Edited version of your written advice

Authorisation Number: 1013032975686

Date of advice: 14 June 2016

Ruling

Subject: Residency and leaving Australia

Question and answer

Are you an Australian resident for income tax purposes for the relevant periods?

Yes

This ruling applies for the following periods:

Year ending 30 June 20YY

Year ending 30 June 20ZZ

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were born in Country X, and you migrated to Australia in 200X.

You became a citizen of Australia in 20XX.

You are only a citizen of Australia and no other country.

You have no spouse or children.

You are currently working full time in Australia.

From Month 2016, you will be moving to the Country Y to pursue a post graduate course on a full time basis.

You have received a full-tuition scholarship, fully funded by the University in Country Y.

You will be entering the Country Y on a Student Visa, which allows you to stay in Country Y for a period of two years.

You expect to live in Country Y for a period of two years.

You intend on and expect that you will be returning to work with your current employer when you return to Australia in 2018, as your job is being held open for you.

You expect to visit friends and take a vacation in Australia within the two years you will be studying in Country Y.

You have informed the Australian Electoral Commission that you will be departing Australia, and you intend on notifying Medicare before you depart for Country Y.

You have requested your private health insurance provider to have your policy suspended.

The only Australian income you will receive during the period you will be in Country Y is the rental income from your investment property.

You will be staying in student accommodation on campus at the University in Country Y.

You have been living in a rented home in Australia for the past X years, and the current rental agreement is expiring at the end of Month 2016, when you will be leaving for Country Y.

You will be leaving assets in Australia which include bank accounts, an investment property that is negatively geared with an outstanding mortgage liability, and a superannuation account.

You will be gifting your household effects in Australia to your current flatmate before you leave for Country Y.

You will be bringing your personal effects from Australia to Country Y.

You will be opening a bank account in Country Y, and you do not intend on making any other investments in Country Y.

You will not be lodging any foreign income tax returns whilst you will be in Country Y.

You will have sufficient savings to support yourself financially in Country Y over the next two years, and you are not planning on working there during your stay.

You will not be receiving any income from any countries apart from Australia during your stay in Country Y.

Whilst in Country Y, you will remain a member of various professional associations and social communities in Australia.

You plan on establishing some professional memberships and joining some volunteering organisations in Country Y, but you have not made any definite decisions on this as yet.

You are not a member of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990.

You are not an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS) which was established under the Superannuation Act 1976.

You are not the spouse of a person who is a member of the PSS or an eligible employee in respect of the CSS.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

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

Reasons for decision

Section 995-1 of the Income tax Assessment Act 1997 (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 offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the:

• the resides test,

• the domicile test,

• the 183 day test, and

• the superannuation test.

The primary test for deciding the residency status of each individual is whether they reside 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 Australian tax purposes has been established.

Where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be an Australian resident if they meet the conditions of one of the other 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:

• Physical presence in Australia

• Nationality

• History of residence and movements

• Habits and "mode of life"

• Frequency, regularity and duration of visits to Australia

• Purpose of visits to or absences from Australia

• Family and business ties to different countries

• 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.

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).

In your case:

• You will be studying in Country Y commencing in Month 2016, with the intention of returning to Australia after a period of two years.

• You will be entering Country Y on a Student Visa, which only allows you to stay there for a period of two years.

• You intend on and expect that you will be returning to work with your current employer when you return to Australia in 2018.

• You expect to visit friends and take a vacation in Australia in within the two years you will be studying in Country Y.

• You own an Australian investment property, from which you receive rental income, and also have an associated mortgage liability.

• You will be leaving other assets in Australia which include bank accounts, and a superannuation account.

Whilst you will be leaving to study in Country Y for a period of two years, you are leaving with the definite intention of returning to Australia after that time, and to also work for the same employer that you are currently working for.

Your ties to Australia also include your investment property, Australian bank accounts and a superannuation account.

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, unless the Commissioner is satisfied that their permanent place of abode is outside of Australia.

Domicile

Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence.

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).

Your original domicile was Country X, the place you were born. In 20XX you changed your domicile to Australia when you became a citizen of Australia.

In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country.

This 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 your case, as you have not taken any legal steps to change your domicile to Country Y, you have therefore retained your Australian domicile.

Consequently, you will be a resident of Australia unless the Commissioner considers you have established a permanent place of abode outside of Australia.

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 courts have considered a person's 'place of abode' is where they consider 'home'. In R v Hammond (1982) ER 1477, Lord Campbell CJ stated that "a man's residence, where he lives with his family and sleeps at night, is always his place of abode in the full sense of that expression."

A place of abode must exhibit the attributes of a place of residence or a place to live, as contrasted with the overnight, weekly or monthly accommodation of a traveller.

Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia emphasises the intended and actual length of the individual's stay in an overseas country, any intention to return to Australia or travel elsewhere, the establishment or abandonment of any residence, and the durability of association that the individual maintains with a particular place in Australia as the main factors to be considered when determining the residency status of individuals leaving Australia.

Clearly, the longer an individual stays in any one particular place, the more permanent in nature is likely to be the stay in that place of abode. An individual's intention regarding the duration of the overseas stay and the length of the actual stay are significant factors in deciding whether they have set up a permanent place of abode.

Where a taxpayer leaves Australia for an unspecified or a substantial period and establishes a home in another country, that home may represent a permanent place of abode of the taxpayer outside Australia. However, a taxpayer who leaves Australia with an intention of returning to Australia at the end of a 'transitory' stay overseas would remain a resident of Australia for income tax purposes.

It is the Commissioner's view that an overseas stay in excess of two years may indicate that an individual can be considered to have a permanent place of abode overseas, subject to a consideration of all the other relevant circumstances applying to the taxpayer (paragraphs 23, 25 and 27 of IT 2650).

In your case it is considered that you have not established a permanent place of abode outside of Australia because:

• You will be studying in Country Y commencing in Month 2016, with the intention of returning to Australia after a period of two years.

• You will be entering Country Y on a Student Visa, which only allows you to stay there for a period of two years.

• You intend on and expect that you will be returning to work with your current employer when you return to Australia in 2018.

• The main reason you left for Country Y was for the purpose of completing a post graduate course.

• You will be staying in student accommodation, and you have not taken steps to set up an established home with family.

Therefore, you are a resident of Australia under this test.

Your residency status

As you meet, the resides and domicile test of residency, you are a resident of Australia for income tax purposes under subsection 6(1) of the ITAA 1936.