Edited version of your written advice

Authorisation Number: 1012638867953

Disclaimer

You cannot rely on this edited version in your tax affairs. You can only rely on the advice that we have given to you or to someone acting on your behalf.

The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions.

Ruling

Subject: Residency status

Question and answer:

Were you a resident of Australia for income tax purposes?

Yes.

This ruling applies for the following period:

Year ending 30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances

You were born in country Z and are a citizen of Australia.

You have a spouse and no dependants.

You were employed by organisation XYZ on an employment contract that contained a provision for an extension.

You were required by your employer to relocate overseas to work on a major project.

You were expected to work in country V for a number of years.

Shortly after, you and your spouse departed Australia.

You entered country V on a country V work permit that did not allow you to remain in country V indefinitely. This permit was organised by your employer.

While working in country V you lived in rented accommodation.

Contained within your employment contract was the provision for the reimbursement of all expenses approved in advance in relation to travel, accommodation and incidental expenses.

While employed in country V you returned to Australia on a number of occasions for brief periods for both business purposes.

When you returned to Australia you stayed in your family home.

Your spouse returned to Australia for once a month for a number of days.

You did not have any assets in country V.

Your assets in Australia included your family home bank account and household items.

All your household items remained in your home in Australia.

You took your personal possessions with you to country V.

All of the foreign sourced income that you derived was transferred to Australia.

On your immigration outgoing card you stated that the reason that you were leaving Australia was 'employment'.

You did not have any social or sporting ties in country V.

You did not advised Medicare, your private health insurer or any Australia financial institutions that you were departing Australia for an indefinite period of time.

You advised the Australian Electoral Commission that you had departed Australia only due to a state election that was being held.

It was never your intention to remain in country V beyond your employment.

You return to Australia indefinitely on completion of your employment assignment.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

Residency

An Australian resident for tax purposes is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to be 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 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 NO. 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 a resident of Australia for tax purposes if they satisfy the conditions of one of the other three tests.

The resides test

In FC of T v Miller (1946) 73 CLR 93 at page 99-100 and Subrahmanyam v FC Of T [2002] AATA 1298; 2002 ATC 2303; (2002) 51 ATR 1173 at paragraph 43-44, it was determined that the word 'resides' should be given the widest meaning.

Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia, identifies a number of factors which assist in determining the residency status of a taxpayer. Although Tax Ruling TR 98/17, discusses the Commissioners view on the residency status of individuals entering Australia, the same principles can be applied to determine whether individuals leaving Australia remained residents of Australia for income tax purposes.

According to paragraph 20 of TR 98/17 factors to be considered in determining residency in Australia are: 

•  intention or purpose of presence;

•  family and business/employment ties;

• maintenance and location of assets; and

•  social and living arrangements.

Paragraph 21 of TR 98/17 further states that:

No single factor is necessarily decisive and many are interrelated. The weight given to each factor varies depending on individual circumstances.

Recent case law decisions have expanded on the list of factors identified in TR 98/17.  Case 5/2013 and Sneddon v FC of T (Sneddons Case), for example, considered the following factors in relation to whether the taxpayer resided in Australia:

(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.^[4]  

Each of these factors will be considered in turn, with reference, where relevant, to recent Australian case law decisions in which the taxpayer was determined to be a resident of Australia in accordance with subsection 6(1).

Physical presence in Australia

A person does not necessarily cease to be a resident of a particular place just 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 (Joachim v Federal Commissioner of Taxation 2002 ATC 2088, at 2090).

In recent court cases taxpayers were found to be residents of Australia for income tax purposes even though they had only spent a minimal period in Australia.

In Iyengar v. Federal Commissioner of Taxation 2011 ATC 10-222, (2011) AATA 856 (Iyengar's Case), it was indicated that there is a requirement that you at least be physically present in Australia for part of an income year. Further in this case it was considered that the taxpayer remained a resident of Australia for income tax purposes even though during the period he was working overseas (2 years and 7 months) he had only returned to Australia for a two week period and for a 10 day period.

In your case, you returned to Australia on a number of occasions for short periods for both business and personal reasons.

Nationality

In Iyengar's Case, it was noted that in most cases, the nationality of a person would not be a factor to be taken into account along with other circumstances in determining where his or her residence is. However, in cases that could go either way, the citizenship of a person may not be completely irrelevant in the conclusion to be drawn from all the relevant facts

In your case, you were born in country Z before moving to Australia and becoming an Australian citizen. While employed in country V your employer provided you with a work visa that did not allow you remain in country V indefinitely.

History of residence and movements

In Iyengar's Case, the Tribunal noted that both past and subsequent history of a person's residence may be relevant in determining whether that person is ordinarily resident (for taxation purposes) in a country in a particular income year. Significant in Iyengar's Case is that when he for filled a long term overseas employment opportunity he would return to his home in Australia for a break before leaving Australia and taking on another overseas employment opportunity.

In your circumstances, you were born in country Z before moving to Australia.

Our records indicate that prior to your departure, you were a resident of Australia for income tax purposes.

(iv) Habits and "mode of life"

In recent cases a taxpayer's habits and mode of life in the country where they are/had been living were considered when determining whether a taxpayer continued to be a residence of Australia for income tax purposes.

In Sneddon's Case, the taxpayer who was found by the court to be a resident of Australia for tax purposes lived in a fully-furnished apartment leased by his overseas employer. The taxpayer's only expenses were his every day living expenses and some furniture and household items that he purchased to make the fully-furnished apartment, provided by his employer more comfortable. Further his employment income was paid in Australian dollars into an Australian bank account and predominantly used to meet his Australian obligations.

Contained within your employment contract is the provision for the reimbursement of all expenses approved in advance in relation accommodation, travel and incidental expenses.

(v) Frequency, regularity and duration of visits to Australia

In Lysaght v Inland Revenue Commissioners (1928) 13 TC 511 (Lysaght's Case) the Court noted that mere fact that visits to a country are of short duration does not of itself exclude residence in that country.

As previously discussed, when considering the issue of return visits to Australia by a taxpayer who was living and working overseas, the Tribunal in Iyengar's Case also noted that the brevity of a visit to a particular country compared to length of time spent abroad does not of itself exclude an individual from being a resident in the country visited. Further, the taxpayer in Iyengar's Case 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 and was also considered to a resident of Australia for income tax purposes.

As previously noted, during the period that you were employed in country V you made a number of return trips to Australia for both business and personal reasons.

(vi)  Purpose of visits to or absences from Australia

In Iyengar's Case, the evidence was that Mr Iyengar's intention was to go to Dubai (and later Doha) and work for Maersk for as long as it took to complete his contract and then to return to Australia, which he did. His motivation for doing so was to use the money he earned under the Contract to pay down the mortgage on the Winthrop home as soon as possible. Such an intention (and motive) is indicative that Mr Iyengar was an Australian "resident" in the relevant period.

In considering the purpose of your absences from Australia, you have stated your absences from Australia are for employment purposes. Further when completing your immigration outgoing card you have stated that you are an Australian resident departing for employment purposes. You have returned to Australia during this period on a number of occasions for both business and personal reasons. Further all of your income that you derived in country V was transferred to Australia.

(vii) Family, assets, business ties to Australia and the overseas country or countries

In recent case's including Iyengar's and Sneddon's case's the courts have looked at the strength of the taxpayer's ties in terms of family, assets and business between Australia and the country that a taxpayer was living as a factor when determining their residency status.

Family

You have a spouse and no dependants. Your spouse spent approximately a number of weeks a month living with you in country V followed by a number of days living in your home in Australia.

Business or economic

As discussed above, you accepted an employment assignment in country V for a number of years.

Assets

Your assets in Australia comprise of your family home, household items and bank accounts.

You did not have any assets in country V.

Maintenance of Place of abode

In Iyengar's Case, the court held that another important factor in determining whether or not a person has ceased to be resident in a particular country is whether the person maintains a 'place of abode' in that country, whether owned by them or not, when they are absent from that country. In Australia, the maintenance of a home in a particular place has usually arisen in relation to the question whether the taxpayer had a "permanent place of abode" outside Australia within the meaning of the first statutory test (the domicile test) in section 6(1)(a)(i) of the ITAA 1936.

You maintained your home in Australia which you returned to when you visited Australia. Further your spouse returned to this home for a number of days per month while you were employed in country V.

Conclusion

It is acknowledged that while you were employed in country V you returned to Australia for brief periods and for the most part for business purposes. Further you were accompanied by your spouse for the greater period of your employment in country V.

With regards to the remaining factors and the findings in recent case's including Sneddon's Case, Iyengar's Case and case 5/2013, all of whom were found to be residents of Australia for income tax purposes the following are significant. Your employer paid for your accommodation, travel and incidental expenses while you were employed in the. Your ties in terms of assets are far more substantial in Australia than country V. You transferred all of you income that you derived in country V to Australia. On your immigration outgoing card you stated that the reason for leaving Australia was employment. Significant is that while you were employed in country V you continued to maintain you home in Australia and that this home was occupied for a number of days per month by your spouse. Further on the occasions that you did return to Australia you stayed at this residence.

In consideration of all of the factors outlined above, it is concluded that you continued to be a resident of Australia for income tax purposes under the 'resides test' during the 2012-13 income year.

Whilst is not necessary to meet more than one test to determine residency for tax purposes (we have already established that you 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 test

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

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 prove an intention to make his or her home indefinitely in that country. In your case you were born in country Z, therefore you're your domicile of origin is country Z. You then moved to Australia and became an Australian citizen and in doing so elected Australia as your domicile of choice. You had no intention of becoming a citizen or permanent resident of country V, therefore your Australian domicile remained unchanged during the period that you were employed in country V.

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.

Paragraph 23 of IT 2650 sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode:

a) the intended and actual length of the taxpayer's stay in the overseas country;

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.

In relation to the weight to be given to each of the above factors, paragraph 24 of IT 2650 states:

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… however… greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant.

Your circumstances are as follows:

• you were required to relocate to country V for employment purposes for a number years with a provision for an extension;

• you intended to remain in country V for only as long as you were employed;

• you returned to Australia once your year employment contract had expired;

• contained within your employment contract was the provision for the reimbursement of all expenses approved in advance in relation to travel, accommodation and incidental expenses.

• your assets in Australia consisted of your family home, bank account and household items;

• you did not have any assets in country V;

• during the years that you were employed in country V you returned to Australia on a number of occasions;

• you maintained you place of residence in Australia and further stayed at this residence when you travelled to Australia for various periods during your overseas employment;

• your spouse returned to your home in Perth for a number of days per month;

• when you departed Australia the reason you put on your outgoing immigration card was that you are departing for the purpose of employment; and

• you have not advised Medicare, your health care provider or any financial institutions that you had left Australia for an indefinite period.

Based on these facts and the greater weight applied against factors (c), (e) and (f), your pattern of behaviour is not consistent with someone establishing a permanent place of abode outside of Australia.

Significant in reaching this conclusion is that your employer paid for all your accommodation, travel and incidental expenses while you were employed in country V. You maintained your Australian home and stayed at this residence on the occasions that you returned to Australia. Your assets are far more substantial in Australia. Further you did not advise Medicare, your health care provider or any financial institutions that you have left Australia for an indefinite period. Based on the above the Commissioner is not convinced that you had established a home outside of Australia.

Accordingly, as your Australian domicile remained unchanged and the Commissioner is not satisfied that you had establish a permanent place of abode outside of Australia, you continued to be a resident of Australia for income tax purposes under the 'domicile test'.

Conclusion

As it has been established that you continued to be a resident of Australia for income tax purposes under both the 'resides' test and the 'domicile' test, there is no need to consider the remaining 2 tests.

Therefore you continued to be a resident of Australia for income tax purposes under subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997.