Edited version of your private ruling

Authorisation Number: 1012601075487

Ruling

Subject: Residency

Question and answer

Are you a resident of Australia for taxation purposes?

Yes

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 Australia.

For a number of years you lived and worked in Country X with your former spouse and children.

You then lived in Australia with your family.

Some years ago you accepted an employment contract with an overseas company based in Country X.

Your employment contract was revised and you now have a permanent position for an indefinite period.

You have a resident work visa for both Country X and Country Y.

As a foreigner, you are not entitled to permanent residency in Country X.

Your accommodation is indirectly paid for you by your employer in the form of an accommodation allowance under your contract.

For the past number of years you have lived in an apartment in Country Y. It has two bedrooms, three bathrooms, kitchen and situated in a residential building complex that is only for long term residential tenants.

Your apartment is leased in your name and your landlord is a local.

Utility services such as water, gas and electricity are connected in your name and you are responsible for the payment of the utility services.

Your work permit is required for maintaining a legal residence and work permit in Country X.

Your employment contract you supplied states the following:

• The employer reserves the right to transfer the employee at any time during the course of agreement …to any of the employer centre, branches, facilities, associates or enterprises of the employer (section 1.6 of the contract)

• Upon termination of the contract by either party, the employee shall leave the country, unless the employee's sponsorship is transferred. (section 7.3 of the contract)

• The employer shall process and provide documentation for visas, residence permits to the employee (section 8.1 of the contract)

• Visas, residence permit, work permit are required for maintaining a legal residence and work permit in Country X (section 8.2 of the contract)

• The employer as sponsor is responsible for the processing and costs of Country X exit-entry visa(s) required by Country X laws and regulations in order to leave and re-enter Country X. (section 8.4 of the contract)

• The employer will provide flights to the International airport nearest to the home city of the employee's country of origin at commencement of service and returned to the same point at the end of service (section 9.2 of the contract)

Your contract states your nationality as Australian.

If your employment ceases for any reason you are required to leave Country X as their domestic law does not allow you to stay in the country if you are not employed.

Your former spouse and child were planning to move to Country Y with you.

You separated from your former spouse and you are now divorced.

As part of the divorce, your family home was sold and an investment property was transferred into your former spouse's name.

You have no intention to return permanently to Australia.

You own a couple of cars in Country Y, have bank accounts in Country X and Country Y and have household items in your apartment in Country Y.

Your assets in Australia include a bank account and a car which another child uses.

You are intending to purchase a holiday home in Australia so you can stay there when you visit your children.

You intend to return to Australia for holiday visits for a total period of up to a few weeks per year. You do not expect to spend any more than a few weeks in Australia at any one time. Your visits are likely to coincide with your children's school holidays.

The holiday home will be either fully furnished when purchased or you will furnish it after purchase.

You will not leave any personal effects in the property other than those specific to holidaying.

You may consider leasing the property as a holiday rental when it is vacant.

You have never been employed by the Commonwealth Government.

You intend to live overseas and have no intention to return permanently to Australia in the foreseeable future.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1936 Subsection 6(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' and 'permanent place of abode' test;

• the 183 day test; and

• the Commonwealth superannuation fund test.

If any one of these tests is met, an individual will be a resident of Australia for taxation purposes.

The resides test is the primary test for determining the residency status of an individual for taxation purposes. If residency is established under the resides test, the remaining three tests do not need to be considered. However, if residency is not established under the resides test, an individual will still be a resident of Australia for taxation purposes if they meet the conditions of one of the other three tests.

The resides test

The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'. As the word 'reside' is not defined in Australian taxation law, it takes it's ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936.

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

In considering the definition of 'reside', the High Court of Australia, in Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 at page 99-100, per Latham CJ, noted the term 'reside' should be given a wide meaning for the purposes of section 6(1) of the ITAA 1936. Similarly, in Subrahmanyam v Commissioner of Taxation 2002 ATC 2303, Deputy President Forgie said at paragraphs 43 and 44 that the widest meaning should be attributed to the word 'reside'.

The question of whether an individual 'resides' in a particular country is a question of fact and degree and not of law. In deciding this question, the courts have consistently referred to and taken into account the following factors as being relevant:

(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.

The weight given to each factor varies with individual circumstances and no single factor is necessarily decisive. In Shand v Federal Commissioner of Taxation 2003 ATC 2080, the Tribunal stated (at 35):

Questions of residence, domicile, permanent place of abode, have frequently been found by the courts and tribunals to be difficult to assess on a factual level and not easy to define in concrete legal terms.

To determine whether or not you are residing in Australia for taxation purposes, it is necessary for us to examine each of these factors in the context of your circumstances.

(i) Physical presence in Australia

It is important to note that a person does not necessarily cease to be a resident because he or she is physically absent from Australia. In Joachim v Federal Commissioner of Taxation 2002 ATC 2088, the Tribunal stated (at 2090):

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.

Further, in Iyengar v. Federal Commissioner of Taxation 2011 ATC 10-222, (2011) AATA, the Tribunal stated (at 62):

Physical presence in a country for some period during a particular year of income is usually considered by the courts as necessary in order that a person should be resident in that country during that particular income year. However, there have been exceptions to this: Rogers v Inland Revenue Commissioners (1879) 1 TC 225 and Slater v Commissioner of Taxation (NZ) (1949) 9 ATD 1.

In your case you have taken up an indefinite employment contract in Country X and will return to Australia for holiday visits up to a few weeks per year. Your holiday visits are likely to coincide with your children's school holidays.

Although you will not be physically present here while you are working in Country X, this does not preclude you from being an Australian resident as no one single factor is necessarily decisive, as mentioned above.

(ii) Nationality

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

(iii) History of residence and movements

For X years you lived and worked in Country X with your former spouse and children.

You then lived in Australia with your family.

For the past number of years you have been living in Country Y and working in Country X.

(iv) Habits and 'mode of life'

You have been working in Country X for the past number of years and you have established accommodation in a complex for long term residential tenants.

You will return to Australia for at least few weeks of the year to visit your children and plan to buy a holiday home to live while you are in Australia.

Your employment Country X is for an indefinite period.

You are on an employer sponsored visa for the duration of your employment. This visa only permits you to be in Country X while you are working and have a contract to work.

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

You plan to return to Australia for up to a few weeks a year to visit your children.

(vi) Purpose of visits to and absence from Australia

The purpose of your absence from Australia is to work in Country X for an indefinite period of time.

(vii) Family, business and financial ties

Family

You have adult children and a school aged child who will remain in Australia with your former spouse while you are working in Country X.

It is evident that you have stronger family ties to Australia than Country X.

Business or economic

As mentioned above, you have taken up an employment contract in Country X which has been renewed and extended resulting in you gaining a permanent position for an indefinite period of time.

Assets

Your assets in Australia comprise of a car, bank account and a holiday home you are intending to purchase in the near future.

You own two cars in Country Y and two bank accounts.

(viii) Maintenance of a place of abode in Australia

You plan to purchase a holiday home which you will use when returning to Australia for holiday periods.

You may consider leasing out the property as a holiday rental when it is vacant.

Summary of the resides test

As mentioned above, the weight given to each factor varies with individual circumstances, no single factor is necessarily decisive and the term 'reside' should be given a wide meaning.

In your case, although you intend to be physically absent from Australia for the majority of the time for an indefinite period of time, there are various factors that indicate that you have not ceased to be a resident of Australia. These are primarily:

• You have a restrictive visa whereby your ability to live in Country X or Country Y is dependent on your continuing employment with your overseas employer;

• Your employer acts as your sponsor and is responsible for the processing and costs of Country X exit-entry visa(s) required by Country X laws and regulations in order to leave and re-enter Country X. (section 8.4 of the contract);

• You are an Australian citizen and not entitled to permanent residency in Country X;

• You have stronger family ties to Australia than to Country X as your children live in Australia;

• Your employer will provide flights at the start and end of service to the international airport nearest to the home city of your country of origin (Australia);

• You will return to Australia each year on your holidays (up to a few weeks) and stay in your holiday home; and

• You have a greater level of assets in Australia (taking into your account the proposed purchase of your holiday home in Australia).

Based on the above, you will retain a continuity of association with Australia while you are overseas and will be residing in Australia according to the ordinary meaning of the word.

Therefore, you are a resident of Australia under the 'resides' test of residency.

Whilst it is not necessary to meet more than one test to determine residency for tax purposes (we have already established that you are 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

Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia, unless the Commissioner is satisfied that their permanent place of abode is outside of Australia.

Domicile

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. A person may also adopt a domicile of choice. 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 (section 10 of the Domicile Act 1982).

In this regard, paragraph 21 of Taxation Ruling IT 2650 Income tax: Residency - permanent place of abode outside Australia (IT 2650) states that:

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 e.g., through having obtained a migration visa. A working visa, even for a substantial period of time such as 2 years, would not be sufficient evidence of an intention to acquire a new domicile of choice.

In your case, as you were born in Australia your domicile of origin is Australia. As you have not obtained a migration visa or become a permanent resident or a citizen of Country X or Country Y, you have not established a new domicile of choice in that country.

You are an Australian citizen and your domicile remains Australia.

Permanent place of abode

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 of 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 14 of IT 2650).

It is clear from the case law that a person's permanent place of abode cannot be ascertained by the application of any hard and fast rules. It is a question of fact to be determined in the light of all the circumstances of each case.

In your case, the Commissioner is not satisfied that you have established a permanent place of abode of Australia.

You have an employer sponsored visa and resident permit which only allows you to be in Country X or Country Y for the duration of your employment. Although it is your intention to live and work in Country X/Country Y indefinitely and you live in a complex where apartments are only rented to long term residents, the fact that should your employment cease means that you will be required to leave the country makes your entire presence in Country X/Country Y temporary in nature. As your presence is temporary in nature, you are not able to establish a permanent place of abode in these countries.

Therefore, as your domicile is Australia and the Commissioner is not satisfied that you have established a permanent place of abode outside of Australia, you are a resident of Australia under the domicile test of residency.

Your residency status

As you meet the resides test and the domicile test, you are a resident of Australia for tax purposes.