Edited version of your written advice

Authorisation Number: 1012707352570

Ruling

Subject: International issues - residency

Question 1

Is the taxpayer a resident of Australia in respect of the income years ending 30 June xxxx, 30 June yyyy and 30 June zzzz for the purposes of section 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No. The taxpayer is not considered to be a resident of Australia for the purposes of section 6(1) of ITAA 1936 during the income years ending 30 June xxxx, 30 June yyyy and 30 June zzzz.

This ruling applies for the following periods:

Year ending 30 June xxxx

Year ending 30 June yyyy

Year ending 30 June zzzz

The scheme commences on:

1 July wwww

Relevant facts and circumstances

The Taxpayer arrived in Australia many years ago and is considered to have acquired an Australian domicile by choice following her migration to Australia.

The Taxpayer advised that she is not an Australian government employee and is not a member of a Commonwealth superannuation fund. The Taxpayer is also not the spouse or child of someone who is treated as a resident of Australia under the Commonwealth superannuation test as provided in section 6(1) of ITAA 1936.

During vvvv income year, the Taxpayer relocated to Country X.

The Taxpayer applied for a ruling on their residency status in respect of the xxxx, yyyy and zzzz income years

Continuing Australian Association

The Taxpayer provides the following information in their private ruling application:

Family

The Taxpayer's spouse is currently residing in Australia as they have several business ties to Australia that prevent them from relocating to Country X with the Taxpayer on a permanent basis.

The Taxpayer has siblings residing in Australia.

The Taxpayer's parent resides in the Country X but spends a few months in Australia.

Assets

The Taxpayer owns a block of vacant land in an Australian state, currently being listed for sale.

The Taxpayer has a member balance with an Australian superannuation fund. This is not a Commonwealth superannuation fund.

The Taxpayer has no bank account in Australia. The Taxpayer still maintains Australian credit cards for travel purposes.

The Taxpayer also has small investments in an Australian primary production business.

The Taxpayer was also appointed director of an Australian company, directly related to their consulting business in Country X.

Established Country X associations

The Taxpayer and their spouse leased a residential property in Country X since their relocation. The lease has been renewed twice, for 12-month period each time. The Taxpayer regards this property as their home and main residence.

Upon their relocation from Australia, the Taxpayer shipped their personal effects and belongings to Country X via air freight. The Taxpayer has furnished their property with such items as well as with newly bought furniture and household items.

The Taxpayer has entered into an agreement to carry out work as a consultant in Country X. The Taxpayer has furnished an office in their home in Country X to use as a base for this work.

The Taxpayer has opened several bank accounts with Country X financial institutions.

The Taxpayer has registered as a voter with Country X's electoral services authority.

The Taxpayer has also received working permission from the relevant Country X authority.

The Taxpayer has also registered for, and used, healthcare services in Country X.

The Taxpayer registered for social activities in Country X.

The Taxpayer has entered into arrangements for services of an accountant and lawyer in Country X.

The Taxpayer's spouse has frequently visited the Taxpayer either in Country X or other countries. The Taxpayer's spouse intends to relocate to Country X permanently in xxxx year.

The Taxpayer's child has enrolled in a secondary boarding school in Country X with the intentions to apply for universities in Country X in the upcoming year.

Relevant legislative provisions

Income Tax Assessment Act 1936 paragraph 6(1)(a),

Income Tax Assessment Act 1936 subparagraph 6(1)(a)(i),

Income Tax Assessment Act 1936 subparagraph 6(1)(a)(ii),

Income Tax Assessment Act 1936 subparagraph 6(1)(a)(iii),

Income Tax Assessment Act 1997 subsection 6-5(2),

Income Tax Assessment Act 1997 subsection 6-5(3),

Income Tax Assessment Act 1997 subsection 6-10(4),

Income Tax Assessment Act 1997 subsection 6-10(5) and

Income Tax Assessment Act 1997 section 995-1.

Reasons for decision

An 'Australian resident' is generally assessable on ordinary and statutory income derived from all sources, whether in or out of Australia, during the income year, respectively under subsections 6-5(2) and 6-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997). In contrast, a 'non-resident' is generally only assessable on ordinary income and statutory income derived from Australian sources during the income year, respectively under subsections 6-5(3) and 6-10(5) of the ITAA 1997.

The term 'Australian resident' is defined in section 995-1 of ITAA 1997 to mean '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' are defined in subsection 6(1) of the ITAA 1936 as:

'(a) a person, other than a company, who resides in Australia and includes a person:

(i) whose domicile is in Australia, unless the Commissioner is satisfied that the person's permanent place of abode is outside Australia;

(ii) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and that the person does not intend to take up residence in Australia; or

(iii) who is:

(A) a member of the superannuation scheme established by deed under the Superannuation Act 1990; or

(B) an eligible employee for the purposes of the Superannuation Act 1976; or

(C) the spouse, or a child under 16, of a person covered by sub-subparagraph (A) or (B);'

Therefore, if a person does not reside in Australia, commonly referred to as 'residence according to ordinary concepts', that person may nevertheless be considered a resident of Australia if he or she satisfies any one of the three additional statutory tests set out in subparagraphs 6(1)(a)(i) to 6(1)(a)(iii) of the ITAA 1936. These tests are:

(i) Domicile and permanent place of abode test;

(ii) The 183 days test; and

(iii) The Commonwealth superannuation fund test.

Residency for income tax purposes

The question of a taxpayer's residence is to be determined on a year-by-year basis so as to determine the taxpayer's annual liability to Australian income tax.

In Commissioner of Inland Revenue v. Lysaght [1928] A.C. 234, it was held that a decision on a question of 'residence' was a finding of fact, i.e. it is essentially a question of fact whether a person does or does not comply with the meaning of that expression and that there is no technical or special meaning attached to the expression for the purposes of the Income Tax Act.

Following this, the judgement of the High Court in Commissioner of Taxation v. Miller [1946] HCA 23 ('Miller') is considered as decisive in illustrating the way in which the question of 'resident' or 'non-resident' has become a question of degree and therefore of fact.

However, in relation to the taxpayer's private ruling application, it is assumed that the information provided by the taxpayer is applicable for the three income years under consideration and that the taxpayer's circumstances will not change significantly in those three income years.

Residency according to ordinary concepts:

The High Court held in Miller that the primary test for deciding the residency of an individual, for Australian income tax purposes, is whether the individual 'resides' in Australia.

The term 'reside' is not defined in Australian income tax legislations and therefore it takes its ordinary meaning. The Macquarie Dictionary 6^th Edition (2013) defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

Taxation Ruling TR 98/17 contains the Commissioner's interpretation of the ordinary meaning of the word 'resides' (within the definition of resident in subsection 6(1) of the ITAA 1936). TR 98/17 is specifically relevant to the question of residency in relation to individuals entering Australia. Therefore, as it was determined in a previous private ruling that the Taxpayer is a non-resident of Australia during the period to 30 June wwww, TR 98/17 is relevant to this current ruling application.

At paragraphs 42 to 63, TR 98/17 provides a detailed examination of factors that may indicate that individuals are residing here:

Intention or purpose of presence:

It follows from the decision in Gregory v. DFC of T [1937] 57 CLR 774 that the individual's intention, purpose or reason for being in Australia assists in determining whether an individual resides in Australia.

Since the Taxpayer's departure from Australia in vvvv year, they have only made 4 trips back to Australia with the total length of stay being aa days across two income years. It was provided in the application that the main purpose of these trips has been to attend special family functions. Two company board meetings were also scheduled to coincide with the Taxpayer's trips. The Taxpayer also expects to have similar travel patterns back to Australia in the next three income years and for similar purposes.

The Taxpayer's trips are not expected to be for the purpose of settlement. While the Taxpayer also attended board meetings of a company which relates to their consulting business in Country X, it was not the main purpose of their travel to Australia.

Family and business/employment ties:

In Reid v. The Commissioners of Inland Revenue [1926] 10 TC 673, family ties have been previously considered to be an indicative factor for an individual's residency. Furthermore, business and employment should also be considered (see Peel v. The Commissioners of Inland Revenue [1927] 13 TC 443).

The Taxpayer has advised in their application that their relocation to Country X is to allow them to live closer to their parent to provide care and support as required. They also advised that while their spouse is currently here in Australia because of their current business obligation, the intention is for them to relocate permanently to Country X in the xxxx income year. The Taxpayer also has a child who is enrolled in secondary school in Country X and will continue with their university studies there.

The Taxpayer's only remaining family ties with Australia is that their siblings are currently living in Australia.

The Taxpayer has established their consulting business in Country X, entered into an agreement to carry out work as a consultant as well as established and furnished an office in their home as the base for this work.

The Taxpayer was also appointed as director of an Australian company, however this appointment directly relates to their consulting work in Country X.

Maintenance and location of assets:

Ownership of a dwelling in Australia, as well as other assets such as motor vehicles and bank accounts, should be considered for the purpose of an individual's residency in Australia.

Based on the information provided, the Taxpayer does not own a place of residence in Australia in their own name.

However, one property is currently occupied by the Taxpayer's spouse. Since it is expected that the property is available for them to occupy on their return to Australia, the Taxpayer is considered to have a dwelling in Australia.

The Taxpayer has also provided in their application that this property is expected to be leased or sold in the near future.

Another block of vacant land owned by the Taxpayer is currently listed for sale.

Upon their departure from Australia, the Taxpayer has shipped their personal effects and belongings to Country X. The remaining personal items and assets are stored in a locked shipping container awaiting delivery to Country X.

The Taxpayer has sold their motor vehicle and currently has no Australian bank account. The Taxpayer maintains an Australian credit card for travel purposes.

Further to the factors discussed above, the Taxpayer has also terminated their associations with organisations in Australia, including charities, magazine subscriptions, medical service providers and lawyers. The Taxpayer has also advised and been de-registered from the Australian Electoral Roll.

The Taxpayer's short and occasional visits to Australia for the limited purpose of visiting friends and family, the lack of significant family or business ties in Australia or the intention to remain in Australia for a considerable time and the lack of associations and divestment of their assets in Australia suggests that the Taxpayer is not a resident of Australia under the ordinary concept in paragraph 6(1)(a) of the ITAA 1936.

Therefore the remaining three statutory tests provided in subparagraphs 6(1)(a)(i) to (iii) of the ITAA 1936 should be considered.

Domicile and permanent place of abode:

This test, which is set out in subparagraph 6(1)(a)(i) of the ITAA 1936, provides that an individual, who maintains their Australian domicile, will be considered an Australian resident for tax purposes unless the Commissioner is satisfied that the person has a permanent place of abode outside Australia.

'Domicile' is a legal concept and determined according to the Domicile Act 1982 and common law rules.

The Taxpayer is considered to have acquired an Australian domicile by choice following their migration to Australia many years ago. The Taxpayer will maintain this domicile of choice until or unless they acquire a domicile of choice in another country.

Section 10 of the Domicile Act 1982 requires the Taxpayer to have had the intention to make their home indefinitely in another country, in order to have acquired a domicile of choice in that country. Further, paragraph 10 of Taxation Ruling IT 2650 provides that 'a person 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'.

The Taxpayer has stated in their application that they intend to live in Country X for at least a few more years and to return to Australia in the long term.

Therefore the Taxpayer's domicile remains in Australia.

The leading Australian case on the question of a 'permanent place of abode' outside Australia, is Federal Commissioner of Taxation v Applegate [1979] 38 FLR 1 ('Applegate').

The Full Court of the Federal Court concluded in the first place that the 'domicile and permanent place of abode test' is not concerned with whether a person has abandoned his or her Australian domicile or has acquired a new domicile or not; what is of importance is whether the taxpayer has abandoned any residence or place of abode he or she may have had in Australia.

The technical meaning of the term 'permanent place of abode', in the context it appears, was interpreted in Applegate as follows:

• The term 'permanent place of abode' refers to the building or place where a person sleeps or to the building or place where he or she is usually found, for instance, 'a place of business';

• The word 'permanent' in that term must be construed as having a meaning that can be contrasted with a temporary or transitory place of abode rather than 'everlasting' or 'forever'; and

• The word 'permanent' was used to qualify the expression 'place of abode'. Therefore, it does not necessarily direct attention to a taxpayer's intention as to the duration of the taxpayer's residence outside Australia, although this may be one of many relevant factors to be considered.

Further, in regard to the establishment of a permanent place of abode outside Australia, the Federal Court in Applegate held that:

• It is still consistent with the establishing of a permanent home that the taxpayer is aware that the duration of his enjoyment of the home will be only for a limited period;

• Regard must be paid to the nature and quality of the use which a taxpayer makes of a particular place of abode in determining whether it qualifies as a permanent place of abode;

• Material factors for consideration will be the continuity or otherwise of the taxpayer's presence, the duration of such presence and the durability of the taxpayer's association with the particular place (outside Australia);

• The knowledge that a taxpayer would return to Australia eventually does not deny him or her the capacity to make his or her home outside Australia. However, if the taxpayer's stay is temporary and he or she intends to move on or return to Australia at some definite point of time this denies the place of abode an essential characteristic of a home, namely durability; and

• Each year of income must be looked at separately. If in the relevant year the taxpayer does not reside in Australia, but has formed the intention to, and in fact has, resided outside Australia, then truly it can be said that their permanent place of abode is outside Australia during that year of income.

Other cases have also considered the term 'permanent place of abode' subsequent to the decision in Applegate. While each case is simply a decision on its own facts, the practical meaning of the term 'permanent place of abode' as construed in Applegate has been endorsed and relied upon in subsequent case decisions.

Taxation Ruling IT 2650 deals with the question of residency in respect of Australian residents who leave Australia temporarily to live overseas, e.g. on temporary overseas work assignments or overseas study. The ruling is relevant in the present circumstances to the extent that it contains the guidelines used by the Australian Taxation Office (ATO) in reaching a conclusion that a taxpayer has abandoned his or her residence in Australia and established a place of abode outside Australia.

IT 2650, at paragraph 23, lists the factors the Commissioner considers relevant in determining whether an individual has a 'permanent place of abode' overseas. The Taxpayer's circumstances, provided in the application, in regard to their relevance to each of the factors listed can be summarised as follows:

(a) Intended and actual length of the Taxpayer's stay in the overseas country:

The Taxpayer relocated to Country X permanently since vvvv year and intends to remain there for a few more years.

(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:

As above, the Taxpayer has advised that they intend to remain in Country X until at least 1 July zzzz, before eventually returning to Australia.

(c) Whether the Taxpayer has established a home outside Australia:

The Taxpayer's application states that the Taxpayer has set up a home in Country X for themself and their spouse, and for their child to stay during their school holidays and that they regard this home as their main residence.

It is stated that the Taxpayer has entered into a lease together with their spouse since vvvv year. Since then the lease has been renewed twice.

The Taxpayer has furnished the house with their personal belongings and effects brought from Australia, and new furniture and household items purchased in Country X.

The Taxpayer's spouse has frequently visited the Taxpayer since their departure to Country X and is planning to relocate there on a permanent basis in the xxxx income year.

The Taxpayer's child is currently enrolled in a secondary school in Country x, and intends to apply for Country X's universities to continue their education.

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

The Taxpayer's spouse will continue to reside in the dwelling in Australia, which was also the Taxpayer's home before their departure, until they can permanently move to Country X.

The property is intended to be sold or leased in the near future.

Based on the information provided by the Taxpayer, the Taxpayer has a dwelling in Australia (until it is sold or leased) that is available for them to occupy if they decide to return to Australia in the future. Presently, the Taxpayer has removed all of their personal items from that dwelling and sold their car.

(e) The duration and continuity of the Taxpayer's presence in Country X:

The Taxpayer relocated to Country X for work and business purposes and also so that they could be closer to their parent and provide care and support to them as required.

Since their arrival, the Taxpayer has established significant and durable association with the country. The Taxpayer has:

• Entered into a lease on a property for a year and since then has renewed and extended the that lease;

• Moved their personal belongings and effects from Australia. Purchased additional furniture items for furnishing;

• Entered into a consultancy agreement to carry out work as a consultant. Furnished an office in their home for this purpose;

• Opened several bank accounts with financial institutions;

• Registered with Country X's electoral services authority;

• Registered for and used for healthcare services in Country X;

• Received work permission in Country X;

• Registered for social activities; and

• Engaged an accountant and lawyer in Country X.

(f) The durability of association that the Taxpayer has with a particular place in Australia:

The Taxpayer has disposed of some of their substantial investments in Australia while retaining an indirect interest in real property and an Australian based business venture. They own vacant land which is currently on the market for sale and has a member balance with an Australian superannuation fund.

The Taxpayer was also appointed director of an Australian company. This appointment relates to their consulting business in Country X.

The Taxpayer has cut off many of their ties with Australia. They intend to have short and occasional trips to Australia to visit friends and family and for special occasions as well as board meetings.

The Taxpayer does not maintain any bank accounts in Australia, except for credit card for travel purposes. They have also notified organisations in Australia of their relocation and taken steps to sever associations with those organisations.

The Taxpayer's spouse will continue to live in Australia until they can finalise their business commitments in Australia. Their intention is to move to Country X in the xxxx income year.

Considering the above factors and relevant information provided:

• The Taxpayer has leased one property since their relocation to Country X and has renewed and extended the lease since then. It is reasonable for them to regard this as the main and principle place of residence.

• In considering the Taxpayer's intended stay in Country X, it should be noted that they intend to stay in the Country X for a few more years from the time of the private ruling application. Therefore for the later income years, the Taxpayer's return to Australia may be imminent, but not definite. Furthermore, the Taxpayer's residency should be considered not on each isolated factor but as a whole.

• The Taxpayer has also established and formed an enduring relationship with Country X. They have taken up employment in the country, registered and connected with Country X authorities as well as engaged services of local professionals. They have also taken steps to establish their social life and connection.

• The Taxpayer has been in Country X since vvvv year and intends to stay there for a few more years from the time of the private ruling application. While the period of stay is only partly ascertainable, this should not be viewed as 'temporary' for the purpose of the 'permanent place of abode' test. This is supported by the decision of the court in Federal Commissioner of Taxation v. Jenkins [1982] 59 FLR 467.

• The Taxpayer has severed their associations with Australian organisations. They have also advised Australian authorities of their departure from Australia. The existence of the Taxpayer's property interests in Australia and the Taxpayer's participation in business ventures in Australia should not be the deciding factor for the 'permanent place of abode' test. It should be considered together with the remaining factors as described above.

In regard to the weight to be given to each of the abovementioned factors, IT 2650 provides at paragraph 24 that this will vary with the individual circumstances of a taxpayer and that while no single factor is decisive, the decision in Applegate seems to indicate that greater weight should be given to factors (c), (e) and (f).

Accordingly, the Taxpayer is considered not to be a resident of Australia under the 'domicile and permanent place of abode' test in subparagraph 6(1)(a)(i) of the ITAA 1936.

The 183 day test:

The Taxpayer advised in their application that, since their relocation to Country X, they have only made occasional short trips back to Australia.

The Taxpayer also advised that they intend to only make a few short trips to Australia each year in the coming years to visit family and friends and attend special events or board meetings.

It is expected that the Taxpayer will not physically be in Australia more than 183 days in each of the next 3 income years. Therefore the '183 day' test as set out in subparagraph 6(1)(a)(ii) of the ITAA 1936 will not be applicable.

Commonwealth superannuation fund test:

The Taxpayer confirmed in their application that they are not a member of a Commonwealth superannuation fund and is not an Australian government employee. The Taxpayer is also not the spouse or child of someone who is treated as an Australian resident under the Commonwealth superannuation test.

Therefore the 'Commonwealth superannuation fund' test as set out in subparagraph 6(1)(a)(iii) of the ITAA 1936 is not applicable.