Edited version of private advice

Authorisation Number: 1012637945329

Ruling

Subject: residency

Question and answer

Are you a resident of Australia for taxation purposes?

Yes.

This ruling applies for the following periods

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

Year ending 30 June 2019

The scheme commenced on

1 July 2014

Relevant facts and circumstances

You are a citizen of Australia only.

You were born in Australia.

You departed Australia on a date.

You acquired a tourist visa on entry and have now acquired a one month work visa.

Then you will purchase a work visa for twelve months. Your next purchased work visa will be for one year which you can renew each year.

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

You are going to be living and working overseas for a minimum of X years.

Due to difficulty finding employment in Australia, you plan to purchase a small business in the foreign country.

You first formed the intention of making your home outside Australia indefinitely when you were made redundant from your employment position could not find any other work in your profession within Australia.

You do not hold a return airline ticket.

You will only return to Australia if there is a family crisis such as a dearth in the family.

You will live in rented accommodation in the foreign country.

You have opened a bank account in the foreign country.

You are yet to purchase some means of transportation.

Prior to your departure you lived in rented accommodation and, for the time leading up to your departure, you lived with friends.

You have shipped all your personal goods and furniture to the foreign country.

You are receiving income from Australia from your super account which you have moved to a transition to retirement account. You will be living of these monies for the next X months.

No members of your family have accompanied you to the foreign country. You have a child who lives in Australia.

You do not have a spouse.

You have no sporting connection with Australia.

In the foreign country you have social friends from within the town where you are renting.

You have no sporting connection with the foreign country.

You have never been a Commonwealth government employee.

You would prefer to vote as an Australia citizen.

Over the next month of two, you will take all of your finances out of your Australian bank account and put it in your account in the foreign country.

Your only assets in Australia are a superannuation account and a bank account.

You have been informed by Medicare that your Medicare card would no longer be active after five years of being absent overseas.

The foreign country has no personal tax system for foreigners but has company tax, which you will be paying.

When completing the Immigration Outgoing passenger card that you were going to look for work.

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)

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:

You have provided a copy of the new contract.

(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.

You were born in Australia and you are a citizen of Australia only.

(iii) History of residence and movements

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

(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 are going to be living and working overseas for a minimum of X years.

You will live in rented accommodation in the foreign country.

You have social connections in the foreign country with friends from within the town where you are renting.

(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.

You will only return to Australia if there is a family crisis, such as a death in the family.

(vi) Purpose of visits to or absences from Australia

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

You will only return to Australia if there is a family crisis.

(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 an adult child who lives in Australia.

You have no spouse.

No members of your family have accompanied you to the foreign country.

Business or economic

You plan to purchase a small business in the foreign country.

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

Assets

In Australia:

• a superannuation account

• a bank account.

In the foreign country:

• your personal goods and furniture

• a bank account

• you will purchase some means of transportation.

(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.

Prior to your departure you lived in rented accommodation and you lived with friends.

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 have not ceased to be a resident of Australia. Specifically;

• you are an Australian citizen

• you acquired a tourist visa on entry in to the foreign country

• you have now acquired a one month work visa

• you will then purchase a work visa for twelve months which you can renew each year

• none of your visas grants you permanent residency

• you have not been granted permanent residency in any other country

• you live in a rented apartment in the foreign country.

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.

As previously mentioned, your continuing presence in the foreign country will be dependent on your visas, none of which grant you permanent residency. Although it is your intention to live and work in the foreign country for at least X years, the duration and continuity of your presence there is contingent on your continued renewal of visas. This makes your presence in the foreign country temporary in nature.

You have not established a permanent place of abode in the foreign country as your presence 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 remain a resident of Australia under the 'domicile and permanent place of abode' test of residency.

Your residency status

As you are a resident of Australia under two of the 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.