Edited version of your private ruling

Authorisation Number: 1012607660044

Ruling

Subject: Residency

Question and answer

Are you an Australian resident for taxation purposes?

No.

This ruling applies for the following periods

Year ended 30 June 2014,

Year ended 30 June 2015,

Year ended 30 June 2016,

Year ended 30 June 2017,

Year ended 30 June 2018.

The scheme commences on

17 March 2014.

Relevant facts and circumstances

You are an Australian citizen and a country A citizen.

You hold dual passports.

You left Australia to live in country A.

You can live and work in country A for as long as you wish.

Your reason for moving to country A is essentially for work and recreation purposes.

You intend to live in country A on a long term basis but are unsure if it will be permanent.

You plan on being in country A for an extended period of time.

You have a one way ticket to country A.

Your friend is accompanying you.

You will return to Australia if circumstances dictate ie death or illness of a parent or sibling.

You will live with your relative initially when you arrive in country A and will look at securing a lease on a property and purchasing a motor vehicle.

You and your friend may live together.

You do not have any assets in country A.

In Australia you have two investment properties which are rented out under 12 month leases through a real estate agent. You intend renewing the leases when the time comes.

You have leased your main residence as a fully furnished property.

You have a bank account and superannuation in Australia.

You do not have a spouse or children.

You resigned from your job in Australia before you moved to country A.

You do not have a job waiting for you in country A.

You have advised the electoral commission to remove you from the electoral roll and intend advising Medicare and financial institutions that you are a non-resident.

You will declare that you are leaving Australia permanently on the Australian Immigration Outgoing passenger card.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 6(1).

Anti-avoidance rules

Does Part IVA or any other anti-avoidance provision apply to this ruling?

The application of Part IVA of the ITAA 1936 has not been considered as this topic is in the MEI low risk PART IVA list as specified in ORCLA.

Reasons for decision

Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident as a person who is a resident of Australia for the purpose 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:

1. the resides test

2. the domicile test

3. the 183 day test

4. 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.

However, where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be an Australian resident for tax purposes if they satisfy the conditions of one of the three other tests.

The resides test

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

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 to different countries

(viii) Maintenance of 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.

In the recent case of Iyengar v FCT [2011] the Administrative Appeals Tribunal held that the taxpayer was a resident of Australia, even though he was working overseas. The taxpayer's family ties, his intention (to complete his contract) and motive (to pay off his mortgage), and his maintaining an Australian place of abode while working overseas, were all indicative that he was an Australian resident during the relevant period.

The fact that the taxpayer's visits to Australia in the relevant income years were relatively short in duration compared to the time spent abroad in those years, did not preclude him from being an Australian "resident" in those income years.

The taxpayer's intention was to go to Dubai (and later Doha) and work for an oil company 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 family home as soon as possible. Such an intention (and motive) was indicative that the taxpayer was an Australian "resident" in the relevant period.

The taxpayer's conduct subsequent to the period he spent in the Middle East, taken together with his continuity of association with Australia and his intention to return to Australia upon completion of the contract, was consistent with him being a "resident" of Australia.

In the recent case of Pillay v FCT [2013] the Administrative Appeals Tribunal held that the taxpayer was a resident of Australia even though his spouse accompanied him overseas to live and work.

The taxpayer was born in South Africa and was an Australian citizen. He was a doctor who had been working in East Timor since 2006. Since then, he was physically present in East Timor for between 9 and 11 months each year, and between 6 to 8 weeks in Australia each year. When in East Timor, the taxpayer stayed in a self-contained apartment supplied by his employer.

Together with his wife, he purchased a property in Bali which they called home. They also owned a property in Sapphire Beach in Australia, which was left vacant for most of the time and appeared to be occupied only during the few weeks of the year when the taxpayer was visiting Australia. During his visits to Australia, the taxpayer divided his time between the Sapphire Beach property and visiting his children and grandchild. The taxpayer had Australian bank accounts which he used to meet his living expenses. Further, there were circumstances to indicate that he intended to divide his time between Bali and Australia when his employment in East Timor ends.

What was significant in this matter was the "continuity of association" that the taxpayer had retained with Australia. Although he had been working for an extensive period in East Timor, and although he had an apartment to stay in while he had been working there, he did not seem to have brought himself to regard East Timor as home.

Indeed, he and his wife regarded the Bali property as home, despite the fact that they had little time to spend there together. His connection with East Timor appeared to be one based almost entirely on his employment arrangement. He did not express an intention to remain in East Timor after his employment ends. Rather, he expressed an intention to divide his time between Bali and Sapphire Beach - hardly an indication that his ties with Australia had been broken.

Factors relevant to the question of whether the taxpayer resided in Australia included his;

• physical presence in Australia;

• his nationality,

• history of residence and movements,

• habits and "mode of life",

• frequency, regularity and duration of visits to Australia,

• purpose of visits to or absences from Australia,

• family and business ties with Australia, and

• maintenance of a place of abode in Australia.

The Commissioner submitted that the taxpayer maintained a continuity of association with Australia in the relevant years despite being physically absent for significant periods. On the other hand, the taxpayer submitted that he had a permanent place of abode in East Timor and that he was a non-resident of Australia.

(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.

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 FC of T (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 (2 years and 7 months) he had only returned to Australia for a two week period and for a 10 day period.

• You have no plans to return to Australia unless circumstances dictate ie death or illness of a parent or sibling.

(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 an Australian citizen and a country A citizen and you hold dual passports.

(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.

• You resigned from your job in Australia.

• You do not have a job waiting for you in country A but intend finding work when you are there.

• You will stay with your relative in country A until you find a rental property.

• You can live and work in country A for as long as you wish.

• You do not have a spouse or children.

• You will rent out your main residence in Australia.

(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.

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 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.

• You only intend returning to Australia if circumstances dictate ie death or illness of a parent or sibling.

(vi) Purpose of visits to or absences from Australia

• The main purpose of your move to country A is for work and recreation.

(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

The Macquarie Dictionary defines 'family' as:

• parents and their children, whether dwelling together or not.

• one's children collectively.

• any group of persons closely related by blood, as parents, children, uncles, aunts, and cousins.

Consistent with the findings in Case 5/2013 and Iyengar, and the definition of family provided by the Macquarie Dictionary, your parents and siblings will remain in Australia, who you will visit when circumstances dictate.

Business or economic ties

• In Australia you have two properties which you rent out, one was your main residence and the other an investment property,

• You maintain an Australian bank account,

• You do not have business or economic ties in country A.

Assets and liabilities

In Australia you have a main residence and an investment property, a bank account and superannuation.

You do not have any assets in country A, but intend purchasing a car when you are there.

(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 retain ownership of Australian assets, including your main residence, investment property and furniture.

Summary

Based on a consideration of all of the factors outlined above, you are not a resident of Australia according to ordinary concepts as you are a citizen of country A and can live and work there for as long as you wish.

However, where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be an Australian resident for tax purposes if they satisfy the conditions of one of the other three tests

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.

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.

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.

You are a country A citizen and have chosen to live in country A for an extended period. You plan to rent a property there and may stay longer if circumstances permit.

Based on these facts, the Commissioner is satisfied that country A is your domicile of choice and you will establish a permanent place of abode there.

The 183-day test

This test does not apply to you as it has been identified that you will not be in Australia for 183 days or more for the years in question.

The superannuation test

This test does not apply to you as it has been identified that you are not a member of the PSS or the CSS, a spouse of such a person, or a child under 16 of such a person.

Your residency status

You are not a resident of Australia for taxation purposes.