Edited version of your written advice

Authorisation Number: 1013027031066

Date of advice: 1 June 2016

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for income tax purposes?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commences on:

1 July 2013

Relevant facts and circumstances

You were born in an overseas country.

You moved to Australia in xxxx.

You became an Australian citizen in xxxx.

You have been employed with a company based overseas for a period of time. Your job involves infrequent visits to another overseas country.

Your employment position is permanent and there is the possibility the contract could be renewed.

You intend to work overseas as long as possible in the employment position you are in and this could be until retirement.

You have a current visa which is valid for a period of time.

You live in a rented apartment overseas with your employer as the tenant and yourself as the occupier of the lease.

The current lease is in place until after the expiry of your employment contract.

You receive a rental allowance and your employer deducts the rent direct from your salary.

The overseas apartment was unfurnished and you have purchased furniture for the apartment.

You pay tax overseas on your earnings.

You have a bank account overseas which you use for day to day expenses.

You are not a permanent resident of the overseas country.

You own a house in Australia jointly with your spouse. Your spouse and child live in the house in Australia. Your spouse and child have not accompanied you to live overseas.

Your family intend to fully relocate overseas after your child has completed a certain stage of schooling.

There is no mortgage on the property you own with your spouse in Australia.

Your house in Australia is furnished and your family have cars which you attribute to be your assets also.

Your personal effects are split between Australia and the overseas country.

You send funds back to Australia to pay for the living costs of your family.

You maintain an Australian bank account.

You have not kept a record of your visits to Australia. You try to visit your family in Australia three weekends out of four weekends. Your family tends to join you overseas during the holiday periods. You have estimated in a 12 month period you would visit Australia for 60-70 days.

You estimate your spouse visits you in the overseas country one weekend in every six.

You estimate your children visit you twice a year in the overseas country for visits of three days at a time.

You travel with your spouse and children for approximately four weeks overseas other than the overseas country and Australia.

You have private health insurance in Australia and you have private health insurance overseas.

You have a self-administered super fund in Australia.

In your completed tax return for the year ended 30 June xxxx your residency status was reported as a resident of Australia based on advice you received from a tax accountant.

You and your spouse have never been employees of the Commonwealth Government of Australia.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Section 6-5

Reasons for decision

Question 1

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. 

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

The terms 'resident' and 'resident of Australia', in regard to an individual, are defined in subsection 6(1) of the ITAA 1936. The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. The tests are:

• the resides test,

• the domicile (and permanent place of abode) test,

• the 183 day test, and

• the superannuation 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.

Relevant to your situation are the first two tests which are examined in detail in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia. In examining these tests, IT 2650 provides a number of factors which assist in assessing a taxpayer's situation against the tests. A copy of this ruling is available from www.ato.gov.au.

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 question of whether an individual 'resides' in a particular country is a question of fact and degree and not of law. The totality of the taxpayer's factual circumstances needs to be taken into account in arriving at a decision.

In deciding cases of residency, the courts and tribunals have noted that a person does not necessarily cease to be a resident because he or she is physically absent from a place. Instead, the test is whether the person has retained a continuity of association with a place, together with an intention to return to that place and an attitude that the place remains home (Joachim v Federal Commissioner of Taxation [2002] ATC 2088).

Generally the Commissioner considers that it is difficult for a taxpayer to demonstrate that they have ceased to be a resident of Australia where a place of residence remains available to them in Australia and/or where their spouse remains living in Australia. In these situations, it may be considered that the taxpayer meets the resides test as they have retained a continuity of association with Australia. Further, they may also meet the domicile test as the Commissioner may not be satisfied that they have a permanent place of abode outside Australia. Examples of decisions of this type can be found in Iyengar and Federal Commissioner of Taxation [2011] AATA 856 and Sneddon and Commissioner of Taxation [2012] AATA 516.

In the more recent case of Shord and Federal Commissioner of Taxation [2015] ATC 355 one of the factors leading to the conclusion that the taxpayer was a resident of Australia was the taxpayer's emotional connection to his spouse who resided in their house in Western Australia. It was considered that the taxpayer maintained a continuity of association with Australia mainly through his spouse and property in Australia.

In your case you are working overseas. You are living in long-term rental accommodation leased in the name of your employer and paid by your employer by way of a rental allowance which is then deducted from your pay. You return to Australia frequently, on average three times a month for two days at a time. In a 12 month period you visit Australia approximately 60-70 days in a year. When you return to Australia you live in your house, which you own with your spouse, who lives in the house with one of your children who have both remained in Australia.

You have economic ties to the overseas country by way of your employment and bank account. However your economic and social ties to Australia are stronger, as you maintain a home in Australia, your spouse and child are living in Australia, you return to Australia frequently on weekends to visit your family, and you have assets in Australia by way of a house, cars, bank account, furniture, and your self-administered super fund assets.

Based on these facts, you are residing in Australia according to the ordinary meaning of the word. Therefore, you meet the 'resides test' and are a resident of Australia for tax purposes.

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 test

Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia. Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence.

Domicile

Domicile is a legal concept, determined according to the Domicile Act 1982 and common law rules established by private international law cases.

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.

In this regard paragraph 21 of 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 were born in an overseas country and you changed your domicile to Australia. There is no evidence to show that you have taken any steps to change your domicile to any other country.

Permanent place of abode

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 Commissioner's view on what constitutes a permanent place of abode is contained in IT 2650.

Paragraph 23 of IT 2650 sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode:

(a) the intended and actual length of the taxpayer's stay in the overseas country;

(b) whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time;

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

(d) whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;

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

(f) the durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

In relation to the weight to be given to each of the above factors, paragraph 24 of IT 2650 states:

The weight to be given to each factor will vary with the individual circumstances of each particular case and no single factor will be decisive… however… greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant.

In your case although you intend to work overseas indefinitely and you established your own place of abode overseas paid for by your employer, you did not abandon your residence in Australia, as it is still available to you. You have retained a durable association with Australia, in particular through your spouse and child remaining in Australia, frequent visits to Australia and maintenance of your assets in Australia.

Consequently, the Commissioner is not satisfied that you had a permanent place of abode outside Australia and you are, therefore, a resident under the domicile test of residency during the period you are working in the overseas country.

Your residency status

As you meet the resides and domicile tests of residency, you are a resident of Australia for tax purposes.

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.