Edited version of your private ruling

Authorisation Number: 1012612431717

Ruling

Subject: Residency

Question

Are you a resident of Australia for tax purposes?

Answer

Yes

This ruling applies for the following period(s)

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commences on

1 July 2011

Relevant facts and circumstances

Your country of origin is Country X.

You studied in Country X.

You have lived in Australia for the past X years.

You are a citizen of Australia and Country X.

You have extended family in Country X.

You were offered a permanent position with a Country X company.

You resigned from your job in Australia.

You removed yourself from the Australian electoral roll.

You partner also moved to Country X with you and applied for an indefinite right to remain visa.

You intended to relocate to Country X permanently. You took furniture, clothes, personal effects including paintings and artworks with you to Country X.

Your employer provided you with accommodation initially for the first year until you found your own accommodation.

You rented your own accommodation during your second year in Country X and utilities were connected in your name.

You have a house in Australia which you rented out while you were living in Country X, you did not sell it as you were waiting for the property market to improve. The house was rented out unfurnished.

Your spouse has another property in Australia that was not rented for the time you were in Country X.

Your other assets in Australia include bank accounts, superannuation.

You have a bank account and shares in Country X.

During your time living in Country X you returned to Australia on short visits for holidays and to conduct business for your employer. You spent a maximum of 20 days per annum in Australia.

You gave notice to your employer that you would be finishing your employment contract with them. Your employment was officially terminated and you used up some unpaid vacation leave at the end of the notice period.

Your decision to leave Country X and return back to Australia was due to the following reasons:

• you had moved to Country X to see more of your family members however one of your family members passed away

• your partner did not secure any paid employment in the Country X

• your new job was very stressful with long working hours and you were offered a role with an Australian company.

You returned to Australia as soon as your employment was terminated.

Neither you or your spouse have been employees of the Commonwealth.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Subsection 995-1(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.

The definition offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the:

• 'resides' test (ordinary concepts test)

• domicile and permanent place of abode test;

• 183 day test; and

• Commonwealth superannuation fund test.

The primary test for deciding the residency status of each individual is whether they reside in Australia according to the ordinary meaning of the word resides. Where it is determined that a taxpayer 'resides in Australia' in accordance with the first test, there is no requirement to consider the other tests. The other three tests operate to broaden the definition of resident beyond the resides test.

The resides (ordinary concepts) test

The outcomes of several Administrative Appeals Tribunal (AAT) cases have determined that the word 'resides' should be given the widest meaning and there have been a number of factors identified which can assist in determining if a particular taxpayer is a resident of Australia under this test.

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 Taxation Ruling TR 98/17 Income Tax: residency status of individuals entering Australia, and Taxation Ruling IT 2650 Income Tax: residency status of individuals who temporarily live outside Australia.

Taxation Ruling TR 98/17 states that the period of physical presence or length of time in Australia is not, by itself, decisive when determining whether an individual resides here. However, an individual's behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here.

It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances.

(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."

You departed Australia to move permanently to Country X with your partner to take up employment as a permanent employee with an overseas company.

You intended to live in Country X permanently but you did not, you decided to return to Australia less than two years after moving to Country X.

You returned to Australia when your employment was terminated.

You maintained an association with Australia as you have a home in Australia which was being rented out during your time overseas. Your spouse also owns a residence in Australia that was not being rented during your time overseas.

(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.

Your country of origin is Country X.

You are a citizen of Australia and Country X.

(iii) History of residence

You lived in Australia for X years before moving to Country X.

You moved back to Country X to take up permanent employment.

You returned to Australia two years later when your employment was terminated.

(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 and your partner moved to Country X for work purposes and to be closer to your family members and you intended to live there permanently.

You initially lived in employer provided accommodation for one year and then you lived in your own rental accommodation for a year.

Your house in Australia was being rented out while you were living in Country X. Your spouse also owns a residence in Australia that was not being rented during your time overseas.

(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.

You lived in Country X for less than two years.

Your return visits to Australia did not exceed 20 days per annum.

(vi) Purpose of visits to or absences from Australia

You returned to Australia for holidays and to conduct business for your employer.

You moved to Country X to take up long term employment and to be closer to your family members.

(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

You have a spouse who moved to Country X with you.

Your family members reside in Country X.

Business or economic

You moved to Country X to take up a permanent position for an indefinite period of time.

Assets

Your assets in Australia comprise of a rental property, bank accounts and superannuation.

Your assets in Country X comprise of bank accounts and shares in the company you were working for. You also took with you from Australia your furniture, and personal effects including artworks. Your spouse also owns a residence in Australia that was not being rented during your time overseas.

It is evident that you have a higher value of assets in Australia than in Country X.

(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 continued to own a house in Australia which you rented out while you were living and working in Country X.

Your spouse also owned a dwelling in Australia that was not rented during your time in Country X and therefore this would have been available for your use.

Summary - 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 intended to leave Australia and move permanently to Country X, there are various factors that indicate that you have not ceased to be a resident of Australia. These are primarily:

• You did not stay in Country X permanently, you returned to Australia to live when your employment was terminated

• You decided to return to Australia less than two years after moving to Country X

• You lived in employer provided accommodation for the first year and then rental accommodation for a year until you returned to Australia

• You have stronger financial ties to Australia as you have more assets in Australia

• You kept your house in Australia and rented it out

• Your spouse also owned a dwelling in Australia that was not rented during your time in Country X and therefore this would have been available for your use.

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 did not stay in Country X permanently and as you are an Australian citizen 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.

In your case, the Commissioner is not satisfied that you have established a permanent place of abode outside of Australia for the following reasons:

• you retained your family home in Australia, where you lived prior to leaving Australia, although you rented it out during your absence, you did not abandon it

• your accommodation was provided for you by your employer for the first year and in the second year you lived in rental accommodation

• although you planned to live in Country X permanently - you did not - you returned to Australia immediately when your employment was terminated

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 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. You may, however, be entitled to a foreign income tax offset for the foreign tax you paid overseas. Please refer to our website www.ato.gov.au for further information regarding foreign income tax offset.