Edited version of private advice

Authorisation Number: 1012627937891

Ruling

Subject: Residency and assessable income

Questions and answers

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

Yes.

2. Is your Australian sourced income assessable?

Yes.

3. Is income derived from sources outside Australia assessable?

Yes.

4. Are you a resident of Australia for the purposes of the Double Tax Agreement between Australia and the foreign country?

Yes.

5. Are you a resident of both Australia and the foreign country for the purposes of the Double Tax Agreement between Australia and the foreign country?

No.

This ruling applies for the following periods

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commenced on

1 July 2012

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a citizen of Australia, which is your country of origin.

You have not been granted permanent residency by any other country.

You have stated you are a non-resident of Australia for tax purposes during the relevant years.

You are employed in the foreign country by a company in a regional role. This role does not cover Australia or New Zealand.

You have spent the last X years in the foreign country working under a X year expatriate contract. This contract ended on a date. A new local contract was signed, commencing on a date. This new contract has no specified end date as it is a permanent local contract. You have provided a copy of the new contract.

You lodge a tax return in the foreign country as a resident. .

Before departing Australia you lived on a permanent basis in your property. You own this property jointly with your spouse. This was your principal residence prior to your relocation to the foreign country and was then rented out while you resided in the foreign country.

You departed Australia on a date. Your destination was the foreign country.

You entered the foreign country on an employment visa.

Your visa does not allow you to stay permanently in the foreign country. It is only valid subject to your continued employment there.

Your spouse and children were living in the foreign country until they relocated to another city on a date. They relocated back to Australia after you received medical advice that your child should attend an Australian school in order to receive the required educational support. Your spouse and children then moved from X to Y on a date. They moved back into your property. You stay with them at this property on your return visits to Australia.

As a result of your spouse and children relocating to Australia, you will be returning to Australia for personal visits more frequently but your work will remain based out of the foreign country.

Your personal belongings will remain located in the foreign country.

You live in a fully furnished apartment in the foreign country that is currently leased by your employer for you.

You will be spending approximately X% of your time in an Australian city but less than six months in in an income year. You will spend more time in the foreign country than in Australia as you will continue to live and work there.

You first formed the intention to make your home indefinitely outside Australia in early a year when you actively sought employment overseas.

You have no fixed plan at this stage of returning to Australia.

You do not hold a return airline ticket.

Your household effects were shipped to the foreign country and then a proportion of them were moved back to an Australian city.

Your receive income from your Australian rental properties.

You do not have a job waiting for you in Australia.

Neither you nor your spouse has ever been a Commonwealth Government of Australia employee.

Your name was removed from the electoral roll when you left Australia.

You have advised financial institutions with whom you have investments that you are a foreign resident so that non-resident withholding tax can be deducted.

You have not advised Medicare or health insurance provider to have your name removed from their records.

On the Australian Immigration Outgoing passenger card, you stated as your reason for going overseas: "Non-resident of Australia - not returning to live in Australia for the next 12 months."

You hold bank accounts in the foreign country.

You have a club membership with a club.

All Australian domestic bank accounts are held in your spouse's name.

You have no club memberships in Australia.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Section 6-5

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

International Tax Agreements Act 1953 Section 4

International Tax Agreements Act 1953 Schedule X

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

• 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 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 (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 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.

(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 on a date. You have lived and worked in the foreign country since then.

(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 Australia and you are a citizen of Australia.

(iii) History of residence and movements

You lived in Australia, prior to moving to the foreign country on a date.

(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 have lived and worked in the foreign country since a date.

You have spent the last X years in the foreign country working under a X year contract. This contract ended on a date. A new contract was signed, commencing a date. This new contract has no specified end date as it is a permanent local contract.

You live in an apartment in the foreign country that is leased by your employer for you.

You have a club membership with a club.

(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 period of two years and seven months to be residing in Australia.

Since leaving Australia, you have returned to Australia on several occasions for short visits. As a result of your spouse and children relocating to Australia, you will be returning to Australia for personal visits more frequently but your work will remain based out of the foreign country.

(vi) Purpose of visits to or absences from Australia

Since a date, you have lived and worked in the foreign country.

You return to Australia for personal visits to your spouse and children.

(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

Your spouse and children have been living in Australia since a date.

Business

You have been employed in the foreign country since a date on long term contracts.

You do not have a job being held for you in Australia.

Assets

In Australia:

• You own a property jointly which your spouse

• You own rental properties.

In the foreign country:

• your personal belongings

• bank accounts

(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 own a property with your spouse in Australia which you lived in prior to your departure for the foreign country as your main residence. It was then rented out until your spouse and children moved back into it on their return to Australia.

When you visit Australia you stay with your spouse and children in this property.

Summary

As stated above it is important that not one single factor is decisive and the weight given to each factor depends on individual circumstances.

There are several factors outlined above which indicate that you are a resident of Australia. Specifically;

• you are an Australian citizen

• your visa does not grant you permanent residency, your right to remain in the foreign country being dependant on your continued employment

• you maintain a place of abode in Australia where your spouse and children live and to which you return when you visit Australia

• you live in an apartment in the foreign country that is leased by your employer for you.

Based on a consideration of all of the factors outlined above, you are a resident of Australia according to ordinary concepts as you will maintain a continuity of association with Australia for the relevant period.

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.

As you are still an Australian citizen while living in the foreign country, your domicile is Australia and remains unchanged.

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.

In your case:

• you maintain a place of abode in Australia where your spouse and children live and to which you return when you visit Australia

• you live in an apartment in the foreign country that is currently leased by your employer for you

• you have not been granted permanent residency in the foreign country or any other country.

Although it is your intention to live and work in the foreign country on an ongoing basis, the duration and continuity of your presence there is contingent on your visa, which is valid subject to your continued employment. Should your employment cease you would be required to leave. This makes your presence in the foreign country temporary in nature. Also, your apartment in the foreign country is leased for you by your employer and hence they are able to remove you from this accommodation if and when required, such as in the event of your employment with them ceasing. It is not a permanent place of abode.

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

The Commissioner is not satisfied you have a permanent place of abode outside of Australia.

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

Conclusion

As you have met the resides and domicile tests of residency outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, you are considered to be an Australian resident for taxation purposes for the relevant period.

Assessable income

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident taxpayer includes the ordinary income derived by the taxpayer directly or indirectly from all sources, whether in or out of Australia, during the income year.

Employment income is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

In your case, as you are a resident of Australia for taxation purposes, your assessable income includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. This includes the income you derive from your employment in the foreign country.

Residency and the Australia-the foreign country Double Tax Agreement

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The X Agreement is listed in section 5 of the Agreements Act.

The X Agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The X Agreement operates to avoid the double taxation of income received by residents of Australia and X.

Where a taxpayer has homes in two countries, it is necessary to consider the tie breaker rules in the Agreement.

Article X(X) of the Agreement sets out the tiebreaker rules for residency for individuals. The tiebreaker rules ensure that the individual is only treated as a resident of one country for the purposes of working out liability to tax on their income under the Agreement. The tiebreaker rules do not change a taxpayer's residency status for domestic law purposes.

Article X(X) of the Agreement provides that if an individual is a resident of both Australia and the foreign country:

X. Where by reason of the provisions of paragraph (X) of this Article an individual is both a resident of the foreign country and an Australian resident-

(a) he shall be treated solely as the foreign country resident-

(i) if he has a permanent home available to him in the foreign country and has not a permanent home available to him in Australia;

(ii) if sub-paragraph (a)(i) of this paragraph is not applicable but he has an habitual abode in the foreign country and has not an habitual abode in Australia;

(iii) if neither sub-paragraph (a)(i) nor sub-paragraph (a)(ii) of this paragraph is applicable but the Contracting State with which his personal and economic relations are closest is the foreign country;

(b) he shall be treated solely as an Australian resident-

(i) if he has a permanent home available to him in Australia and has not a permanent home available to him in the foreign country;

(ii) if sub-paragraph (b)(i) of this paragraph is not applicable but he has an habitual abode in Australia and has not an habitual abode in the foreign country;

(iii) if neither sub-paragraph (b)(i) nor sub-paragraph (b)(ii) of this paragraph is applicable but the Contracting State with which his personal and economic relations are closest is Australia.

In your case, in the foreign country you live in an apartment that is currently leased for you by your employer. In Australia, you and your spouse own a house in an Australian city where your spouse and children live and where you live when you are in Australia.

The terms 'permanent home', 'habitual abode' and 'personal and economic relations' are otherwise undefined in the Agreement. Article X(X) of the Agreement provides that any term not defined shall, unless the context otherwise requires, have the meaning which it has under the law relating to taxes of the country applying the Agreement.

Taxation Ruling TR 2001/13 discusses the Commissioner's views about interpreting double tax agreements. Paragraph 104 provides that the OECD Model Tax Convention and Commentary will often need to be considered in interpreting double tax agreements.

The OECD Commentary provides that in relation to a 'permanent home':

(a) for a home to be permanent, an individual must have arranged and retained it for his or her permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be of short duration. The dwelling has to be available at all times continuously and not occasionally for the purposes of a stay, which owing to the reasons for it is necessarily of short duration (eg travel for pleasure, business travel, attending a course etc)

(b) any form of home may be taken into account, including a house or apartment belonging to or rented by the individual and a rented furnished room.

In your case, the apartment you live in while in the foreign country does not belong to nor was it rented by you. It was your employer who rented it for your use and only for as long as you are employed by them. Therefore, it is not a permanent home within the above meaning. However, you own a house in an Australian city with your spouse which you live in while in Australia, approximately X% of the time.

Therefore, subparagraph (b)(i) of Article X(X) of the Agreement applies to your situation: you will be treated an solely as an Australian resident because you have a permanent home available to you in Australia and you do not have a permanent home available to you in the foreign country.