Edited version of your private ruling

Authorisation Number: 1012608048277

Ruling

Subject: Residency for tax purposes

Questions and answers

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

Yes.

2. Is the employment income you earned in Country X exempt from income tax in Australia?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commenced on:

1 July 2009

Relevant facts and circumstances

You were born in and are a citizen of Australia.

For a number of years you were employed by an Australian government organisation and posted to Country X.

Your foreign service is directly attributable to the delivery of Australian official development assistance (ODA).

A memorandum of understanding (MOU) exists between Australia and Country X which provides for Australians to assist that country without the foreign country taxing the foreign employment income.

Your intention at the time of your departure was to be overseas for three years.

Your appointment was for a period of 2 years with an option to extend for a further one year.

You applied for a fourth year however this was not granted.

You held a diplomatic visa in Country X that was renewed every 12 months. This visa did not allow you to stay permanently in Country X.

During your stay in Country X, you travelled throughout Country X during your annual leave.

You have returned to Australia on four occasions, total days as follows:

• 16 days in the 20XX year

• 23 days in the 20YY year

• 7 days in the 20ZZ year

Two of your trips to Australia were solely for work purposes.

You stayed with relatives when in Australia.

Your accommodation in Country X was provided to you by your employer. Your employer also provided you with an allowance to pay domestic staff such as cleaners and guards.

Your salary was paid into your Australian bank account.

Your assets in Australia include bank accounts and shares.

You lived in a rental property in Australia prior to your departure. You owned a vehicle in Australia which you sold prior to your departure.

You purchased vehicles and opened a bank account while in Country X.

You established a de facto relationship while in Country X. This relationship ended prior to your departure from Country X.

You established social connections in Country X.

After leaving Country X, you travelled to various countries, including Australia, for a number of months.

You then went to Country Y.

You have a student visa to enter Country Y. The visa does not allow you to stay permanently in Country Y. The visa expires in 20VV. You are limited to working 20 hours a week under this visa.

The purpose of your stay in Country Y is to undertake study.

Your accommodation in Country Y is in student accommodation.

You intend to seek employment in Country Y following the completion of your study.

You have applied for several employment positions in Country Y and intend to apply for more.

You intend to apply for a new visa which provides an unrestricted right to live, work and study in Country Y for two years.

You have established social connections in Country Y.

You are currently on leave without pay from your employment position with an Australian government organisation.

You are a member of the Public Sector Superannuation Accumulation Plan.

You remain enrolled to vote in Australia and you voted in the most recent federal election.

One of your Australian financial institutions withholds non-resident tax while the other does not, as it does not allow a foreign address to be indicated on the account.

You have not advised the Australian companies with whom you have investments that you are a foreign resident.

You held Australian private health insurance until you suspended it in 20ZZ.

Your parents and siblings reside in Australia.

You lodged your income tax returns in Australia for the years ended 30 June 20XX, 20YY and 20ZZ as a resident of Australia for tax purposes.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1936 Section 23AG

Reasons for decision

Residency for tax purposes

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.

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 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 initially departed Australia for employment purposes, to work as an employee of an Australian government organisation for a period of three years. While in Country X, you applied to study in Country Y, where you are now located. You intend to apply for employment in Country Y and a new visa at the completion of your study.

Since your initial departure, you have made several short return trips to Australia, for both work and personal purposes.

Although you may not return to Australia regularly and may not be physically present here while you are working in Country X and studying in Country Y, this does not preclude you from being an Australian resident as no one single factor is necessarily decisive, as mentioned above.

(ii) Nationality

In your case, you were born in Australia and are an Australian citizen.

(iii) History of residence and movements

In your case, you lived and worked in Australia prior to leaving the country to travel to Country X.

You have made a number of return trips to Australia for work and personal reasons.

(iv) Habits and 'mode of life'

You worked in Country X for three years and lived in employer provided accommodation. You entered Country X on a diplomatic visa which was renewable every twelve months. You established social connections in Country X, you entered into a de facto relationship, and you purchased vehicles and opened a bank account.

In Country Y, you are staying in university student accommodation. Your restrictive visa expires in January 20VV. You intend to apply for a new visa and intend to gain employment at the completion of your study.

You lived in a rental property in Australia prior to your departure. You sold your vehicle prior to your departure. You did not suspend your Australian private health insurance until 20ZZ. You remain on the Australian electoral roll and voted in the federal election. You have close family members in Australia. You have made several return trips to Australia. You are currently on leave without pay from your employer, an Australian government organisation. You are a member of the Public Sector Superannuation Accumulation Plan. You have only informed one of your banks that you are residing overseas, the other bank does not accept foreign addresses, and additionally you have not advised the Australian companies with whom you have investments that you are residing overseas.

Regardless of your future intentions, your visa to enter Country X was a diplomatic visa which was issued to you specifically because you entered as an Australian working for an Australian government organisation and you only intended to remain there while you were employed as such, which was for a maximum of three years. This, coupled with the factors listed above showing your links to Australia, is indicative of your continuing association with Australia and is consistent with someone who is still residing in Australia.

Likewise, your current stay in Country Y is limited to the conditions of your restrictive visa. Although you intend to apply for employment at the end of your study this is not guaranteed, in the same way that your application for a new visa may not be successful, which in any case is only a two year visa. This, coupled with the factors listed above showing your links to Australia, is indicative of your continuing association with Australia and is consistent with someone who is still residing in Australia.

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

As mentioned above, you have made several return trips to Australia since departing.

(vi) Purpose of visits to and absence from Australia

The purpose of your absence from Australia was initially to work for an Australian government organisation in Country X for three years, and currently to study for one year in Country Y, although you intend to apply to stay for longer.

(vii) Family, business and financial ties

Family

Your parents and siblings reside in Australia.

You had a spouse that you met while in Country X, however that relationship ended prior to your departure from Country X.

You do not have any family ties in Country Y.

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

Business or economic

As mentioned above, you worked in Country X for three years. You intend to take up employment in Country Y after you complete your study.

Assets

Your assets in Australia comprise of a superannuation fund, bank accounts and shares.

Your assets in Country X included a bank account and vehicles, as well as personal effects.

(viii) Maintenance of a place of abode in Australia

Since departing in Australia in 20VV, you have not maintained a place of abode in Australia.

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 have been physically absent from Australia for most of the time in the last four years, there are various factors that indicate that you have not ceased to be a resident of Australia. These are primarily:

• you were in Country X for employment purposes for a set period of time and lived in employer provided accommodation

• you held a diplomatic visa for entry into Country X

• you have stronger family ties to Australia than with Country X or Country Y

• you have maintained financial ties to Australia by way of investments, superannuation and bank accounts

• you lived in employer provided accommodation in Country X

• you live in student accommodation in Country Y

• you are on leave without pay from your Australian employer which is an Australian government organisation

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 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 acquire a domicile of choice in another country if they have the intention of making their 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 have not obtained a migration visa or become a permanent resident or a citizen of either Country X or Country Y, you have not established a new domicile of choice in either country. You were born in Australia 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 (paragraph 12 of IT 2650).

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 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.

The Commissioner is not satisfied that you had a permanent place of abode outside of Australia for the period you were in Country X for the following reasons:

• The purpose of your stay in Country X was employment.

• You held a 12 month renewable diplomatic visa which did not allow you to stay permanently in Country X.

• Your place of dwelling was in accommodation provided to you by your employer.

• Your employer also provided you with an allowance to pay domestic staff such as cleaners and guards.

• You intended to remain in Country X for three years which was the period of your employment assignment in Country X.

• Your employer was an Australian government organisation.

• Your salary was paid into your Australian bank account.

• You retained family ties to Australia in the form of your parents and siblings.

The Commissioner is not satisfied that you had a permanent place of abode outside of Australia for the period you were travelling as you had no permanent residence anywhere during this period.

The Commissioner is not satisfied that you have a permanent place of abode outside of Australia in Country Y for the following reasons:

• The purpose of your stay in Country Y is currently for study.

• You hold a restrictive student visa that expires in 20TT.

• Your place of dwelling is student accommodation.

The fact that you intend to seek employment at the completion of your study, and intend to apply for an unrestricted two year visa, is not sufficient for the Commissioner to be satisfied you have a permanent place of abode outside of Australia.

Consequently, the Commissioner is not satisfied that you have established a permanent place of abode outside of Australia at any point in the ruling period, and therefore, 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.

As you are a resident of Australia, according to section 6-5 of the ITAA 1997, your assessable income includes income gained from all sources, whether in or out of Australia.

Exempt foreign employment income

According to section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936) If you are working overseas and earning foreign employment income, it is exempt from income tax in Australia if all of the following applies:

• you are an Australian resident

• you are engaged in continuous foreign service as an employee for 91 days or more

• your foreign service is directly attributable to the delivery of Australian ODA by your employer, and

• you are not excluded from the exemption by specific conditions listed in the law.

In your case:

• you are an Australian resident

• you were engaged in continuous foreign service as an employee for greater than 91 days

• your foreign service is directly attributable to the delivery of Australian ODA by your employer, and

• an MOU exists between Australia and Country X and therefore you are not excluded from the exemption by specific conditions listed in the law.

Therefore, you meet all of the conditions set out in section 23AG of the ITAA 1936 and as such the employment income you earned while working for an Australian government organisation in Country X is exempt from income tax in Australia.

Please note that you are still required to include the amount of exempt foreign employment income in your tax return. You will not be required to pay Australian tax on your exempt foreign employment income, however it is taken into account in calculating the Australian tax on other assessable income derived by you.