Edited version of your private ruling

Authorisation Number: 1012575239651

Ruling

Subject: Residency

Questions and answers

1. Are you a resident of Australia for taxation purposes for the period you are on holiday overseas?

Yes.

2. Are you a resident of Australia for taxation purposes for the period from when you intend on living and working in country X for an indefinite period?

No.

3. Are you required to declare your overseas income derived while you are on holidays overseas in your Australian tax return?

Yes.

4. Are you required to declare your overseas income for the period from when you commence living and working in country X on an indefinite basis?

No.

This ruling applies for the following periods

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

The scheme commences on

1 July 2013

Relevant facts and circumstances

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

You will leave Australia to holiday overseas for approximately 12 months and then go to country X to live and work for an indefinite period.

You will have a tourist visa for the time you are on holiday.

You and your spouse will work and live in country X with the intention of purchasing a home.

You do not have a home in Australia.

You were renting a home in Australia.

You will send all your belongings to country X.

You have bank accounts in Australia and an investment portfolio along with distributions from a trust fund.

Your parents will remain in Australia.

You have family in country X who you will initially stay with until you and your spouse obtain work.

Prior to going overseas you have lived and worked in Australia.

You intend on returning to Australia within two years for a friend's wedding.

You have had your name removed from the electoral roll.

You have cancelled your health insurance policy in Australia.

Neither you nor your spouse are currently or have ever been Commonwealth Government employees.

You are over 16 years of age.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1).

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

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 (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 with Australia compared to the foreign country concerned; and

(viii) maintenance of a 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.

(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 will leave Australia and travel overseas for approximately 12 months on a tourist visa.

Following this period, you and your spouse intend on going to country X and remaining there for an indefinite period living and working.

(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 both Australia and country X.

(iii) History of residence and movements

You were born in Australia. You were living in Australia prior to going overseas.

(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.

Prior to going overseas you lived and worked in Australia.

You are going overseas for approximately 12 months on holidays and will go to country X to live and work for an indefinite period.

(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 intend on returning to Australia within two years for a friend's wedding.

(vi) Purpose of visits to or absences from Australia

You will travel overseas for approximately 12 months and then go to country X to live and work.

(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

Your spouse has accompanied you overseas and your parents will remain in Australia.

Business or economic ties

Following your period of travel, you intend on living and working in country X for an indefinite period of time.

Assets

You have bank accounts, an investment portfolio and receive distributions from a trust in Australia.

You intend on purchasing a home in country X and will have all your belongings from Australia sent to country X.

(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 do not have a home in Australia.

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 ceased to be a resident of Australia. Specifically;

· you intend on leaving Australia for an indefinite period

· after a holiday, you intend on living and working in country X indefinitely

· you intend on purchasing a home in country X.

Based on a consideration of all of the factors outlined above, you are not a resident of Australia according to ordinary concepts as you will not maintain a continuity of association with Australia for the relevant periods.

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 to prove an intention to make his or her home indefinitely in that country.

Your domicile of origin is Australia and you have citizenship of both Australia and country X. However as you were born in Australia, and were living in Australia at the time you left to travel overseas, it is considered that your domicile of origin was Australia. As you have not indicated that you have applied for permanent residency in another country, nor activated your country X citizenship by moving to country X, it is considered that your domicile will remain unchanged for the period that you are travelling until you arrive in country X. For the period after you begin living in country X on a permanent basis and given that you already have country X citizenship, it is considered that your domicile then will change to that of country X.

After your domicile changes, you will not be a resident under this test.

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.

The Commissioner is not satisfied that you will set up a permanent place of abode outside Australia for the period before you arrive in country X for the following reasons:

· you have gone overseas on holidays, and

· you will be travelling around and staying in different locations.

As your living arrangements will not be permanent in nature for the period you are on holidays you will not have a permanent place of abode during this period and therefore are a resident under this test for the period.

As you are a resident for tax purposes for the period that you are travelling, it is not necessary to consider the remaining tests for this period.

The 183-day test

When a person is present in Australia for 183 days or more during the year of income the person will be a resident, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

You are not a resident under this test as you do not intend being in Australia for 183 days or more in any financial year during the relevant period.

The superannuation test 

An individual is still considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person. Only Commonwealth Government employees are eligible to contribute to the CSS and PSS.

As you and your spouse were not Commonwealth Government of Australia employees and you are over the age of 16 you will not be treated as a resident under this test.

Your residency status

You are a resident of Australia for taxation purposes for the period you will be on holiday until you arrive in country X.

You are a non-resident of Australia for taxation purposes for the period from when you arrive in country X.

Overseas Income

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. 

In your case, for the period while you are travelling, as you are a resident for tax purposes, your assessable income will include income from all sources (including overseas). When you cease to be a resident for tax purposes from when you arrive in country X, your overseas income will not be assessable as only your Australian source income will be included as assessable income.