Edited version of private advice

Authorisation Number: 1012673257955

Ruling

Subject: Residency

Questions and answers

1. For the income year ending 30 June 2015, will you be an Australian resident for taxation purposes under the 183 day test?

Yes.

2. Will any tax that you pay in foreign country X be credited in Australia?

Yes.

3. For the income years ending 30 June 2016, 2017 and 2018, if you do not work in foreign country X, will you be an Australian resident for taxation purposes?

Yes.

4. If the answer to question 3 is yes, will you need to file tax returns in Australia for the income years ending 30 June 2016, 2017 and 2018 years?

Yes.

5. Will any tax that you pay in foreign country X be credited in Australia?

Yes.

6. For the income years ending 30 June 2016, 2017 and 2018, if you do work in foreign country X, will be an Australian resident for taxation purposes?

Yes.

7. If the answer to question 6 is yes, will you need to file tax returns in Australia for the income years ending 30 June 2016, 2017 and 2018?

Yes.

8. Will any tax that you pay in foreign country X be credited in Australia?

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

The scheme commenced on

1 July 2014

Relevant facts and circumstances

You are a citizen of both Australian and foreign country Y.

Your country of origin is foreign country Y.

You and your spouse will be working fulltime in Australia until early 2015. You will take 3-4 weeks annual leave before going overseas.

Prior to departure, you are living on a permanent basis at your residential dwelling.

You and your spouse will be leaving to serve as missionaries in foreign country X. Initially your spouse will be on a contract, with the possibility of extending it, depending on the needs there and your spouse's health.

You believe your visa will be a dependent's visa. You won't know the full details until the initial contract is finalised.

Your spouse will be paid. You will not be paid.

You have never had any intention of making your home indefinitely outside Australia.

You have children who are independent. They will still be living in your family home in Australia. You will continue to contribute towards the insurance, upkeep and maintenance of the house.

You plan to return to Australia if you do not want to extend your contract or if your spouse's employer does not think you are suitable for the role anymore.

You do not hold a return airline ticket. You have not purchased your tickets to leave yet.

You intend to come back to visit your children and the family home every year for a period. You have yet to get the full details of your spouse's leave entitlement. If the entitlement permits, then you will want to visit more often and for longer periods.

You do not have any details of the place where you will live overseas yet, but you are hoping the employer will be able to sign a lease for you before you leave Australia.

The assets you have overseas will be a normal cash account for your spouse's salary and your daily expenses. Other than that, your assets will be what you bring with you from Australia. You will have no cars or property, as they will belong to the employer.

Your assets in Australia, apart from your home are:

• investment properties

• bank accounts

• a car

• household belongings

• you will keep your car and home content insurance current

• your SMSF which you hold with your spouse*

*Someone will be your Power of Attorney to manage the fund on your behalf when you are overseas. They are also director of the fund.

Most of your household effects in Australia will remain in the family home, to be used by your children. You will take some clothes and possibly some kitchen utensils and your spouse's library of books that are relevant to teaching.

You will be receiving income from Australian sources: rental income and bank interest.

You have a job in Australia. You are applying for leave without pay, but you are not sure if your employer will approve it. If not, you will probably need to resign.

Your social and sporting connections you have with Australia are:

• your children

• your sibling

• your in-law and

• your friends .

You have yet to establish social and sporting connections with foreign country X but you expect to make new friends.

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

You will not advise the Australian Electoral Office to have your name removed from the electoral roll. You will still lodge a postal vote.

You will not advise any Australian financial institutions with whom you have investments that you are a foreign resident so that non-resident withholding tax can be deducted.

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

You have not lodged tax returns in any other countries.

You will state as the reason for going overseas when completing the Australian immigration Outgoing passenger card as accompanying your spouse.

You are over 16 years of age.

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.

Prior to departure, you are living on a permanent basis at your residential dwelling.

You and your spouse will be leaving to serve in foreign country X. Initially this will be on a contract, with the possibility of extending it, depending on the needs there and your spouse's health.

You have not been granted permanent residency by any country. You believe your visa will be a dependent's visa. You won't know the full details until the initial contract is finalised.

You have never had any intention of making your home indefinitely outside Australia.

Your will maintain your family home in Australia. You will continue to contribute towards the insurance, upkeep and maintenance of the dwelling.

You plan to return to Australia if you your spouse's contract is not extended.

You intend to come back to visit your children and the family home every year for a period. You have yet to get the full details of your spouse's leave entitlements. If the entitlements permit, then you will want to visit more often and for longer periods.

You will live in rented accommodation while overseas.

You have a job in Australia. You are applying for leave without pay. If you do not get it you will probably resign.

(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 are a citizen of both Australian and foreign country Y.

(iii) History of residence and movements

Prior to departure, you are living on a permanent basis at your residential dwelling.

You will move to foreign country X to live with your spouse who will take up paid employment.

You will live in rented accommodation in foreign country X.

You intend to come back to visit your children and the family home every year for a period of one month; longer and more often if your spouse's leave entitlements permit.

You plan to return to Australia if your spouse's contract is not extended.

(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 and your spouse will serve in foreign country X.

Your will maintain your family home in Australia with your children living in it.

You intend to come back to visit your children and the family home every year for a period, more often and for longer periods if your spouse's leave entitlements permit.

You will live with your spouse in rented accommodation while in foreign country X.

You have a job in Australia. You are applying for leave without pay. If you do not get it you will probably resign.

You will not be paid while in foreign country X. Your spouse will be paid.

The assets you have overseas will be a normal bank account for your spouse's salary and your daily expenses.

You will retain assets in Australia:

• your home

• investment properties

• bank accounts

• a car

• household belongings

• a SMSF.

You will be receiving income from Australian sources.

You will not have your name removed from the electoral roll; you will still lodge a postal vote.

You will not advise any Australian financial institutions with whom you have investments that you are a foreign resident so that non-resident withholding tax can be deducted.

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

You will not lodge tax returns in foreign country X.

(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 intend to come back to visit your children and the family home every year for a period of one month; more often and for longer periods if your spouse's leave entitlements permit.

(vi) Purpose of visits to or absences from Australia

You and your spouse will live and work in foreign country X.

You intend to come back to visit your children and the family home.

(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

In Australia you have:

• your children

• your sibling

• your in-law

Business or economic

In Australia you have:

• investment properties

• bank accounts

• a SMSF.

In foreign country X you will have a joint bank account with your spouse.

Assets

In Australia you have:

• your dwelling

• investment properties

• bank accounts

• a car

• household belongings

• a SMSF.

In foreign country X you will have a joint bank account with your spouse.

(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 will maintain your family dwelling in Australia.

You will contribute towards the insurance, upkeep and maintenance of the dwelling.

Most of your personal belongings will remain in the family dwelling.

You intend to come back to visit your children and the family dwelling every year for a period of one month; longer and more often if your spouse's leave entitlements permit.

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 will maintain your family dwelling in Australia with most of your belongings in it

• you will contribute towards the insurance, upkeep and maintenance of the dwelling

• you intend to come back to visit your children and the family home every year

• you have never had any intention of making your home indefinitely outside Australia

• you will live in rented accommodation while in foreign country X

• you have a job in Australia from which you may resign if you cannot get leave without pay

• most of your assets are and will remain in Australia

• your social and sporting connections you have with Australia are much more extensive than they you will be with foreign country X, where you expect to make some friends

• you will not have your name removed from the electoral roll; you will still lodge a postal vote

• you will not advise any Australian financial institutions with whom you have investments that you are a foreign resident so that non-resident withholding tax can be deducted

• you will not advise Medicare or health insurance provider to have your name removed from their records.

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. Also, as you have specifically asked if you will be a resident of Australia under the 183 day test for the income year ended 30 June 2015, we will also discuss the 183 day test for the 2015 income year

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.

In your case, you were born in foreign country Y and moved to Australia and became a citizen of Australia.

Therefore, your domicile of origin was foreign country Y and you changed your domicile to Australia. Your domicile will still be Australia while you are living in foreign country X as you have not indicated that you will be taking any legal steps to change your domicile to that country.

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 taxpayer 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.

Although it is your intention to live with your spouse in foreign country X on an ongoing basis (for some years and possible longer) you have not been granted permanent residency there and the duration and continuity of your presence there is contingent on your spouse's continued employment there. You have also stated that you and your spouse have no intention of remaining in foreign country X permanently and that you intend returning to Australia, unless his employment contract is extended.

You will live in rented accommodation in foreign country X which you will furnish it with some of your household goods from Australia. However, you will retain your dwelling in Australia, where most of your of household goods will remain. You will continue to contribute towards the insurance, upkeep and maintenance of the dwelling. While absent, your children will live in your dwelling.

As you will not establish a permanent place of abode in foreign country X your presence there will temporary in nature, being dependant on your spouse's continued employment there. You cannot establish a permanent place of abode overseas when your presence in a place is temporary.

The Commissioner is not satisfied you will have a permanent place of abode outside of Australia while you live and work in foreign country X. Therefore, you will remain a resident of Australia under the 'domicile and permanent place of abode' test of residency.

The 183-day test (for the income year ended 30 June 2015)

Under the 183 day test you are considered a resident of Australia if you are present in Australia for a total period of more than half of the year of income, i.e. 183 days, unless the Commissioner is satisfied that your usual place of abode is outside Australia and you do not intend to take up residence in Australia.

You will be living and working fulltime in Australia.

You will be on annual leave in Australia.

You will be present in Australia for a total period of more than half of the income year ending 30 June 2015.

The Commissioner is satisfied that your usual place of abode is outside Australia for this period.

Therefore you will be a resident of Australia under the 183-day test for the income year ended 30 June 2015.

As you are a resident of Australia for tax purposes for the years of the ruling, there is no need to consider the superannuation test.

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 (the resides test and the domicile test), you are considered to be an Australian resident for taxation purposes for the income years ending 30 June 2015, 2016, 2017, and 2018. For the income year ending 30 June 2015 you will also be a resident of Australia under the 183-day test.

Assessable income and lodging income tax returns

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that your assessable income includes income from ordinary concepts derived from all sources whether in or out of Australia.

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 (the resides test and the domicile test), you are considered to be an Australian resident for taxation purposes for the income years ending 30 June 2015, 2016, 2017, and 2018. For the income year ending 30 June 2015 you will also be a resident of Australia under the 183-day test.

Foreign income tax offset (FITO)

If you earn income in foreign country X and pay tax on it there, you may be entitled to claim a FITO in your Australian income tax return. For more information on FITO, go to the website ATO.gov.au and type QC39816 in the search.

You should check with the relevant tax authorities about whether you are assessable on your income there and whether you may be entitled to any tax credits.