Edited version of your private ruling

Authorisation Number: 1012594054403

Ruling

Subject: Residency status

Question

Are you a resident of Australia for taxation purposes?

Answer

Yes.

This ruling applies for the following period

Year ending 30 June 20BB

The scheme commenced on

1 July 20AA

Relevant facts

You and your spouse were born in Australia and are citizens of Australia.

You moved to country A in 20AA to live and start a business.

You and your spouse have purchased land in country A.

You have commenced removing the trees on the land in order to start your business. You expect your first business income will be in the 20YY-ZZ financial year.

You are following a two year plan to set up the business. You and your spouse have surveyed the property and started constructing fences on the property.

You intend to live in country A for a minimum of six years. Whether you continue to live in country A past this point is largely dependent on the success of your business.

Your spouse will accompany you to country A.

You may return to Australia when your spouse retires.

You can stay in country A for 30 days as a Commonwealth citizen. This can be extended to several months.

You and your spouse applied for a self-funded resident's visa for country A in late 20AA. You were issued a first visa which is valid for 12 months. This visa issued to you in late 20AA.

Five year visas are issued after the first 12 months. You intend to apply for your first five year self-funded residents visa in late 20BB. You intend to continue to apply for five yearly visas until such time as you are able to apply for citizenship. Ten years is the maximum length of time a self-funded resident visa can be granted.

You are required to live in country A for a minimum of 10 years before you are eligible to apply for citizenship.

Your spouse works in country B.

Your spouse works on a 'fly in and fly out' basis in country B working 28 days on and 28 days off.

Your spouse flies through Australia from country A on her/his way to work in country B, and back through Australia, from country B to country A, on return. There is a minimum five day stopover in Australia during her/his transit between country B and A. There is no airline that flies directly between country A and B.

Your spouse will be in Australia for a period of time in the financial year and will stay with family during this period. To date, your spouse has been in Australia for less than 50 days during the 20AA-BB financial year.

Sometimes you will travel with your spouse to Australia for the 28 days they are working in country B and return to country A with them.

You return to Australia only when family circumstances demand. Your relation is unwell and another relation has a medical condition.

You will stay with family in Australia while caring for family.

You do not intend to regularly holiday to visit family in Australia.

Your passport extracts provided show that to date you have departed country A on three occasions during the 20AA-BB financial year.

To date you have been in Australia for more than 150 days for the 20AA-BB financial year. From now on you will spend minimal, if any time in Australia as you will be overseeing construction of both your residential property and business.

You will be in Australia less than 183 days for the 20AA-BB financial year.

You will stay in country A when you do not accompany your spouse back to Australia on her/his way to country B for work.

You are unemployed and do not work in Australia.

You have rented out your home in Australia fully furnished on a commercial basis.

Your existing rental property in Australia remains rented out and all income from both properties will be declared.

You initially signed a lease for a rental property in country A. This lease was a month by month lease.

In late 20AA you signed a contract to purchase a residential block in country A.

You have now constructed a small house on your residential block and are currently living in this. You have started construction of a larger house which is expected to be completed by December 20BB and this will become your family home. When the larger house is complete, the small house will be utilised as visitor accommodation.

You are taking all of your personal belongings to country A. You don't have a car in Australia.

You have had your name removed from the electoral roll.

You have notified Medicare that you are a non-resident.

You have notified your bank that you are a non-resident. You have one bank account remaining in Australia which is kept for the purpose of the receipt of the rental income from the two investment properties.

All your mail is sent to country A.

You are not a member of any sporting, community or recreational clubs in Australia and do not have any ongoing social ties in Australia.

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

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 6(1).

Income Tax Assessment Act 1997 Section 6-5.

Reasons for decision

Residency

Residency status is a question of fact.

The term Australian resident is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to mean a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

Subsection 6(1) of the ITAA 1936 provides four tests to determine whether a person is a resident of Australia for income tax purposes. These tests are:

• the resides test;

• the domicile and permanent place of abode test;

• the 183 day test; and

• the Commonwealth superannuation fund test.

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 considered to be a resident of Australia for tax purposes if they satisfy the conditions of one of the other three tests.

The resides test

The Macquarie Dictionary defines reside as to dwell permanently or for a considerable time, have ones abode for a time.

The Shorter Oxford English Dictionary defines reside as to dwell permanently, or for a considerable time, to have ones settled or usual abode, to live in or at a particular place.

As a general concept, residence includes two elements: physical presence and the intention to treat the place as home. The period of physical presence in Australia is not by itself decisive when determining whether an individual resides here. All the facts and circumstances that describe an individual's behaviour in Australia are relevant in determining the residency status. No single factor is necessarily decisive. The following factors are useful when determining whether a person is residing in Australia:

• intention or purpose of presence,

• family and/or employment ties,

• maintenance and location of assets, and

• social and living arrangements.

The resides test was considered in Iyengar v FCT 2011 ATC 10-222 (Iyengar's case). In that case, the taxpayer was considered to be residing in Australia even though he had a two year work contract to work overseas and only returned to Australia twice in that time. He was in Australia for a period of 14 days and then later for a period of 10 days during that time. It was highlighted that the term 'reside' should be given a wide meaning and that a person does not necessarily cease to be a resident because they are physically absent. The test is whether the person has retained a continuity of association with that place. Iyengar had the required continuity of association with Australia and was considered a resident under the resides test. It was also considered that he did not establish a permanent place of abode outside Australia.

Residence was also discussed in Joachim v FCT 2002 ATC 2088 (Joachim's case). In that case it was highlighted that 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.

Physical presence

The period of physical presence or length of time in Australia is not by itself decisive when determining whether an individual resides here. Equally important is the quality and character of an individual's behaviour while in Australia.

In your case, you have been in Australia for over 150 days so far in the 20AA-BB financial year. You have lived in country A for the remaining time in the 20AA-BB financial year. Although you advise you will be in country A for most of the remaining days, it remains that your physical presence in Australia is significant.

Nationality

You and your spouse were born in Australia and are Australia citizens. You have a 12 month visa to remain in country A until November 20BB and intend to apply for a five year self-funded resident visa in November 20BB. You are unable to become a citizen of country A until you have lived there for 10 years. Before October 20AA, you were on a short term stay.

History or residence and movements

Prior to the 20AA-BB financial year, you were living in Australia. Although you intend to live in country A, you are unable to forget your family responsibilities and return to Australia when required to assist and care for family members. Your passport extracts provided shows you have departed country A on three occasions to return to Australia.

Habits and mode of life

When you return to Australia you do not have a place to stay. You usually stay with family. Other times you stay in holiday/temporary accommodation.

When you are in country A you oversee the business and building of your residence. You initially stayed in rented accommodation, now you stay in your small house on your property.

Social and living arrangements

You have removed your name from the Australian electoral role and the Medicare database. All your mail is sent to country A. You are no longer a member of any sporting, community or recreational clubs in Australia. Your personal belongings are in country A.

Frequency, regularity and duration of visits to Australia.

You have been in Australia over 150 days in the 20AA-BB financial year. You only return to assist family members who are ill or to attend family events such as weddings.

You do not intend to regularly holiday to visit family in Australia.

Family and business ties

Family or business ties with a country are an important factor to be taken into account in determining whether or not a person has ceased to be resident in a particular country. In Australia, family ties outweigh business ties where the two are in conflict (Shand v FC of T 2003 ATC 2080). The location of an individual's immediate family can be decisive (Joachim's case).

Your extended family live in Australia. You return to Australia when family circumstances demand. One relation is unwell and another relation has a medical condition.

You have ceased employment in Australia. Your former home is rented out and you have another rental property and a bank account in Australia. Apart from that you don't have any other financial ties to Australia.

You have purchased a lease on land for a business. You also have a block of land for your residential home. Your spouse is not always with you when you are in country A due to his work.

Maintenance of place of abode

You have purchased land in country A and have built a small house on there to live in. You intend to live in country A for a minimum of six years.

You have rented out your previous home in Australia and often stay with relations when you return to Australia.

Results of the resides test

During the 20AA-20BB financial year you have returned to Australia to help out your family. Having spent over 15 days so far in Australia indicates strong family ties remain in Australia. While your spouse is away working, you have no other family in country A. Although you have rented out your previous home in Australia, you still continue to return to Australia. Like in Iyengar's case, you have close family in Australia to return to.

You have a bank account and rental properties in Australia as well as members of your extended family. It is not considered that you are settled with your usual abode in Vanuatu. Your pattern of living shows that you still have ongoing ties with Australia.

As in Murray v FC of T [2012] AATA 557, the fact that you have acquired a residential property overseas was not considered sufficient to establish that you are no longer a resident of Australia. There is a distinction between maintaining a place of residence and actually residing in that place. Further in Case 8/2013, 2013 ATC 1-057, the AAT found that the taxpayer who was only in Australia for 47 days in one year and 117 days in the following year was nevertheless a resident of Australia for tax purposes. The AAT said that the taxpayer had retained a continuity of association with Australia as well as an attitude that Australia continued to be his home, as evidenced by his incoming and outgoing passenger cards.

In view of the decisions arising from recent case law, the Commissioner believes that you remain a resident of Australia for taxation purposes because you have maintained a 'continuity of association' with Australia.

Although you may not intend Australia to still be your home, after considering your full circumstances, it is considered that you are a resident of Australia under the resides test for the 20AA-20BB financial year.

The domicile test and permanent place of abode

Whilst 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, and as you have raised this aspect in your letter.

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 has only one domicile at the one time. A person retains the domicile of origin unless and until they acquire a domicile of choice in another country. Generally speaking, persons leaving Australia temporarily would be considered to have maintained their Australian domicile.

In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country, for example, through having obtained a migration visa. A working visa, even for a substantial period of time such as two years, would not be sufficient evidence of an intention to acquire a new domicile of choice.

You were born in Australia and are a citizen here. Your domicile of origin is in Australia. Although you intend to live permanently in country A, this is not enough to change your domicile to country A.

It is acknowledged that you have purchased land in country A and have a home there, however you do not have a permanent or long term visa to stay there. It is not considered that your domicile is in country A.

As your domicile remains in Australia, you will be considered an Australia resident unless the Commissioner is satisfied that you have a permanent place of abode outside of Australia.

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. The nature and quality of use which a taxpayer makes of a particular place of abode overseas is important (FC of T v Applegate 79 ATC 4307; (1979) 9 ATR 899).

The expression 'place of abode' refers to a person's residence, where one lives with one's family and sleeps 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.

Taxation Ruling IT 2650 examines the factors to be taken into account in determining whether a person who leaves Australia to live overseas ceases to be an Australian resident during the absence.

IT 2650 provides that the following factors are considered in determining a taxpayer's permanent place of abode:

• the intended and actual length of stay in the overseas country

• any intention to stay in the overseas country only temporarily and then either to return to Australia at some definite point in time or to travel to another country

• the establishment of a home outside Australia

• the abandonment of any residence or place of abode in Australia

• the duration and continuity of presence in the overseas country, and

• the durability of association with a particular place in Australia.

As highlighted in paragraph 25 of IT 2650, as a broad rule of thumb, a period of about two years or more would generally be regarded as a substantial period for the purposes of a taxpayer's stay in another country. It must be stressed, however, that the duration of the taxpayer's actual or intended stay out of Australia is not, of itself, conclusive and needs to be considered with all of the factors.

Although it is your intention to live in country A, it is not considered that you have established a permanent place of abode outside Australia. This is supported by the following:

• you do not have permanent full-time work in country A,

• your spouse does not work in country A,

• you were in Australia for more than 150 days in the 20AA-20BB financial year,

• your visa issued in late 20AA allows you to stay in country A for 12 months, and

• you still have strong family ties in Australia.

Although you have a home in country A and are setting up a business, your stays in country A are short and there is no continuity of presence in country A. Your family ties and association with Australia still remain.

The nature and quality of your ties in country A are not sufficient to show you have a permanent place of abode there in the 20AA-20BB financial year. As your domicile remains in Australia, you are considered to be a resident of Australia for income tax purposes under the domicile test. 

The fact that you have removed yourself from the electoral roll and notified various authorities and institutions of your new address, is not sufficient to establish a permanent place of abode in country A. These factors are not decisive factors and do not change the above.

The 183 day test and the superannuation test are not relevant in your circumstances.

As you are an Australian resident for taxation purposes, your Australian and overseas income is included in your assessable income in the year of receipt under subsection 6-5(2) of the ITAA 1997.