Edited version of private advice

Authorisation Number: 1013016070197

Date of advice: 24 May 2016

Ruling

Subject: Residency leaving Australia

Question and answer:

Are you an Australian resident for taxation purposes?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2016

The scheme commenced on

1 July 2015

Relevant facts:

You immigrated to Australia from Country X as permanent residents in 2008.

You are an overseas citizen of Country X

You have obtained Australian Citizenship.

You were working in Australia full time until when you were made redundant.

Since then you have not been in full time employment.

Your spouse is working on a part time/casual basis in Australia.

You will be entering Country Y on a Work Visa.

The visa does not enable you to remain in Country Y permanently.

You intend to remain in Country Y as long as there is employment.

Your spouse and family will be remaining in Australia.

Your child will be attending school in Australia.

You intend to remain in Country Y for an unlimited period of time.

You will be living in a rented apartment in Country Y.

You will visit Australia during your annual leave or when work is no longer available in Country Y.

You will be taking a laptop, work equipment, books and clothes to Country Y.

You will be leaving in Australia cars, house utensils, laptops, printer clothing and a bank account.

You are not nor is your spouse a Commonwealth of Australia employee for superannuation purposes.

You do not have a position being held for you in Australia.

Relevant legislative provisions:

Income Tax Assessment Act 1997 (ITAA 1997) subsection 995-1(1)

Income Tax Assessment Act 1936 (ITAA 1936)subsection 6(1)

Reasons for Decision

The term 'Australian resident'is definedinsubsection 995-1(1) of the Income Tax Assessment Act 1997 (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 definition of 'resident of Australia' in subsection 6(1) of the ITAA 1936 provides four tests for determining whether an individual is a resident for taxation purposes. These tests are:

• residence according to ordinary concepts
• the domicile and permanent place of abode test
• the 183 day test, and
• the Commonwealth superannuation fund test.

The primary test for deciding residency status is whether a person resides in Australia according to the ordinary meaning of the word 'resides'. However, where the person does not reside in Australia according to ordinary concepts, the other three tests must be considered in determining their residency status.

Taxation Ruling IT 2650 contains guidelines for determining whether individuals who leave Australia temporarily to live overseas cease to be Australian residents for income tax purposes during their overseas stay. This Ruling discusses the residency tests.

Residence according to ordinary concepts

The ordinary meaning of the word 'reside', according to the Shorter Oxford English Dictionary, 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.

During your overseas assignments to Country Y you were not living in Australia, you were living in Country Y, and therefore did not reside in Australia according to ordinary concepts.

Domicile and permanent place of abode

Under this test, a person whose domicile is in Australia will be a resident of Australia, unless the person's permanent place of abode is outside Australia.

Domicile

Domicile is a legal concept. 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 he or she acquires domicile of choice in another country, or until he or she acquires another domicile by operation of law.

You have taken on Australian Citizenship, so your domicile of choice is now Australia.

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

Consequently, you have retained your Australian domicile during your time in Country Y.

Permanent place of abode

Having established that a person has his or her domicile in Australia, the definition of resident requires that the person's permanent place of abode is not outside Australia.

The expression place of abode refers to a person's residence, where one lives with one's family and sleeps 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.

In its context in the resident definition a permanent place of abode does not have to be everlasting or forever. It should be contrasted with a temporary or transitory place of abode outside Australia. An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a permanent place of abode elsewhere.

Taxation Ruling IT 2650 states that the following factors are relevant in determining a person's permanent place of abode:

• the intended and actual length of the person's stay in the overseas country
• any intention either to return to Australia at some definite point in time or to travel to another country
• the establishment of a home outside Australia
• the abandonment of any residence or place of abode the person may have had in Australia
• the duration and continuity of the person's presence in the overseas country, and
• the durability of association that the individual has with a particular place in Australia.

These factors, as they relate to the facts of your case, are considered below.

The intended and actual length of the person's stay in the overseas country

Where a taxpayer leaves Australia for an unspecified or a substantial period and establishes a home in another country, that home will represent a permanent place of abode of the taxpayer outside Australia, subject to a consideration of the other factors listed above. As a broad rule of thumb, a period of two years or more would generally be regarded as a substantial period for the purposes of determining the permanency of a taxpayer's stay in another country (IT 2650).

You have worked and resided in Country Y for the past three months. The duration of your stay in Country Y is unspecified.

However, IT 2650 stresses that the duration of a taxpayer's stay overseas is not of itself conclusive and must be considered with all the other relevant factors.

Intention either to return to Australia at some definite point in time or to travel to another country

You will return to Australia during your annual breaks in Country Y but you have no definite date on which you intended to return.

Establishment of a home outside Australia

In considering this factor, IT 2650 states:

'Acquisition of a home in the overseas country would be a very relevant though not conclusive factor. On the other hand, individuals or a family group who "make do" in temporary accommodation with limited resources and facilities such as in barracks, singles' quarters, aboard ships, oil rigs, or mining towns, will be less likely to be considered to have established a permanent place of abode overseas.'

You did not acquire a home while you were in Country Y, but when you were assigned to work in a city in Country Y you occupied rental accommodation of which your employer provided an allowance.

The abandonment of any residence or place of abode in Australia

You lived in Australia prior to working in Country Y. You did not abandon your residence in Australia. Due to your spouse having employment in Australia it was not feasible for you to relocate your family to live in Country Y so your family live in Australia in a residential house that you have rented prior to you commencing in Country Y.

In FC of T v. Applegate 79 ATC 4307; (1979) 9 ATR 899 (Applegate's Case) and FC of T v. Jenkins 82 ATC 4098; (1982) 12 ATR 745 (Jenkins's Case), it was held that the taxpayer had a permanent place of abode outside Australia during the period they were overseas. However, these two cases can be distinguished because the facts in these cases differ from the facts in your case.

In Applegate's Case the taxpayer's spouse accompanied him overseas, he gave up the tenancy of his flat in Australia and he left no assets in Australia. In Jenkins's Case the taxpayer was accompanied overseas by his spouse and children. He had tried to sell the family home before going overseas but was unable to find a buyer, so the Australian home was leased.

The duration and continuity of presence in the overseas country

You are working in Country Y indefinitely. You will average over 183 days in Country Y each year as part of your job. When you are on annual leave you will travel to Australia.

Durability of association with a particular place in Australia

You maintained your rental property in Australia and have family ties in Australia. Your spouse and children remain in Australia during your overseas absence, and did not accompany you. In addition, you will return to Australia to holiday with your family on work breaks.

Taxation Ruling IT 2650 states:

'Liability to tax arises annually and the question where a taxpayer resides must be determined annually according to the facts applicable to the particular year of income under consideration.'

Your family remained in Australia and the family are living in rented accommodation in Australia during your absence overseas.

The duration of your stay in Country Y is unspecified. You have not established a home in a city in Country Y. During your overseas stay in Country Y you maintained your rented property in Australia which your family have remained in, and you maintained your association with Australia. Your children were enrolled in a school in Australia. You had passive investments in Australia and a bank account in Australia.

Consequently, it is considered that you did not establish a permanent place of abode outside Australia while working in Country Y.

You are therefore a resident of Australia under the domicile and permanent place of abode test.

The 183 day test

This test applies where a person is actually present in Australia for a total period of more than half the year of income.

As you will average over 183 days in Country Y each year while you are working there this test is not applicable in your case.

The Commonwealth superannuation fund test

This test covers Commonwealth government employees - members of the Commonwealth superannuation funds (as well as their spouses and children under 16 years of age).

This test is not applicable in your case

Conclusion

One of the four tests of residency (the domicile and permanent place of abode test) is met in your case. You remain a resident of Australia for taxation purposes during the period of your stay in Country Y.