Edited version of your written advice

Authorisation Number: 1012745169886

Ruling

Subject: Residency for tax purposes

Questions and answers

1. Are you a resident of Australia for tax purposes?

Yes.

2. Is the employment income you earned in Country X assessable in Australia?

Yes.

This ruling applies for the following period:

Year ended 30 June 2014.

The scheme commenced on:

1 July 2013.

Relevant facts and circumstances

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

You have been working overseas in various countries for many years.

Your home base has always been in Australia. This is your family home. Your household effects remain in the home while you are overseas.

In the 2014 year you worked in Country X.

You entered Country X on an employment visa.

You have never intended to make your home indefinitely outside of Australia.

Your intention has always been to retain your home base in Australia and consider opportunities to work overseas as they arise.

You return to Australia when you are not working.

You have bank accounts in Country X and own shares in Country Y.

You have bank accounts, shares and superannuation in Australia.

You have social connections in Australia and overseas.

You have never been a Commonwealth government employee.

You have not removed your name from the Australian electoral roll.

You stated that employment was the reason for going overseas when completing the Australian immigration outgoing passenger card.

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.

In your case, you have a home in Australia that you live in when you are not overseas. You went to Country X for employment purposes. Although you were physically present in Country X during the year, this was primarily for employment purposes, and your home remained in Australia. At no point did you intend to make your home indefinitely outside of Australia. Therefore you were still residing in Australia according to the ordinary meaning of the word.

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

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, you have not taken any steps to become a citizen or permanent resident of Country X or any other country. You were born in Australia and your domicile remains Australia.

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, you were in Country X for employment purposes and you retained your home in Australia. Therefore, 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.

Your residency status

As you meet the resides test and the domicile test, you are a resident of Australia for tax purposes. It is not necessary to consider the remaining two tests of residency.

Assessability of Country X employment income

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.

Although Australia and Country X have entered into a double tax agreement, there is nothing in that agreement that precludes you from paying tax on your Country X employment income in Australia.

You are therefore required to include your Country X employment income as assessable income in your Australian tax return.