and working overseas, the Tribunal in Iyengar's case also noted that the brevity of a visit to a particular country compared to length of time spent abroad does not of itself exclude an individual from being a resident in the country visited. Further, the taxpayer in Iyengar 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 and was also considered to be a resident of Australia for income tax purposes.

You intend to return to Australia to visit family and friends as your annual leave allows, for no longer than 4 weeks a year.

(vi) Purpose of visits to or absences from Australia

· You first formed your intention to leave Australia in late 2013 when your employer offered you a position overseas.

· You intend to fill your Australian Immigration Outgoing passenger card as an 'Australian resident departing Australia permanently'.

· You do not intend on returning to Australia except for brief visits for the duration of your work contract.

(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

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, your spouse will be accompanying you overseas, other family will remain in Australia, who you intend to visit throughout your employment overseas.

Business or economic ties

· The draft copy of your assignment agreement states that 'This Agreement is entered into on the to be confirmed by and between Australian Company Pty Ltd, incorporated in Australia, hereinafter call 'Australian Company' and Mr X, hereinafter call the 'Employee'.

WHEREAS

(a) Employee is employed by Australian Company;

(b) Australian Company is willing to second Employee for international assignment on the basis of the terms and conditions hereinafter described;

(c) Employee has been seconded by Australian Company to Overseas Branch hereinafter called the 'Company'.'

You are being employed by an Australian company and seconded to a subsidiary of the Company family of companies in Country X. During your secondment your employee may, by mutual agreement, give you other assignments with a connection with the Company family of companies.

On completion of this assignment you and Australian Company may agree to a new role in Australia or overseas. It is only where an alternative role is not available that your employment may be terminated by Australian Company, under the 'Redundancy policy applying to Australian employees'.

· You intend to set up a sporting memberships overseas.

· You and your spouse will be notifying the electoral office that you are moving overseas to have your names removed from the electoral roll.

· You intend to notify banks, investment funds, Medicare and health insurance of your non residency status.

· You intend to lodge a tax return with Country X's authorities for your earnings there.

Assets and liabilities

You have a home in Australia which will be rented out when you travel overseas.

You will keep an investment property rented, an Australian bank account, and numerous investments including Australian shares.

You will be given assistance to find a rental property overseas and will be supplied a company car. You intend to ship possessions with you overseas and sell your Australian vehicles.

You will be maintaining two Australian mortgages totalling over half a million dollars and an Australian superannuation account.

Your case is similar to the taxpayer in the Iyengar case where the taxpayer was found to be a resident of Australia for tax purposes. In that case the taxpayer did not purchase substantial property whilst overseas, but retained assets 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 will retain ownership of Australian assets, including your family home.

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;

· Your employee sponsored visa does not allow you to stay overseas permanently.

· Your assignment could only be approved for a maximum of X years.

· On completion of your assignment, unless your Australian employer determines your position redundant, will arrange a new assignment here or overseas.

· You have a home to return to in Australia, and other assets such as shares, an investment property, and a superannuation account.

· Your assignment agreement is subject to Australian jurisdiction.

· You have two mortgagees you will be maintaining whilst working overseas.

· You will be provided with a car overseas and provided assistance to find a rental property.

· Your spouse intends to move with you overseas and you will return to Australia on annual leave to visit other family and friends.

· At this stage you have no fixed date to return to Australia, you currently intend to pursue career opportunities, which may take you to other location overseas.

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

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.

In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country.

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 a person intends to live for the rest of his or her life.  An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a permanent place of abode elsewhere.

In your case, you are unable to stay in Country X permanently. You will be working and living overseas on employee sponsored visa for X years with a possible extension of X years. You will be living in rented accommodation with household effects shipped from Australia.

Based on these facts, the Commissioner is not satisfied that you have established a permanent place of abode overseas.

Therefore, you are considered to have maintained your Australian domicile.

The 183-day test

This test does not apply to you as it has been identified that you will be outside of Australia for 183 days or more.

The superannuation test

This test does not apply to you as it has been identified that you are not a member of the PSS or the CSS, a spouse of such a person, or a child under 16 of such a person.

Your residency status

Although you intend to have a limited physical presence in Australia and advise institutions such as banks and health funds, and electoral role and Medicare of your non residency status. The Commissioner is not satisfied that given a consideration of all of the factors outlined above, that you will sever your family, economic, and legal ties with Australia.

The Commissioner is of the opinion, that the driving motivation for your travel overseas is to pursue career prospects and to meet liabilities in Australia, rather than to establish a new home.

You will maintain a continuity of association with Australia for the relevant period you are seconded overseas in Country X, and accordingly will remain a resident of Australia for taxation purposes.