Edited version of private advice

Authorisation Number: 1012625228004

Ruling

Subject: Residency

Question and answer

Are you a resident of Australia for tax purposes from when you leave for Country Y?

No.

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 Country X.

You moved to Australia decades ago and became an Australian citizen a few years after the movement.

You currently live in City A but work in City B, in Australia.

You will move to Country Y in 2014 to work under an employment contract for a minimum period of three years, with the possibility of extension.

The employment contract was offered by your current Australian employer.

Once this contract starts, you will have no employment position held open for you in Australia.

When the current contract period ends, it can be extended if both you and your employer agree; or you may, at your option, be repatriated to Australia.

You have no definite plan to return to Australia at the end of the contract and may decide to stay longer in the Country Y region.

You will enter Country Y with a work permit under Country Y's migration policy.

Your current work permit is valid for one year.

Your work permit can be renewed if you continue to meet the Eligibility Criteria of the migration policy for an extension of stay.

The extension can be granted a few times, for a total of z years. After z consecutive years of employment in Country Y, you may apply for permanent residency.

The Eligibility Criteria of the migration policy requires you to have a confirmed offer of employment for a genuine job vacancy in Country Y.

You own your home in City A (the City A residence).

You have a spouse and two children.

Your spouse is accompanying you to Country Y.

Both of your children are adults and have their own lives.

You will lease an apartment on a long-term basis in Country Y. You will move all your personal effects to Country Y and purchase household furniture in Country Y for the purpose of long-term accommodation.

You do not intend to rent out your City A residence while you are in Country Y as you have agreed to allow your relatives to live there while you and your spouse are away.

You plan to leave your furniture in the City A residence.

Your relatives intend to sell their existing residence and relocate to your City A residence. They will treat the City A residence as their own home for the duration of your contract. They will occupy the master bedroom and bear all the running costs associated with the property.

Your relatives are not financially dependent on you or your spouse.

You will leave your pets at the City A residence as it is impractical for you to take them to Country Y. Your relatives will be looking after the pets while you are away.

It is likely that you will be asked to travel back to Australia quarterly or six-monthly for business reporting purposes. The duration of each business visit is likely to be about three days.

You will likely take a few extra days break on these business returns to visit your family members.

Your spouse will be permanently living with you in Country Y, may or may not work in Country Y, and will only return to Australia on a needs basis, such as if one of her parents or your children is sick or in an accident.

When visiting Australia and staying in City A, if you are by yourself, you are likely to stay somewhere else rather than in your City A residence; if you are with your wife, you may or may not stay at the City A residence, but if so, only in the spare room.

You and your spouse intend to use your holidays during the contract period to travel outside Australia.

You expect, and will insist, your children to visit you and your spouse in Country Y and so there will not be a great need for you and your spouse to travel to Australia to visit them.

The assets you own in Australia comprise of the City A residence, bank accounts, superannuation fund, a share portfolio and a motor vehicle. The motor vehicle is currently used and will still be used by one of your children while you are overseas.

You will open a bank account in Country Y and will make investments where considered suitable.

You do not need to purchase a motor vehicle in Country Y because your employer will provide you one.

You have a mortgage on your City A residence.

You will be remitting part of your Country Y salary back to maintain the mortgage.

You will also be supporting your child(ren) for some living expenses.

You will keep receiving Australian source income, which is the dividend income from your investments.

During your contract period, your Australian superannuation contributions will be suspended. Instead, you will be enrolled in the Country Y superannuation scheme in compliance with the legislative requirement in Country Y. Your employer contributions will be made to the Country Y superannuation scheme.

You will not maintain social connections in Australia.

You intend to create a new life in Country Y by establishing social and business ties while there.

You will advise the Australian Electoral Office to remove your name from the electoral roll and list you as an overseas voter.

You will advise the Australian financial institutions and companies with whom you have investments that you are a non-resident for tax withholding purposes.

You will advise Medicare and your private health insurance company of your move to Country Y and to update your records accordingly, including suspending your private health insurance.

You state on your departure boarding card as 'permanently departing Australia'.

Neither you nor your spouse has ever been employed by the Australian Commonwealth government.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

Domicile Act 1982

Reasons for decision

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' test;

• the 183 day test; and

• the Commonwealth superannuation fund test.

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 'resides'.

However, where an individual does not reside in Australia according to ordinary concepts, they may still be a resident of Australia for tax 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, 2013, sixth edition, Macmillan Publishers Group, Australia, 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'.

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:

• physical presence in Australia;

• 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 compared to the foreign country concerned; and

• 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.

Physical presence in Australia

You are leaving Australia to take up an employment contract in Country Y for an expected period of three years. You currently have no definite plan to return to Australia at the end of the contract and may decide to stay longer in the Country Y region.

You will likely be required to return to Australia for business reporting purposes quarterly or six-monthly and you may use a few extra days to visit your family members on these business returns. The duration for each trip to Australia will be approximately one week.

Although it is likely you will have very little physical presence in Australia while you are working overseas, this does not preclude you from being an Australian resident as no single factor is necessarily decisive, as mentioned above.

Nationality

You were born in Country X. You are an Australian citizen. You will not change your citizenship status.

History of residence and movements

You were born in Country X. You moved to Australia decades ago and stayed.

Habits and 'mode of life'

You and your spouse are relocating to Country Y for an expected period of three years, while your children, both adults, are staying in Australia. And you:

• will establish a rental accommodation in Country Y;

• will move all your personal effects to Country Y;

• will purchase household furniture in Country Y for the purpose of long-term accommodation;

• will not rent out your City A residence as you have agreed to allow your relatives to live there as their main residence;

• will leave your furniture in your City A residence;

• will leave your pets in your City A residence, but only because it is impractical for you to take them to Country Y;

• will be remitting part of your salary back to Australia to maintain the mortgage on your City A residence and support your child(ren) for some living expenses;

• will not maintain social connections in Australia;

• intend to create a new life in Country Y by establishing social and business ties while there;

• intend to use your holidays during the contract period to travel overseas with your spouse;

• expect, and will insist, your children to visit you and your spouse in Country Y and so there will not be a great need for you and your spouse to travel to Australia to visit them;

• will advise the Australian Electoral Office to remove your name from the electoral roll and list you as an overseas voter;

• will advise the Australian financial institutions and companies with whom you have investments that you are a non-resident for tax withholding purposes;

• will advise Medicare and your private health insurance company of your move to Country Y and to update your records accordingly, including suspending your private health insurance.

You will take actions that are consistent with someone who is leaving Australia for an extended period of time. However, as a matter of fact, you are also maintaining your Australian residence at the same time.

Frequency, regularity and duration of visits to Australia

You will likely return to Australia quarterly or six-monthly for approximately one week each time.

Purpose of visits to or absences from Australia;

Your returns to Australia will be for business reporting purposes. You will take a few extra days break on each business return to visit your family members.

Family, business and financial ties

Family

You and your spouse are relocating to Country Y. Your spouse will be permanently living with you in Country Y, may or may not work there, and will only visit Australia on a needs basis.

Your children will be living in Australia.

Although your children will still be living in Australia, it is considered that your immediate family tie will be in Country Y, given that your spouse will accompany you in Country Y and your children are both adults and having their own lives.

Business or economic

You have taken up an employment contract in Country Y and will receive employer contributions to a superannuation fund in Country Y. You will receive dividend income from the investments you own in Australia. You have an Australian mortgage.

You will be remitting part of your Country Y salary back to maintain the mortgage and support your child(ren) for some living expenses.

You have stronger business ties to Country Y than Australia.

Assets

The assets you own in Australia comprise of your City A residence, bank accounts, superannuation fund, a share portfolio and a motor vehicle. The motor vehicle is currently used and will still be used by one of your children while you are overseas.

You will open a bank account in Country Y and will make investment where considered suitable.

You do not need to purchase a motor vehicle in Country Y because your employer will provide you with one.

You have a higher value of assets in Australia than Country Y.

Maintenance of a place of abode

You are not renting out your City A residence but leaving it to your relatives to live in. Your relatives intend to sell their existing residence and will treat the City A residence as their main residence. They will occupy the master bedroom and bear all the running costs of the property.

When traveling back to Australia and staying in City A, if you are by yourself, you are likely to stay somewhere else rather than in the City A residence; if you are with your wife, you may or may not stay at the City A residence, but if so, only in the spare room.

You will be paying for the mortgage on the City A residence.

Your relatives will be looking after your pets.

Again, you are taking actions that are consistent with someone who is leaving Australia for an extended period of time. However, you are still maintaining an Australian residence where you can possibly move in at any time you want.

Summary of the resides test

Although you have a high value of assets in Australia and you are not renting out your Australian residence, consideration of the factors outlined above shows that you are no longer residing in Australia according to the ordinary meaning of the word.

Therefore, you are not a resident of Australia under this test.

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

Domicile is a legal concept, determined according to the Domicile Act 1982 and common law rules established by private international law cases. Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence.

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. 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.

In your case, your country of origin is Country X and you moved from that country to Australia and became a citizen of Australia. Therefore, you changed your domicile to Australia.

You are now moving to Country Y to live for three years but are not allowed to apply for permanent residency during that period according to Country Y's migration. Therefore, your domicile remains Australia.

Permanent place of abode

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 courts have considered a person's 'place of abode' is where they consider 'home'. In R v Hammond (1982) ER 1477, Lord Campbell CJ stated that "a man's residence, where he lives with his family and sleeps at night, is always his place of abode in the full sense of that expression."

A place of abode must exhibit the attributes of a place of residence or a place to live, as contrasted with the overnight, weekly or monthly accommodation of a traveller.

In your case, you will live and work in Country Y for three years, accompanied by your spouse, and will establish a rent accommodation. You will take all your personal effects with you and purchase household furniture in Country Y for the purpose of long-term accommodation.

Your relatives intend to sell their current home and will occupy your Australian (City A) residence as their main residence. You will not live at the City A residence when traveling back to City A unless your spouse is coming with you, at which time you may stay at the City A residence in the spare room.

Therefore, the Commissioner is satisfied that you have established a permanent place of abode outside of Australia.

You are not a resident of Australia under this test.

The 183 day test

Under the 183 day test, a person is a resident of Australia if they are actually physically present in Australia for more than 183 days in an income year unless the Commissioner is satisfied that their usual place of abode is outside of Australia and they have no intention of taking up residence here.

As you will not be physically present in Australia for more than 183 days in any income year while you are overseas, you will not be a resident under this test.

The superannuation test

An individual is considered to be an Australian resident for income tax purposes if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person. 

You are not a resident under this test as neither you nor your spouse have ever been employed by the Australian commonwealth government and are not eligible to contribute to the PSS or the CSS.

Summary

As you are not an Australian resident for income taxation purposes under any of the tests of residency, you are not an Australian resident for taxation purposes from the time you leave Australia to take up your employment contract in Country Y.

As you are not a resident of Australia, according to section 6-5 of the ITAA 1997, your assessable income includes only income derived from an Australian source.