Edited version of your private ruling

Authorisation Number: 1012601551499

Ruling

Subject: Residency and assessability of foreign income

Questions and answers

1. Will you be a resident of Australia for taxation purposes while you are working in country X?

Yes.

2. Will your foreign employment income be assessable in Australia?

Yes.

This ruling applies for the following periods

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

The scheme commences on

1 July 2014

Relevant facts and circumstances

You are a citizen of Australia.

You were born in country Y and moved to Australia many years ago.

You intend to take up an employment contract in country X.

An employment contract has not yet been offered; however, you believe the contract will be renewable on an approximately yearly basis.

You intend to work in country X for an unspecified period of time subject to the yearly renewal of your employment contract.

You will return to Australia to live when your employment contract finishes.

You will require an employer sponsored visa to enable you to enter country X.

You will require an employer sponsored work residence permit to enable you to live and work in country X.

Should your employment contract be terminated for any reason, your work residence permit will no longer be valid and you will be required to leave the country as soon as possible.

Your employer will provide you with accommodation in country X which will be for your sole use. You will not pay for your accommodation and will not receive an accommodation allowance.

You anticipate making annual return visits to Australia of less than four weeks duration. However, this will depend on the circumstances; for example, illness of a family member including yourself, or any social function which may require your presence.

You have a spouse and adult child who will remain living in the family home in Australia.

Your family will visit you in country X and elsewhere overseas.

You have a home in Australia which is in joint names with your spouse.

You have a mortgage over your home.

Apart from your home, your Australia assets include motor vehicles, household effects, bank accounts and your superannuation fund.

You will remit funds from your employment income to Australia to cover your mortgage payments and to support your family.

Your spouse is not financially independent and will rely on your overseas employment income.

You will have no assets in country X apart from a vehicle you may purchase.

You will not have an employment position being held open for you while you are overseas.

You will not receive any income from Australian sources while you are overseas.

Neither you nor your spouse has ever been employed by the Commonwealth Government of Australia.

You do not intend to advise the Australian electoral office to have your name removed from the electoral roll.

You intend to advise any Australian financial institutions you have accounts with that you will be foreign resident.

You do not intend to advise Medicare to have your name removed from its records.

You do not intend to cancel your Australian private health insurance.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

Residency

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 its 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 court noted in Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 that 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, it was stated 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 to Australia and the other country; 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.

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. [Emphasis added]

As indicated in Iyengar v. Federal Commissioner of Taxation 2011 ATC 10-222, (2011) AATA 856 (Iyengar's case), there is usually a requirement that you be physically present in Australia for at least part of an income year to be considered a resident.

In your case, you intend to work in country X for a number of years and anticipate making return visits to Australia of no more than four weeks duration in any 12 month period.

Therefore, although you will not be physically present in Australia for the majority of each of the years you intend on working in country X, this does not preclude you from being an Australian resident.

The test is, whether you have retained, or will retain, a continuity of association with a place in Australia, together with an intention to return to that place.

(ii) Nationality

You were born in country Y and are an Australian citizen.

(iii) History of residence and movements

You moved to Australia to live many years ago.

(iv) Habits and 'mode of life'

You intend to take up an employment contract in country X for an initial period of approximately one year with expected yearly renewals after that. You will live in employer provided accommodation in country X and your family will remain living in the family home in Australia.

Case law has shown that it is more difficult for an individual to establish that he or she is 'residing' in a particular place overseas, as opposed to Australia, if they are living in employer provided accommodation instead of leasing or purchasing their own accommodation, as they may have done in Australia. In this regard, there are similarities with your circumstances to the taxpayers in Iyengar's case, Case 5/2013 [2013] AATA 394; 2013 ATC 1-054 (Case 5/2013), and Sneddon v Federal Commissioner of Taxation [2013] AATA 516; 2012 ATC 10-264 (Sneddon's case) who were all found to be residing in Australia.

Your presence in country X will be dependent on the employer sponsored work residence permit that will enable you to live and work in country X. Should your employment cease for any reason, you will be required to leave the country.

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

In Lysaght v Inland Revenue Commissioners (1928) 13 TC 511 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.

The taxpayer in Case 5/2013 was considered a resident of Australia despite only being present in Australia five of the 52 weeks under consideration, as the Tribunal considered that his visits indicated that he retained a 'continuity of association' with Australia. Similarly, the taxpayer in Iyengar's case was found to be a resident even though he had only been present in Australia for two separate periods totalling two weeks and ten days during a period of two years and seven months.

In your case, you anticipate making return visits to Australia of up to four weeks duration in any 12 month period while you are working overseas. In this regard, your circumstances are similar to the taxpayers mentioned above.

(vi) Purpose of visits to and absence from Australia

The purpose of your absence from Australia will be to work in country X and your return visits to Australia will be for family reasons.

(vii) Family and business ties

Family

Case law has shown that an individual is more likely to be considered to be residing in Australia where the spouse and any dependent children of the individual continue to reside in Australia during his or her absence overseas.

In your case, your adult child, and more particularly your spouse, will remain living in your family home in Australia which is indicative of your continuing association with Australia.

It is clear that you have strong family ties to Australia as opposed to country X.

Business or economic

As mentioned above, you have taken up an employment contract in country X.

You have a mortgage over your Australian home and will remit funds to Australia to meet your mortgage commitments and support the living expenses of your spouse who is not financially independent.

Assets

Your assets in Australia comprise of your family home, motor vehicles, household effects, bank accounts and your superannuation fund.

You may purchase a motor vehicle in country X.

It is clear that you have stronger economic/asset ties to Australia than country X.

(viii) Maintenance of a place of abode

Case law has shown that an individual is more likely to be considered to be residing in Australia where a place of residence remains available for the individual or family members to live in. Conversely, this may be less likely if the residence is sold or rented to tenants.

In your case, your spouse and adult child will remain living in your Australian home and it will remain available for you to stay in on your return visits. Accordingly, you will be maintaining aplace of abode in Australia. This will be a strong indication of your continuing association with Australia during your absence.

Summary

When you take up your employment position overseas, your circumstances will be similar to the taxpayer in Iyengar's case who was found to be an Australian resident for tax purposes during the period he was working overseas. The taxpayer worked in a Middle Eastern country for two years and seven months and made two brief return visits to Australia during that time. His family remained living in the family home in Australia while he lived in employer provided accommodation overseas. He remitted funds from his salary to Australia to support his family and pay off his mortgage. Despite his absence from Australia, the Tribunal found that the taxpayer had retained a continuity of association with Australia and was residing here under the 'resides' test.

In your case, although you will be physically absent from Australia while you are working overseas, there are various factors that indicate that you will not cease to be a resident of Australia. These are primarily:

• you have a stated intention of returning to Australia after your employment contract in country X finishes;

• you will have no right to stay in country X should your employment contract be terminated;

• you will be living in employer provided accommodation in country X;

• you will still be maintaining your Australian home during your absence;

• your spouse will remain in Australia and continue to live in the family home;

• you will remit funds from your salary to Australia to support your spouse and meet your mortgage commitments; and

• you will have significant assets in Australia as opposed to country X.

You have established a home in a place in Australia and you will retain a continuity of association with that place while you are overseas together with an intention to return to that place.

Therefore, you will be residing in Australia according to the ordinary meaning of the word and will be a resident 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 and permanent place of abode 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 acquire a domicile of choice in another country if they have the intention of making their home indefinitely in that country. The intention needs to be demonstrated in a legal sense, for example, by way of obtaining a migration visa, becoming a permanent resident or becoming a citizen of the country concerned.

In your case, you were born in country Y and moved to Australia and became a citizen of Australia. Therefore, your domicile of origin was country Y and you changed your domicile to Australia. Your domicile will still be Australia while you are working in country X as you have not indicated that you will be taking any legal steps to change your domicile to that country.

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 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.

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.

The taxpayers in Iyengar's case and Boer v. Federal Commissioner of Taxation [2012] AATA 574; 2012 ATC 10-269 (Boer's case) lived in employer provided accommodation overseas which was not indicative of them establishing or maintaining their 'own' accommodation. This aspect was a contributing factor to them being unable to establish that they had a 'permanent place of abode' overseas.

As previously mentioned, your continuing presence in country X will be dependent on your employer sponsored work residence permit. Should your employment cease for any reason, you will be required to leave the country. Although it is your intention to live and work in country X on an ongoing basis, the duration and continuity of your presence is contingent on the continuation of your employment contract. This makes your presence in country X temporary in nature.

You have not established a permanent place of abode in country X as your presence in country X is temporary in nature. You cannot establish a permanent place of abode when your presence in a place is temporary.

Therefore, you will be a resident of Australia under the 'domicile and permanent place of abode' test of residency.

Assessability of 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. 

As it has been determined above that you will be a resident for tax purposes while working in country X, your income from all sources (including country X) during the period will be assessable in Australia.

Conclusion

As you meet the 'resides' and 'domicile and permanent place of abode' tests of residency, you will be a resident of Australia for tax purposes for the years of this ruling and the employment income you earn in country X will be assessable in Australia.