Edited version of your written advice

Authorisation Number: 1012876674130

Date of advice: 23 September 2015

Ruling

Subject: Residency

Questions and answers

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

Yes.

2. Is the income you earned in a foreign country assessable in Australia?

Yes.

This ruling applies for the following periods

Year ending 30 June 2015

The scheme commenced on

1 July 2014

Relevant facts and circumstances

You are a citizen of Australia. 

You departed Australia to live and work in a foreign country.

You had a contract for a year and was able to be extended to any amount of time.

You entered a foreign country with a work visa. Your visa did not grant you permanent residency status; which is not granted to foreigners.

You formed the intention to make your home indefinitely outside Australia before your departure and you did not have a return airline ticket. 

You did not come back to Australia for any period after first leaving. You were away from Australia for one year, during which time you did not make a return visit. Only on your return to Australia did you decide to remain in Australia. 

You were provided with accommodation by your employer. You were living in an apartment. You were sharing with another person. 

You have no assets overseas. 

Your assets in Australia are a house, a car and personal effects. You rented your house out fully furnished and kept the rest of your personal belongings with a family member. You attempted to sell your car but were unable to do so. It too was kept at a family member's house.  

Prior to your departure, you lived with a family member. On your return to Australia, you were living with a family member until you found a place to live. You found a place to live in.

You received rental income in Australia which went to pay the mortgage. 

While in a foreign country, you had a job being held for you in Australia. You were on leave without pay from the employer.

No family accompanied you overseas. You are not married and have no children. You have a parent and siblings in Australia.

You have no social and sporting connections with Australia. 

While in a foreign country, your social and sporting connections were various. 

You have never been a Commonwealth Government of Australia employee for superannuation purposes. 

You did not advise the Australian Electoral Office to have your name removed from the electoral roll. 

You advised Australian financial institutions with whom you have investments that you would be a foreign resident so that non-resident withholding tax can be deducted. You notified your mortgage broker and another bank that you were travelling overseas.  You sent money back to Australia to pay your mortgage as the rent did not cover it. You are not a member of any other financial institutions. 

You advised Medicare and/or health insurance provider to have your name removed from their records. 

You lodged no tax returns in any other countries. Income is not taxed in the foreign country. 

You stated employment as the reason for going overseas when completing the Australian Immigration Outgoing passenger card.

You are over 16 years of age.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Subsection 995-1(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 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.

There are several factors outlined above which indicate that you have not ceased to be a resident of Australia, specifically:

• you lived and worked in a foreign country for approximately 12 months; your intention at this time was to live and work there indefinitely; you had no plans to return to Australia at this time;

• you were employed on a contract which could be extended

• you are an Australian citizen and have made no attempt to change it

• you entered a foreign country with a work visa which did not grant you permanent residency status; which is not granted to foreigners

• you did not visit Australia while overseas

• you did not advise the Australian Electoral Office to have your name removed from the electoral roll 

• you advised Australian financial institutions with whom you have investments that you would be a foreign resident so that non-resident withholding tax can be deducted

• you notified your mortgage broker and bank that you were travelling overseas;

• while overseas you received rental income from Australia but you sent money back to Australia to pay your mortgage as the rent did not cover it 

• you advised Medicare and health insurance provider to have your name removed from their records 

• you family ties are all with Australia; you have no spouse, partner or children

• you have no assets overseas; your assets in Australia are a house, a car and personal effects; you rented your house out fully furnished and kept the rest of your personal belongings with your parent; you attempted to sell your car but were unable to do so; it too was kept at your parent's house

• while in a foreign country, you had a job being held for you in Australia; you were on leave without pay from the employer;

• you have no social and sporting connections with Australia 

• while in a foreign country, your social connections were and sporting connections were various

• in a foreign country you lived in accommodation provided by your employer

Although your intention at the time of your departure was to live and work indefinitely in a foreign country and you had no plans to return to Australia, you retained ownership of a house and you had a job to return to. Based on this and a consideration of all of the other factors outlined above, you remained a resident of Australia according to ordinary concepts as you maintained 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.

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.

As you were still an Australian citizen while living in a foreign country, your domicile is Australia and remains unchanged.

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 taxpayers in 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 was your intention to live and work in a foreign country on an ongoing basis, the duration and continuity of your presence was contingent on your continued employment. This makes your presence in a foreign country temporary in nature.

You did not establish a permanent place of abode in a foreign country as your presence there was temporary in nature. You cannot establish a permanent place of abode when your presence in a place is temporary.

The Commissioner is not satisfied you had a permanent place of abode outside of Australia.

Therefore, you remained a resident of Australia under the 'domicile and permanent place of abode' test of residency while overseas.

As you are a resident under two of the tests of residency, it is not necessary to consider the 183-day and superannuation tests.

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, you are considered to be an Australian resident for taxation purposes while you were overseas.

Assessable income

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.  

Salary and wages are ordinary income.

Therefore, the salary/wages you earned while in a foreign country is included in your assessable income in Australia under subsection 6-5(2) of the ITAA 1997.