Edited version of your private ruling

Authorisation Number: 1012593922524

Ruling

Subject: Residency status

Question and Answer

1. Are you a resident of Australia for income tax purposes?

Yes

2. Do you pay tax in Australia if the foreign company for which you are a consultant pays your Australian company and the Australian company then pays you?

Yes

3. Do you pay 10% withholding tax on your personal Australian income from royalties, dividends and interest?

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

Year ending 30 June 2018

The scheme commenced on:

1 July 2013

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.

Your country of origin is Australia and you are a citizen of Australia.

You do not have permanent residency in another country.

You are separated from your spouse with a child. You support your child in Australia.

You left Australia on date X in the relevant income year and have been living in Country A since that date.

You are working on a consulting basis for a foreign company in Country A.

Your visa does not allow you to stay permanently in Country A. You can stay up to a limited number of months (n months) each time you go to Country A. The foreign company pays for you to visit your child in Australia every n months for m weeks.

You have stated that it is unknown when you plan to return to Australia. You do not hold a return airline ticket.

Since leaving Australia on date X in the relevant income year, you have returned to Australia a few times for a few weeks to visit your child, relatives and to attend to your Australian company. You plan to spend another m weeks in Australia in the relevant income year. After that, you plan to visit your family in Australia every n months for m weeks.

You consider your presence in Australia for the relevant income year has been for brief periods as the total number of days will be less than 90 days.

You do not have a formal contract with the foreign company. The current agreement with the foreign company can be terminated by either party quite easily. You envisage the company will need you for many years.

You do not own a home in Australia. Prior to moving to Country A, you were living in an apartment in Australia. Upon accepting your position in Country A, you cancelled your rental contract and sold most of your goods. Some items you have kept in long term storage in Australia. Correspondence is sent to a relative's address in Australia.

Your accommodation in Country A is provided by the company with whom you have the consulting agreement.

Your accommodation in Country A is similar to an apartment consisting of a large bedroom, kitchen, bathroom/toilet and living area. The foreign company with which you are contracted pays for your rent and utilities. You pay for your food, bedding, furniture, sports/gym equipment.

Your assets in Country A consist of personal assets you have purchased. You do not have substantial assets in Country A.

You have set up a bank account in Country A, however, to date all pay from the foreign company has been paid to your Australian company as per your agreement. You then receive money personally from your company.

Your assets in Australia consist of a personal bank account. You have some items in storage.

You do not personally receive any income from Australian sources. Your company, of which you are a director, is an Australian company is continuing to operate with income from various sources. You are also the director for another company in Australia and are on the board of directors for an entity in Australia.

No family members accompanied you to Country A.

You do not have any social or sporting connections with Australia.

In Country A, your social and sporting connections consist of musical engagements and playing various forms of sport.

You do not hold a position with the Commonwealth government of Australia.

You have advised the Australian Electoral office to have your name removed from the electoral roll.

You have not yet advised any Australian financial institutions with whom you have investments or Medicare or health insurance provider that you are a foreign resident as you are waiting for a ruling from the ATO before advising.

You have been stating on your immigration outgoing passenger card that you are going overseas for 'work'.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons 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. Although Taxation Ruling TR 98/17 discusses the Commissioner's view on the residency status of individuals entering Australia, the same principles can be applied to determine whether individuals leaving Australia remain residents of Australia for income tax purposes.

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 [2012] ATC 10-264 (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) of the ITAA 1936.

(i) 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 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. 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 (two years and seven months) he had only returned to Australia for a two week period and for a ten day period.

Since leaving Australia on date X in the a relevant income year, you have returned to Australia a few times for a few weeks to visit your child, relatives and to attend to your Australian company. You plan to spend another m weeks in Australia in the relevant income year. After that, you plan to visit your family in Australia every n months for m weeks.

We consider you have so far spent considerable time in Australia and it is your intention to continue visiting Australia quite frequently to visit your child.

While it is acknowledged that you plan to spend less than 90 days in Australia in each income year, consistent with the principles established in the Iyengar's Case, we consider that this presence will be sufficient to demonstrate that you will be maintaining an ongoing continuity of association with Australia.

(ii) Nationality

In Iyengar's Case, it was noted that in most cases, the nationality of a person would not be a factor to be taken into account along with other circumstances in determining where his or her residence is. However, in cases that could go either way, the citizenship of a person may not be completely irrelevant in the conclusion to be drawn from all the relevant facts

In your case, you are an Australian citizen. Your visa does not allow you to stay permanently in Country A. You can stay up to a limited number of months (n months) each time you go to Country A. The foreign company pays for you to visit your child in Australia every n months for m weeks.

(iii) 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. Significant in Iyengar's Case is that when the taxpayer fulfilled a long term overseas employment opportunity he would return to his home in Australia for a break before leaving Australia and taking on another overseas employment opportunity.

In your circumstances, you were born in Australia. Since date X, you have been living in Country A and visiting Australia every n months to visit your child and relatives and you plan to continue visiting Australia every n months. Your Country A visa only allows you to stay for a limited period at a time in Country A.

In light of the above and based on the principles established in Iyengar's Case, your history of residence, although short, and movements are not consistent with someone who is no longer residing 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.

In Sneddon's Case, the taxpayer, who was found by the court to be a resident of Australia for tax purposes, lived in a fully-furnished apartment leased by his overseas employer. The taxpayer's only expenses were his everyday living expenses and some furniture and household items that he purchased to make the fully-furnished apartment, provided by his employer more comfortable. Further his employment income was paid in Australian dollars into an Australian bank account and predominantly used to meet his Australian obligations.

Your case is simular with the taxpayer in Sneddon's Case. The company you are working for in Country A has provided you with fully furnished accommodation similar to an apartment, consisting of a large bedroom, kitchen, bathroom/toilet and living area. The company pays for your rent and utilities. You pay for your food, bedding, furniture, sports/gym equipment. Further, to date all pay from the foreign company has been paid to your Australian company as per your agreement. You then receive money personally from your company. Part of your remuneraton is used to support your child in Australia.

In considering the above and based on the findings in Sneddon's Case, your habits and mode of life are consistent with someone who has not ceased to be a resident of Australia for 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 the mere fact that visits to a country are of short duration does not of itself exclude residence in that country.

Further as previously discussed, 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's Case 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.

Your contract contains provisions to enable you to be reunited with your child every n months. Your visa allows you to only stay in Country A for up to n months at a time. The agreement with the foreign company is that they will fly you back to Australia a certain number of times a year to visit your child. The visits so far have been for just over m weeks and this is a considerable amount of time to spend in Australia. You plan to continue doing this every n months for m weeks each time. We consider the frequency, regularity, and duration of your visits to be considerable compared to the relatively short periods and infrequent visits made in Iyengar's case and Lysaght's case, both of which held the taxpayer was an Australian resident.

(vi) Purpose of visits to or absences from Australia

In Iyengar's Case, the evidence was that Mr Iyengar's intention was to go to Dubai (and later Doha) and work for Maersk 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 Winthrop home as soon as possible. Such an intention (and motive) is indicative that Mr Iyengar was an Australian 'resident' in the relevant period.

In considering the purpose of your absences from Australia, your absences from Australia are for work purposes. Further when completing your immigration outgoing card you have stated that you are departing for 'work'.

Whilst you do not have a mortgage in Australia, the main purpose for your return visits is to visit your child, relatives and attend to obligations/meetings for your Australian company. Your agreement with the foreign company is that they will fly you back a certain number of times a year to visit your child.

In addition, whilst your remuneration is not being used to pay off a home in Australia as in Iyengar's Case, you do use part of your remuneration for family purposes - supporting your child. This pattern of behaviour is consistent with that of the taxpayer in Iyengar's Case who was determined to be a resident of Australia for income tax purpose, in that you have close ties to Australia.

In light of the above, your actions are sufficient to preclude you from being considered a non-resident of Australia for taxation purposes in each of the income years included in this ruling.

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

In Iyengar's Case, the court held that, despite the fact that Mr Iyengar spent almost two years and seven months working in Dubai and later Doha, his family ties with Australia were such that he remained a 'resident of Australia' in the relevant years of income.

You do not have substantial assets in Country A. Your assets in Country A consist of personal assets you have purchased. Your accommodation has been provided by the foreign company.

You have set up a bank account in Country A, however, to date all pay from the foreign company has been paid to your Australian company as per your agreement. You then receive money personally from your company.

Your assets in Australia consist of a personal bank account. You have some items in storage. You do not own a home in Australia. Correspondence is sent to a relative's address in Australia.

Regarding your business ties, your company, of which you are a director, is an Australian company is continuing to operate with income from various sources. You are also the director for another company in Australia and are on the board of directors for an entity in Australia. These facts support the argument that you do have asset and business ties with Australia.

You also have strong family ties with Australia as you visit your child and relatives in Australia regularly.

Whilst you do currently have strong business ties with Country A in the form of your consultant position, you have indicated the current agreement with the Chinese company can be terminated by either party quite easily.

You do not have a formal contract with the foreign company. Whilst you envisage the company will need you for many years, the current agreement with the foreign company can be terminated by either party quite easily. Thus there is no firm certainty about your position.

In considering your circumstances and consistent with the principles established in Iyengar's Case, your family, assets and business ties to Australia preclude you from being considered a non-resident for income tax purposes.

Maintenance of Place of abode

In Iyengar's Case, the court held that another important factor in determining whether or not a person has ceased to be resident in a particular country is whether the person maintains a 'place of abode' in that country, whether owned by them or not, when they are absent from that country. In Australia, the maintenance of a home in a particular place has usually arisen in relation to the question whether the taxpayer had a 'permanent place of abode' outside Australia within the meaning of the first statutory test (the domicile test) in subsection 6(1) of the ITAA 1936.

You do not own a home in Australia and thus when you return to Australia you live in accommodation not owned by you (for example, with your parents) and hence you are not maintaining a place of abode in Australia.

Conclusion - resides test

It is acknowledged that and that you are not maintaining a place of abode in Australia. You are working on a consulting basis for a foreign company in Country A. You have established social and sporting connections in Country A. You have advised the Australian Electoral office to have your name removed from the electoral roll.

As far as physical presence goes, you consider your presence in Australia for the relevant income year has been for brief periods as the total number of days will be less than 90 days. You plan to continue visiting Australia every n months. However, compared to Iyengar's Case the duration of your stay in Australia is significant. In Iyengar's Case, the court decided that the taxpayer was an Australian resident when he was away for two years and seven months and he had only returned to Australia for a two week period and for a 10 day period.

With regards to the remaining factors and the findings in recent cases including Sneddon's Case, Iyengar's Case and case 5/2013, all of whom were found the taxpayer to be a resident of Australia for income tax purposes the following are significant. The foreign company supplies you with your accommodation and pays essential utilities expense plus flies you back every n months to visit your child. You intend to continue to return to Australia on a regular basis for periods of approximately m weeks. You have remained a citizen of Australia. Your ties in terms of family and business assets are substantial in Australia. Significantly, you are transferring your foreign sourced income in part to Australia in order to support your child. In addition, you are the director for your company in Australia, another company in Australia as well as on the board of directors for an Australian entity

In consideration of all of the factors outlined above, it is concluded that you will continue to be a resident of Australia under the 'resides test' for income tax purposes during the income years that are included in this ruling.

Whilst it is not necessary to meet more than one test to determine residency for tax purposes (we have already established that you a resident under the resides test), we will also include a discussion of the 'domicile and permanent place of abode' test as an alternative argument.

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 your domicile of origin is Australia. You have not demonstrated any intention of becoming a citizen or permanent resident Country A, therefore your Australian domicile remains unchanged.

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.

Your circumstances are as follows:

• You are working on a consulting basis for a foreign company. You do not have a formal agreement with the foreign company. You envisage the company will need you for many years.

• You visit your family in Australia for m weeks every n months. You support your child.

• You do not own a home in Australia. Some items you have kept in long term storage in Australia. Correspondence is sent to your relatives' address in Australia.

• Your accommodation in Country A is provided by the company with whom you have the consulting agreement.

• Your visa does not allow you to stay permanently in Country A. You can stay up to a limited number of months (n months) each time you go to Country A. The foreign company pays for you to visit your child in Australia every n months for m weeks.

• Since leaving Australia on date X in the relevant income year, you have returned to Australia a few times for a few weeks to visit your child, relatives and to attend to your Australian company. You plan to spend another m weeks in Australia in the relevant income year. After that, you plan to visit your family in Australia every n months for m weeks.

• Your accommodation in Country A is similar to an apartment consisting of a large bedroom, kitchen, bathroom/toilet and living area. The foreign company with which you are contracted pays for your rent and utilities. You pay for your food, bedding, furniture, sports/gym equipment.

• Your assets in Country A consist of personal assets you have purchased. You do not have substantial assets in Country A.

• You do not personally receive any income from Australian sources. Your company, of which you are a director, is an Australian company is continuing to operate with income from various sources. You are also the director for another company in Australia and are on the board of directors for an entity in Australia.

• No family members accompanied you to Country A.

• You do not have any social or sporting connections with Australia.

• In Country A, your social and sporting connections consist of engagements and playing various forms of sport.

• You have advised the Australian Electoral office to have your name removed from the electoral roll.

• You have not yet advised any Australian financial institutions with whom you have investments or Medicare or health insurance provider that you are a foreign resident as you are waiting for a ruling from the ATO before advising.

• You have been stating on your immigration outgoing passenger card that you are going overseas for 'work'.

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

Significant in reaching this conclusion is that you live in employer provided accommodation and your employer pays for all your essential utilities and therefore the Commissioner is not convinced that you have established a home outside of Australia. You have not advised Medicare, your health care provider or any financial institutions that you have left Australia for an indefinite period. Further your business assets and family are based in Australia.

Accordingly, as your Australian domicile will remain unchanged and the Commissioner is not satisfied that you have establish a permanent place of abode outside of Australia, you will continue to be a resident of Australia for income tax purposes in the years that are included in this ruling under the 'domicile test'.

Conclusion - residency status

As it has been established that you will continue to be 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 two tests. Therefore you will continue to be a resident of Australia for income tax purposes for the income years included in this ruling under subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997.

Assessability of income from foreign company

As per your current agreement, the foreign company pays your Australian company and you are paid by your Australian company. There is a Double Tax Agreement between Country A and Australia (Country A DTA). According to the Country A DTA your income from the foreign company which you receive through your Australian company is assessable in Australia as you are an Australian resident for tax purposes.

Income from royalties, interest and dividends

Your income from Australian royalties, interest and dividends is included in your Australian assessable income as before. If you receive income from foreign sources, this is also assessable in Australia. You may be entitled to a foreign income tax offset.