Edited version of private advice

Authorisation Number: 1012651959432

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for taxation purposes from when you departed Australia?

Answer

No

Question 2

Are you a part-year resident of Australia for taxation purposes until you departed Australia?

Answer

Yes

This ruling applies for the following period

Year ended 30 June 2014

The scheme commenced on

1 July 2013

Relevant facts and circumstances

Your country of origin is country X and you are a citizen of Australia.

You departed Australia during the relevant financial year on an employment pass from country Z which allows you to work and live there. The employment pass has an expiry date of two years. However, it can be renewed based on your employment status.

You have a permanent position in country Z. There is no period of employment mentioned in your contract and as long as you keep your employment with your current employer the employment pass visa will be renewed.

You will be living in country Z permanently as long as you can work in country Z.

Your spouse and children have accompanied you to country Z.

You do not have any plan to come back to Australia permanently. You will most likely return to Australia two or three times per year, each time for a three day weekend only.

When you return to Australia you will stay with either your friends or relatives.

You have closed your accounts for gas, electricity, telephone and internet in Australia.

You have rented out your house in Australia. You sold part of your furniture due to the short preparation time you had before leaving. The tenant that is leasing your house was happy to use the remaining furniture that you could not sell.

You own a vehicle which is locked in a garage in Australia. You could not sell it before you left as there is a loan on the vehicle. Once you have paid off the loan you will sell it.

You do not currently receive any investment income or get any payment from your shares and managed funds. You are trying to contact the financial institutions to advise them of your overseas address so they will then withhold tax if there are any payments.

You have signed a residential lease in country Z and you have arranged the connection of gas, electricity, water, telephone and internet usage there.

Once you have saved enough money you will consider buying a property in country Z.

You have opened a bank account in country Z. This is account that your employer will pay your salary into.

You have left a few Australian bank accounts open as you have established home loans and related offset accounts.

You will be paying tax on your salary in country Z.

You do not have any social or sporting connections with Australia.

Because you are new to country Z you have not yet established any social or sporting connections in country Z. You have never had such connections in your life before.

Neither you nor your spouse have ever been Commonwealth Government of Australia employees.

Your arguments and references

After researching the general information on the ATO website it would appear that your tax residency will be changed to non-tax resident. However, the residency calculator was unable to determine your residency status.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

An Australian resident is defined in section 995-1 of the Income Tax Assessment Act 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 determine whether an individual is a resident of Australia for income tax purposes. These tests are:

• the resides test;

• the domicile test;

• the 183 day test; and

• the superannuation test.

The primary test for deciding your residency status is whether you reside in Australia according to the ordinary meaning of the word resides. However, where you do not reside in Australia according to ordinary concepts, you may still be a resident of Australia for tax purposes if you meet the conditions of one of the other three tests.

When determining your residency status once one of the tests is met and you are found to be an Australian resident, it is not necessary to examine the remaining tests.

Resides test

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'.

Although you intend to return to Australia two or three times per year, you will not be staying for more than three days at a time.

You are not residing in Australia and your usual or settled abode is now in country Z with your spouse and children. Consequently, as you do not satisfy the resides test, it is necessary to apply the other three tests to your circumstances.

Domicile test

You are a resident of Australia if your domicile is here, unless your permanent place of abode is outside Australia. Permanent in this sense does not mean everlasting or forever but is contrasted with temporary or transitory.

Taxation Ruling IT 2650 Income tax: residency - permanent place of abode outside Australia states at paragraph 21 that in order to show that a new domicile of choice in a country outside of Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country. The ruling also outlines some of the factors considered relevant in determining a person's permanent place of abode.

You are an Australian citizen. You will be living and working in country Z indefinitely and you do not intend to return to live or work in Australia at any definite point in time. You will be visiting Australia for short periods two or three times per year.

You have signed a lease on a property for you and your family to live and when you have saved enough money you will purchase property in country Z.

As these circumstances support the view that your permanent place of abode is outside Australia, you are not a resident of Australia for tax purposes under the domicile test.

183-day test

You will be a resident of Australia in a year of income if you are physically present in Australia for 183 days, unless it can be established that your usual place of abode is outside Australia.

You were physically present in Australia until you departed more than 183 days into the relevant financial year. However, you and your family have left Australia indefinitely and have permanent work and established a home in country Z. Until you left Australia your usual place of abode was your home in Australia; it cannot be said that your usual place of abode was in country Z during that year.

Under the 183 day test you were a part-year resident. Your Australian residency ceased from the date you departed for country Z.

Superannuation test

This test does not apply to you as neither you nor your spouse have ever been employed by the Commonwealth Government of Australia.

Your residency status

You were a resident of Australia until the day you departed to live and work in country Z indefinitely.

Additional information

Changing from resident to non-resident during an income year

If your status changes from resident to non-resident before the end of an income year you should answer 'yes' to the question 'Are you an Australian resident?' on your tax return for that year. This ensures you are taxed at resident rates for that part of the tax year you were resident in Australia.

Your non-residency for part of the year will be taken into account by a reduction in your tax-free threshold for that year. You will be entitled to a pro-rata tax-free threshold for the number of months you were an Australian resident during the income year. To do this, you will need to complete question A2 on your tax return 'Part-year tax-free threshold'

Non-residents of Australia do not have to pay the Medicare levy, so you can also claim the number of days that you were not an Australian resident during a tax year in your return as exempt days.