Edited version of private advice

Authorisation Number: 1012633819975

Ruling

Subject: Residency & Assessability of foreign income

Question 1

Are you an Australian resident under Australian Taxation law?

Answer

No

Question 2

Will your foreign employment income be taxable under Australian Taxation law?

Answer

No

This ruling applies for the following periods:

30 June 2014,

30 June 2015,

30 June 2016,

30 June 2017.

The scheme commences on:

1 July 2013.

Relevant facts and circumstances

You have left Australia indefinitely, and intend to reside in Overseas for at least several years but this will depend on the job.

You do not intend to return to Australia if your job results in permanent Overseas residency, however if this does not eventuate you have indicated you may return in approximately mid 2017.

You departed on in early 2014.

You have undertaken an employment contract with a private company overseas.

You are required on a semi regular basis to also fly across the world to various countries in relation to your overseas employment.

The base of operation for this company is in Overseas country.

You have relocated Overseas.

Your relocation was an employment pre-requisite.

Your family also relocated, including spouse and several children.

Your employment contract is for a period of at least X months. It may span indefinitely as there is scope to expand the length of the contract if mutually agreed.

All your personal belongings have been sold if not able to be taken to Overseas.

You maintain a rental property in Australia (previously your primary place of residence).

You have no other significant assets in Australia aside from your superannuation.

You and your spouse have notified the Electoral roll that you are going to be overseas indefinitely and request that your name be removed from the electoral roll.

You have provided a copy of your overseas lease agreement valid for several years. Your rental expenses are covered by your employer as part of your employment contract, you have sourced the rental property yourself.

You are a citizen and your country of origin is Australia.

In Overseas you have a Permanent Working Visa.

You are unable to stay permanently, and must maintain employment with a Overseas company in order to maintain your residency status.

You have been living in Australia at various addresses since 200X returning from a several month stint in a different overseas country.

You do not hold a return airline ticket, however your employer has provided free airline tickets back to Australia at your convenience.

You have no plans to return to Australia at this stage, but any return trips would be for holiday purposes during school holidays to visit family and friends.

You sold your household effects online, you are only taking smaller items such as toys for the children with you.

You have not yet established sporting or social connections overseas.

Neither you or your spouse are a Commonwealth Government of Australia employee for super purposes.

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

You have advised Australian companies with whom you have investments that you are a foreign resident.

You have advised medical providers to have your name removed from their records.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Reasons for decision

Summary

You are not a resident of Australia for taxation purposes from the date you depart Australia. You are not assessable in Australia on your foreign sourced income for the period you are a non-resident of Australia.

Detailed reasoning

An Australian resident for tax purposes is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) as a person who is a resident of Australia for the purposes 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 an Australian resident for income tax purposes. These tests are:

1. The resides test;

2. The domicile test;

3. The 183 day test; and

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.

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 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 resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'. 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'.

The High Court in FCT v Miller (1946) 73 CLR 93 at 99 (Miller) said that the term 'reside' should be given its widest meaning. This was restated in Subrahmanyam v FCT (2002) 51 ATR 1173 at 1186.

Various court and Tribunal decisions have also considered the ordinary meaning of the word 'reside' with the recent being Pillay v Commissioner of Taxation [2013] AATA 447 (Pillay); Sneddon v Commissioner of Taxation [2012] ATC 10-264 (Sneddon), Iyengar v Commissioner of Taxation [2011] ATC 10-222 (Iyengar).

The Courts and the Tribunal have generally taken into account the following eight factors in considering whether an individual is an Australian resident according to ordinary concepts in an income year:

1. Physical presence

2. Nationality

3. History of residence and movements

4. Habits and "mode of life"

5. Frequency, regularity, and duration of visits to Australia

6. Purpose of visits to or absences from Australia

7. Family and business ties to difference countries

8. Maintenance of place of abode

No one factor is determinative and the weight given to each factor will vary in each case. This is because residency is determined by a question of fact rather than law and must be determined in each particular circumstance. We will consider each of these factors in turn, to determine whether they have any weight in determining your residency.

1. Physical presence

Whether a person is physically present in a country at some time during the income year has been considered relevant by the courts. While physical presence and intention will generally coincide, physical absence does not necessarily mean that a person ceases to be a resident in that place. The test was stated in Joachim v FCT (2002) 50 ATR 1072 at 1074 as '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 your case, we consider that you have, to some extent, retained an association with Australia as you have a property and superannuation here. However, as in Mayhew v FCT [2013] AATA 130 (Mayhew) these factors are not persuasive, and we accept that you do not intend to return to Australia and no longer consider Australia to be your home.

2. Nationality

Generally, nationality will not be a factor to be taken into account. Its relevance is when the question of residency could go either way. In your case, you are an Australian citizen.

3. History of residence and movements

Both the past and subsequent history of a person's residence may be relevant in determining whether a person is resident in a particular income year. In your case, we are looking to your residency for future income years. It follows that there is no future behaviour to look at, only prior. For this reason there is less weight to be attributed to this factor. You have been living in Australia at various addresses since 200X since returning from an overseas stint.

4. Habits and "mode of life"

This factor looks at a person's habits of life and daily routines to determine whether there has been any change or break in the habits, or mode of life, which would lead to the conclusion that they have ceased to reside in a location.

You are relocating overseas with your spouse and children, along with personal belongings, and have no intentions to retain Australian habits or daily routines or regularly visit Australia.

5. Frequency, regularity, and duration of visits to Australia

The frequency and duration of visits to a country other than one you are resident in has been said by the courts to be an important factor in deciding whether you are resident in that country you visit (Commissioners of Inland Revenue v Lysaght [1928] AC 234). The fact that visits are of a short duration does not necessarily preclude the finding of residence in that country.

In your case, your only return trips to Australia will be for holiday purposes to visit family and friends. Your house will be rented and thus unavailable for your accommodation when you return on holiday.

6. Purpose of visits to or absences from Australia

The purpose of your visits to Australia has been discussed above. You have relocated overseas to live and work.

7. Family and business ties with Australia

In Iyengar it was stated that family or business ties with a country are an important factor in determining whether or not a person is a resident of a particular country. The case of Shand v FCT (2003) 52 ATR 1088; [2003] AATA 279 (Shand) supports the view that family ties will outweigh business ties where the two conflict. In Shand the taxpayer and his wife lived abroad for business purposes for two years, and then again spent large portions of the year abroad in two more income years. The taxpayer claimed that he did not reside in Australia, however the tribunal found that he had not abandoned his residence, domicile and place of abode in Australia as, amongst other things, his 'personal effects and emotional ties were within Australia, whereas the only factor that tied him to Kuwait was his business.'

In your case, we consider that your family ties are stronger overseas, due to your spouse and children living with you there.

8. Maintenance of place of abode

This factor looks at whether or not a person maintains a place of abode in a country, whether owned by them or not, when they are absent from that country.

In your case, you have retained a house in Australia. However, this does not necessarily mean that you have maintained it. You have rented your family home and sold or taken personal effects with you overseas.

You do not maintain a place of abode in Australia in the sense that you do not have a home in Australia where you are able to freely enter and stay as you please. You do not retain your possessions there. You do maintain a place of abode overseas. Although you do not own the accommodation, you maintain an abode that you and your family live in and continue to maintain it when you are absent for holidays to Australia.

Conclusion - Resides test

A recent decision of the Administrative Appeals Tribunal (AAT), Mayhew v FCT [2013] AATA 130 (Mayhew), involved circumstances with similarities to yours. In that case, the taxpayer had moved from Australia to Abu Dhabi. He had retained property in Australia that his son lived in while helping to manage the taxpayer's properties in Australia. His wife had remained in Australia initially to complete work there before joining him permanently overseas. These circumstances are quite similar to yours. The tribunal referred to the statement of Williams J in Koitaki, mentioned above, in finding that the taxpayer did not reside in Australia under the 'resides' test.

Although you intend to holiday in Australia to visit your family and friends less weight should be given to this fact as your immediate family are joining you overseas. As stated by the AAT in a recent case Sully and Commissioner of Taxation [2012] AATA 582

I also accept the taxpayer continued to have familial relationships in Australia, and that he visited his family in Australia at least once during the year of income in question. The fact he should have continuing familial links is not of itself remarkable: everyone comes from somewhere, after all. But those roots do not necessarily indicate the taxpayer was likely to return to this country.

In looking at each of the above factors, and bearing in mind that the widest meaning possible should be given to the term 'resident', we do not consider that you are residing in Australia under this test.

Even where a person is not considered to 'reside' in Australia in accordance with the ordinary meaning of that term, the person will still be considered to be a resident of Australia for domestic taxation purposes where they meet one of the other three statutory residency tests, being the domicile and permanent place of abode test, 183 day test and superannuation test.

The domicile test

If a person has their domicile in Australia they will be an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

Your domicile is the place considered by law to be your permanent home and usually something more than a residence. You may have no fixed place of abode but under the law you will always have a domicile. You can only have one domicile at the one time, whereas you may be resident in two or more places.

There are three basic types of domicile as established by common law and statutes:

Domicile by origin, which is attributed to everyone at birth. For example, a nuptial child adopts the domicile of its father, an ex-nuptial child that of its mother.

Domicile by choice, which will be inferred by law, if there is both a change of residence and an intention of making the change permanently or at least indefinitely. Any person without a legal disability can have a domicile of choice.

Domicile by operation of law, which is imposed by law. For example:

• an infant's domicile is that of its parents and changes when the parent's domicile changes,

• a married woman can acquire her own domicile, independent of her husband,

• the age of capacity to have an independent domicile is fixed at;

• 18 years, or

• when the person marries.

If you are a resident who has always lived in Australia you will retain a domicile here when you are absent overseas, unless you choose to permanently migrate to another country.

You are unable at this stage to say with certainty that you will not return to Australia at the cessation of your employment, however you intend to pursue steps towards renewing your employment contract and changing your permanency overseas to enable you to stay for an indefinite period of time.

As per our current standing ATO view IT 2650, an individual with an Australian domicile but living outside Australia will retain that domicile if he or she intends to return to Australia on a clearly foreseen and reasonably anticipated contingency e.g., the end of his or her employment.

However this can be contrasted to a person who has only a vague possibility of returning to Australia, such as making a fortune or some sentiment about dying in the land of his or her forebears. Such a state of mind is consistent with the intention required by law to acquire a domicile of choice in the foreign country.

Currently, your situation as per IT 2650, would indicate that you have not yet changed your Domicile to Overseas but may do so in the future. As such, we will now consider whether you have established a permanent place of abode outside of 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.

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 (see leading case on whether a permanent place of abode is outside Australia; F.C. of T. v. Applegate (Applegate) 79 ATC 4307; (1979) 9 ATR 899).

IT 2650 discusses factors commonly considered by the Courts and Boards of Review/Administrative Appeals Tribunal and the relative weight that should be attributed to each to ascertain a person's permanent place of abode.

Factors commonly considered:

(a) the intended and actual length of stay overseas,

(b) whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time;

(c) whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia,

(d) whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence,

(e) the duration and continuity of the taxpayer's presence in the overseas country; and

(f) the durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

The weight to be given to each factor will vary with the individual circumstances of each particular case and no single factor will be decisive. Applegate seems to indicate, however, that greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant. The fact that a taxpayer knows that he or she will return to Australia at a definite point in time (factor (b)) does not, of itself, mean that he or she does not have a permanent place of abode outside Australia.

a) Length of overseas stay

A recent case, Ellwood v Commissioner of Taxation [2012] AATA 869, Mr Dean Letcher QC, Senior Member noted that "Times change and yesterday's "permanence" has become less fixed today with increased travel and migration."

Although you are required on a quarterly basis to also fly across the world to several countries for your employment, your fixed base until a subsequent year is Overseas where your home, spouse and children will be. You also intend to pursue further employment options Overseas with hopes to renew your contract of employment and gain permanent residency.

In Federal Commissioner of Taxation v. Applegate 79 ATC 4307 although the taxpayer had a permanent place of abode outside Australia, notwithstanding that he ultimately intended to return here, he was still considered a non-resident for the period he was overseas.

Therefore, even though you have an idea to return to Australia at some distance point in time for example if your employment is not extended, this is not enough to prevent you establishing a permanent place of abode overseas.

c) Whether a home has been established outside Australia

You have provided a copy of your overseas lease agreement valid for 3 years. Your rental expenses are covered by your employer as part of your employment contract, and you have sourced the rental property yourself. You brought what possessions you could with you overseas such as small items for your children. The rest were sold prior to your departure.

Although you have what could be considered employer provided accommodation, it can be contrasted to cases demonstrating temporary accommodation with limited resources and facilities such as Iyengar, Pillay, Boer v Commissioner of Taxation [2012] AATA 574, and ZKBN v Commissioner of Taxation [2013] AATA 604. It does not prevent you from establishing a permanent place of abode overseas as you have:

- relocated with your spouse and young children,

- brought with you what possessions would deemed logical and reasonable,

- have no intentions to return to live and work in Australia in the immediate future.

f) Durability of association with a particular place in Australia

You are maintaining a rental property in Australia (previously your primary place of residence) but have no other significant assets in Australia aside from your superannuation. IT 2650 recognises that maintaining a long term investment account, does not prevent an individual establishing a permanent place of abode in the overseas country. The AAT noted in Mayhew that the taxpayer maintaining a rental property in Australia was not a persuasive argument against abandonment of an Australian home.

Thus we do not consider the maintenance of these Australian assets a persuasive argument to prevent you establishing a permanent place of abode Overseas.

The Judgment by Latham CJ in Miller discussed that someone can still be a resident in a place if they choose or are directed to that place under a contract of employment, that is the predominant drive to live in that place was employment. It was noted that;

"the same thing might be said of many millions of people in the world who reside in a particular place only because they have to do their work at or near that place. But, if voluntary choice is to be regarded as an important element in determining residence, I see no reason why it should not be said that the respondent, in entering into an agreement to serve in such places as might be specified, voluntarily ordered his life so as to reside from time to time in those places as required by the exigencies of his duties."

Again, your situation can be contrasted to cases where the driving or only factor of being in a country was for their employment, and no or few other efforts were made to establish a permanent abode overseas or sever ties from Australia.

Conclusion - Domicile and Permanent place of abode test

You have an Australian domicile, but have established a permanent place of abode overseas, and will therefore be considered not to satisfy the domicile test for Australian residency purposes.

The 183-day test

Under this test, if you are actually present in Australia for more than half the income year, whether continuously or intermittently, you may be said to have a constructive residence in Australia unless it can be established that:

• your usual place of abode is outside Australia,

• you have no intention to take up residence here.

This test will not apply to your circumstances as you will not be present in Australia for more than half the income year.

The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the PSS or the CSS, or that person is the spouse or child under 16 of such a person. To be eligible to contribute to those schemes, you must be or have been a Commonwealth Government employee.

This test will not apply to your circumstances as neither you or your spouse have been Commonwealth Government employees.

Your residency status

You have not satisfied any of the tests under subsection 6(1) of the ITAA 1936 and as such are non-resident of Australia for taxation purposes.

Assessability of foreign income

Section 6-5 and Section 6-10 of the ITAA 1997 specifies your assessable income as a foreign resident includes the ordinary and statutory income you derived directly or indirectly from all Australian sources during the income year and any other income which a provision includes on some basis other than having an Australian source.

You are not assessable in Australia on your foreign income from your overseas employment under section 6-5 of the ITAA 1997.