Edited version of your written advice

Authorisation Number: 1013015958174

Date of advice: 7 July 2016

Ruling

Subject: Australian tax residency status

Question 1

Was the taxpayer a resident of Australia for the purposes of subsection 6(1) of the Income Tax Assessment Act 1936 for the period 1 July 20XX to 30 June 20XX?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Relevant facts and circumstances

The taxpayer was born in Country A. The taxpayer moved to Australia as an adult. The taxpayer remains an Australian citizen.

Prior to the departure of the taxpayer during the 20XX income year, the taxpayer resided in a rental property in Australia. The taxpayer also operated a business from the rental property premises. The taxpayer owned a motor vehicle, furniture and household items six months prior to departure from Australia.

The taxpayer has retained the motor vehicle for business purposes. The taxpayer has disposed of some of the furniture and household items and retained the remaining items as they have no resale value and are not considered to be worth giving away.

The taxpayer departed Australia when a close family member fell ill and they wished to spend more time with them overseas. After this family member passed away, the taxpayer decided to remain in Country A to support another close family member with operating their business.

The taxpayer is entitled to stay in Country A for an unlimited duration of time.

Overseas accommodation

Since first departing Australia, the taxpayer has resided in their family home located in Country A for most of the year, apart from one year where they spent almost more than half a year in Country A.

The family home in Country A is a self-contained apartment. The taxpayer lives in this apartment with family members, including their spouse and child. The taxpayer has a significant ownership interest in the property.

Visits to Australia subsequent to departure in the 20XX income year

The taxpayer's immigration movement records indicate that they have returned to Australia each income year subsequent to their departure in the 20XX income year. During visits to Australia, the taxpayer has resided in the Australian rental property. The purpose of the visits to Australia has been related to the taxpayer's business. In three of the income years, the taxpayer's stays ranged from less than three weeks to less than two months. In the other two income years, the taxpayer's stay was less than six months.

Family ties

Since the 20XX income year, the taxpayer, their spouse and child stayed with the taxpayer in Country A, except for brief period in two later income years. Their child attends schooling in Country A.

The spouse and child of the taxpayer have accompanied the taxpayer on the taxpayer's trips to Australia subsequent to the departure in the 20XX income year in two later income years. In one year, their stay was for a week and in the other year, their stay was for less than three months.

The family members of the taxpayer are either deceased reside in Country A or in Country B.

Business/economic ties

The taxpayer is operating a business in Australia as a sole trader. The taxpayer manages the business operations remotely from their office in Country A.

During their stays in Country A, the taxpayer has been involved in the day to day operations of the business of the abovementioned family member. This family member has transferred the rights to their business in Country A to the taxpayer. The business also maintains operations in Country C.

This family member's business maintains foreign currency accounts with foreign banks in Country A and Country C, into which business income is deposited.

Relevant legislative provisions

Income Tax Assessment Act 1936, Section 6

Income Tax Assessment Act 1997, Section 995-1

Superannuation Act 1976, Section 3

Reasons for decision

Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936.

The term resident of Australia in respect of an individual is defined in subsection 6(1) of the ITAA 1936. The definition provides for the following four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes:

• the residence according to ordinary concepts test

• the domicile and permanent place of abode test

• the 183 day test, and

• the Commonwealth superannuation fund test.

The primary test for determining the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word 'resides'. If the primary test is satisfied, the remaining three tests do not need to be considered as residency for tax purposes has been established (Federal Commissioner of Taxation v. Applegate 79 ATC 4307; (1979) 9 ATR 899).

Resident according to ordinary concepts

Subsection 6(1) provides that a resident of Australia includes a person who resides in Australia. As there is no definition of the word 'reside' in Australian income tax law, it takes its ordinary meaning.

In FC of T v Miller (1946) 73 CLR 93, Latham CJ makes reference to Levene v Inland Revenue Commissioners (1928) AC 217 ('Levene'), where Viscount Cave L.C. stated:

…the word 'reside' is a familiar English word and is defined in the Oxford English Dictionary as meaning '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 most cases there is no difficulty in determining where a man has his settled or usual abode, and if that is ascertained he is not the less resident there because from time to time he leaves it for the purpose of business or pleasure.

As established in the Levene case, the test for determining whether a person ordinarily resides in a place even if he or she is physically absent 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 that place remains 'home'.

An examination of the behaviour of the taxpayer subsequent to the 20XX income year indicates that they have not maintained a strong association and connection with Australia. The taxpayer spent the majority of each relevant income year in Country A, where they resided with their family members, including their spouse and child. The taxpayer has only been accompanied to Australia by their spouse and child twice during the period in question. Their stays did not exceed three months in duration on both occasions.

As the family members of the taxpayer reside in either Country A or in Country B, the taxpayer does not retain any family ties in Australia. The taxpayer maintained their tenancy at the rental property address in Australia as the address of the business. Whilst the taxpayer returned to Australia for recurrent business purposes, these visits cannot be considered more than temporary visits.

For three of the income years in the relevant period, the total duration of the taxpayer's physical presence in Australia has spanned for less than three weeks and to less than two months. In light of the home the taxpayer has maintained in Country A, it is not considered that their stay in Australia for less than six months during the other two income years is reflective of a continuity of association with Australia.

Economic ties

Whilst the taxpayer carries on a business in Australia, they are able to manage the affairs of the business from the overseas office in Country A. The taxpayer maintains equally strong economic ties outside of Australia as they are heavily involved in the day to day operations of the business of the family member in Country A and in Country C. Each of these businesses holds foreign currency accounts, into which business income is deposited, with overseas banks.

The taxpayer does not hold any substantial assets in Australia, with the exception of savings in a bank account held with an Australian bank and a motor vehicle used for business purposes.

As such, the taxpayer did not demonstrate behaviour that is consistent with ordinarily residing in Australia.

The domicile test

Domicile

Under the domicile test contained in section 6(1) of the ITAA 1936, a person is a resident of Australia if their domicile is in Australia unless the Commissioner is satisfied they have a permanent place of abode outside Australia.

'Domicile' is a legal concept to be determined according to the Domicile Act 1982 and common law rules. The primary common law rule is that a person acquires at birth a domicile of origin, being the country of his or her father's permanent home. A person retains the domicile of origin until the person acquires domicile of choice in another country, or until the person acquires another domicile by operation of law. The domicile of choice which a person has at any time continues until that person acquires a different domicile of choice.

In the present case, the taxpayer migrated to Australia and became an Australian citizen. It is considered that the taxpayer's domicile of choice is Australia. At the present time, there is inconclusive evidence that the taxpayer has adopted a different domicile of choice, as they continue to return to Australia, albeit briefly for business purposes.

Permanent place of abode

Taxation Ruling IT 2650 outlines the Commissioner's view of the application of the term 'permanent place of abode' in line with the decisions in FC of T v Applegate 79 ATC 4307 and FC of T v Jenkins 82 ATC 4098. Paragraph 23 of IT 2650 states that ascertaining a person's permanent place of abode is a question of fact to be determined in light of all the circumstances of each case. The factors which may be relevant include:

(a) The intention and actual length of the person's stay in the overseas country;

(b) Any intention either to return to Australia at some definite point in time or to travel to another country;

(c) The establishment of a home outside Australia (in the sense of a dwelling place, house or other shelter that is the fixed residence of a person, family or household);

(d) The abandonment of any residence or place of abode the person may have had in Australia;

(e) The duration and continuity of the person's presence in the overseas country; and

(f) The duration of association that the person has with a particular place in Australia.

Paragraph 24 of IT 2650 states that the weight to be given to each factor will vary with individual circumstances of each case and no single factor is conclusive. Greater weight should be given to factors (c), (e) and (f) than to the remaining factors.

The taxpayer has stayed in Country A for approximately five years after their departure during the 20XX income year, however, the taxpayer has returned to Australia. The taxpayer intended to make their home indefinitely in Country A when a close family member fell ill and they wished to spend more time with them overseas. After this family member passed away, their intention was to remain in Country A to support another family member in running their business. The taxpayer does not intend to return to Australia permanently.

The taxpayer has established a home in Country A. The taxpayer resides at their family home, a self-contained apartment in Country A, of which they have a substantial ownership interest in.

In relation to factor (d), the taxpayer maintains their tenancy at the rental property address in Australia as their business address and place of abode. Notwithstanding the disposal of furniture items previously kept and used in their residence prior to their departure in the 20XX income year, such their bed frame and mattress, dining table and chairs and bedside tables, the taxpayer has resided in their rental property during each of their visits to Australia for business purposes in the four year period subsequent to their departure. As the taxpayer has continued to maintain the tenancy, such that it is available to them as a place of abode each time they return to Australia, there is inconclusive evidence that the taxpayer has abandoned the rental property address as their place of abode within Australia.

As their only ties to Australia are those of their business and its associated bank account and car assets, it is considered that the association the taxpayer has with Australia is of limited durability. Accordingly, the Commissioner is satisfied that the taxpayer has a permanent place of abode in Country A.

183 day test

Subsection 6(1) of the ITAA 1936 provides that a person who has actually been in Australia, continuously or intermittently, during more than one-half of the years of income will be considered a resident of Australia unless the Commissioner is satisfied that his usual place of abode is outside Australia and that he does not intend to take up residence in Australia.

In the present case, the taxpayer has not spent more than one-half of the year of income during the relevant period. The 183 day test under subsection 6(1), therefore, does not apply.

Commonwealth superannuation fund test

Subsection 6(1) of the ITAA 1936 provides that a person who is an eligible employee for the purposes of the Superannuation Act 1976 or is the spouse or a child under 16 years of age of such a person is considered to be an Australian resident.

An 'eligible employee' is defined in subsection 3(1) of the Superannuation Act 1976 to mean a person who is a 'permanent employee'. A 'permanent employee' includes a person employed in a permanent capacity by the Commonwealth or an approved authority.

As the taxpayer has never been employed in a permanent capacity by the Commonwealth or an approved authority, the taxpayer is not an eligible employee for the purposes of the Commonwealth superannuation fund test under subsection 6(1). The taxpayer is, therefore, not an Australian resident under the Commonwealth superannuation fund test.

Conclusion

The taxpayer did not reside in Australia according to ordinary concepts. The taxpayer is considered to have established a permanent place of abode outside of Australia in Country A, and therefore cannot be treated as an Australian resident under the domicile test. Furthermore, as the taxpayer did not spend more than one-half of the year, of income, in Australia during the relevant period and was not an eligible employee for the purposes of the Superannuation Act 1976, the taxpayer is not an Australian resident for tax purposes.