Edited version of your written advice

Authorisation Number: 1012735155503

Ruling

Subject: Residency - leaving Australia

Questions and answers

Are you a resident of Australia for tax purposes?

Yes

This ruling applies for the following periods:

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

The scheme commenced on:

1 January 2015

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are an Australian citizen.

You were born in outside Australia, but have given up that citizenship.

You live with your parents.

You intend to leave Australia.

Your overseas destination is Country X.

You will consider working in County Y after working in Country X.

You will enter Country X on a work visa.

The visa's validity is linked to employer sponsorship.

The purpose of your visit in Country X is for work.

Your intention is to remain outside Australia for the long term.

You are not sure when you will return to Australia.

You will return to Australia should there be unforeseen circumstances or a festive occasion.

Whilst you have many relatives outside Australia, the centre of your home life is Australia. You have no relatives in Country X.

You will not be purchasing a return ticket to Australia.

When in Country X, you will be living in employer provided accommodation.

The accommodation will be a 1 bedroom apartment which will be rent free and no requirement to share with another tenant.

The assets you intend to acquire overseas are a bank account, personal effects and possibly a car.

You own real property in Australia but you have never lived in that property. You hold the property purely for investment purposes. The property will continue to be rented whilst you are in Country X.

You will take some of your personal effects with you to Country X, the belongings which are too bulky for you to carry will remain in your parents' house.

Your only income from an Australian source will be rental income.

Your proposed employer will provide you with a 2 year employment contract.

The employment contract can be extended or renewed, but you do not know what the terms and limits on continuing employment are.

You will not be accompanied by any family members as you are single with no dependents.

You have no social or sporting connections with Australia or the intended destination country.

You intend to notify the Australian Electoral Office that your name be removed from the electoral roll.

You will advise Medicare and your health insurance provider that you will be leaving Australia.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(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' and 'permanent place of abode' test,

• the 183 day test, and

• the Commonwealth superannuation fund test.

If any one of these tests is met, an individual will be a resident of Australia for taxation purposes.

The resides test is the primary test for determining the residency status of an individual for taxation purposes. If residency is established under the resides test, the remaining three tests do not need to be considered. However, if residency is not established under the resides test, an individual will still be a resident of Australia for taxation purposes if they meet the conditions of one of the other three tests.

The resides test

The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'. As the word 'reside' is not defined in Australian taxation law, it takes its ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936.

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'.

In considering the definition of 'reside', the High Court of Australia, in Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 at page 99-100, per Latham CJ, noted the term 'reside' should be given a wide meaning for the purposes of section 6(1) of the ITAA 1936. Similarly, in Subrahmanyam v Commissioner of Taxation 2002 ATC 2303, Deputy President Forgie said at paragraphs 43 and 44 that the widest meaning should be attributed to the word 'reside'.

The question of whether an individual 'resides' in a particular country is a question of fact and degree and not of law. In deciding this question, the courts have consistently referred to and taken into account the following factors as being relevant:

(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 with Australia compared to the foreign country concerned, and

(viii) maintenance of a place of abode.

The weight given to each factor varies with individual circumstances and no single factor is necessarily decisive. In Shand v Federal Commissioner of Taxation 2003 ATC 2080, the Tribunal stated (at 35):

Questions of residence, domicile, permanent place of abode, have frequently been found by the courts and tribunals to be difficult to assess on a factual level and not easy to define in concrete legal terms.

To determine whether or not you are residing in Australia for taxation purposes, it is necessary for us to examine each of these factors in the context of your circumstances.

(i) Physical presence in Australia

It is important to note that a person does not necessarily cease to be a resident because he or she is physically absent from Australia. In Joachim v Federal Commissioner of Taxation 2002 ATC 2088, the Tribunal stated (at 2090):

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.

Further, in Iyengar v. Federal Commissioner of Taxation 2011 ATC 10-222, (2011) AATA, the Tribunal stated (at 62):

Physical presence in a country for some period during a particular year of income is usually considered by the courts as necessary in order that a person should be resident in that country during that particular income year. However, there have been exceptions to this: Rogers v Inland Revenue Commissioners (1879) 1 TC 225 and Slater v Commissioner of Taxation (NZ) (1949) 9 ATD 1.

Although you may not return to Australia and may not be physically present here while you are working in Country X or elsewhere, this does not preclude you from being an Australian resident as no one single factor is necessarily decisive, as mentioned above.

(ii) Nationality

In your case, you are an Australian citizen.

(iii) History of residence and movements

In your case, you are living and working in Australia prior to your departure. You have not stated an intention to travel back to Australia.

(iv) Habits and 'mode of life'

You intend to live and work in Country X for at least 2 years and will have employer provided accommodation in that country. You also intend to spend your periods of annual leave in various locations which is consistent with someone who is no longer residing in Australia.

You will cancel your Australian private health insurance policy and request that your name be removed from Medicare records and the Australian electoral role. These actions are consistent with someone who is no longer residing in Australia.

You intend to work in Country X for an indefinite period of time; however, you acknowledge that this intention is dependent on future visa approvals and contract extensions. As your ability to live in the Country X is subject to an employer sponsored residence visa/permit, it is evident that your stay in the Country X is contingent on your ongoing employment. Should your employment cease for any reason, your visa, which is conditional to employment sponsorship, may require your immigration status to be reviewed.

Therefore, regardless of your future work and residency intentions, you would be required to leave Country X should your employment be terminated at any time before or after the two year contract period.. This is indicative of your continuing association with Australia and is consistent with someone who resides in Australia.

You have no definite plans once your employment in Country X ends.

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

As mentioned above, you currently have no fixed plans to make any return visits to Australia. You will only return to Australia should unforeseen circumstances in your family arise or for a festive occasion.

(vi) Purpose of visits to and absence from Australia

The purpose of your absence from Australia is to work in Country X for an indefinite period of time, subject to future visa approvals and contract extensions.

(vii) Family, business and financial ties

Family

You may return to Australia should there be unforeseen circumstances or a festive occasion.

It is evident that you have strong family ties to Australia.

Business or economic

As mentioned above, you will take up an employment contract in Country X for a period of at least two years.

Assets

Your assets in Australia comprise of a rental property, a motor vehicle, superannuation, a bank account and personal effects, some of which will be stored at your parents' house.

Your assets in Country X will be some personal and household effects, possibly a motor vehicle.

It is evident that you have a higher value of assets in Australia than in Country X. Further, the retention of your savings account and storage of personal in Australia is consistent with someone who is still residing in Australia.

(viii) Maintenance of a place of abode in Australia

You will live in a 1 bedroom employer provided apartment in Country X. The terms of occupancy will be linked to your employment. As you do not have a place of abode in Australia, your circumstances are consistent with someone who is no longer residing in Australia.

Summary of the resides test

As mentioned above, the weight given to each factor varies with individual circumstances, no single factor is necessarily decisive and the term 'reside' should be given a wide meaning.

In your case, although you intend to be physically absent from Australia for at least two years, there are various factors that indicate that you have not ceased to be a resident of Australia. These are primarily:

• you have a restrictive visa whereby your ability to live in the Country X is dependent on employer sponsorship.

• you are an Australia citizen who may be repatriated to Australia by your employer should your employment be terminated.

• you have strong family ties in Australia and none with Country X

• you have stronger financial ties through your assets to Australia than with the Country X, and

• you are maintaining Australian bank accounts and have personal items stored in Australia.

Based on the above, you will retain a continuity of association with Australia while you are overseas and will be residing in Australia according to the ordinary meaning of the word.

Therefore, you are a resident of Australia under the 'resides' test of residency.

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 test as an alternative argument.

The domicile 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 (section 10 of the Domicile Act 1982).

In this regard, paragraph 21 of Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650) states that:

In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country e.g., through having obtained a migration visa. A working visa, even for a substantial period of time such as 2 years, would not be sufficient evidence of an intention to acquire a new domicile of choice.

In your case, as you have not obtained a migration visa or will become a permanent resident or a citizen of Country X. You will not establish a new domicile of choice in Country X. are a naturalised Australian that gave up foreign citizenship. Australia is therefore your domicile of choice.

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 (paragraph 12 of IT 2650).

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 14 of IT 2650).

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.

In your case, your stay in Country X is dependent on your employer sponsoring your work visa. Should your employment cease for any reason, you may be required to leave the country. Although it is your intention to live and work in Country X beyond the term of your initial contract, the duration and continuity of your presence in Country X is contingent on your continued employment there. It is the Commissioner's view that it is difficult for an individual to demonstrate they have a permanent place of abode in a country where his or her presence is contingent on restrictive visa or residence permit conditions of this type. Further, your proposed accommodation will be secured through your contracting employer therefore whether the allocated property continues to be tenanted by you is subjected to your continued employment.

Consequently, the Commissioner is not satisfied that you have established a permanent place of abode outside of Australia and therefore, you are a resident of Australia under the domicile test of residency.

Your residency status

As you meet the resides test and the domicile test, you are a resident of Australia for tax purposes. The other tests are not relevant to your circumstance.

As you are a resident of Australia, according to section 6-5 of the ITAA 1997, your assessable income includes income gained from all sources, whether in or out of Australia.