Edited version of your written advice

Authorisation Number: 1013073992827

Date of advice: 17 August 2016

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for taxation purposes under section 6(1) of the Income Tax Assessment Act 1936 for the period from dd/mm/yyyy?

Answer

Yes

Question 2

Is your income from your contract of employment performed in overseas country B taxable under subsection 6-5(2) of the Income Tax Assessment Act 1997?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

Year ending 30 June 2019

The scheme commences on:

1 July 2015

Relevant facts and circumstances

You were born and raised in overseas country A.

You are a dual citizen of Australia and overseas country A.

A certain number of years ago you moved to Australia with your spouse and child for work purposes.

After an amount of time you became an Australian citizen.

You have lodged your Australian income tax returns as an Australian resident since the financial year you arrived.

You have previously worked in various sites around the world.

In the relevant period you accepted an open ended employment contract in overseas country B.

The contract is terminable at any time by either party, by notifying the other party in writing, with a period of notice applicable.

You intend on living and working in overseas country B for a considerable period of time and whilst you know that this will be a large burden on your family, you believe it will provide them with financial security.

You saw the role as attractive and an advancement of your career.

You returned to overseas country A in the relevant period to obtain an employer initiated visa for your new employment in overseas country B. The visa was issued on your passport for overseas country A, as at that time your overseas country B employer did not accept Australian citizens.

Your initial visa was for a short period of time and since then you obtained a permit that is valid for a longer period of time and is renewable thereafter. You are required to obtain the permit to work in overseas country B.

Your employer in overseas country B permits you to return to overseas country A on a quarterly arrangement for a period of time. You will on periods of leave visit overseas country A, Australia and meet with your family for holidays in other locations.

Your employer has provided you with health insurance which will cover all of your medical costs, and you have removed yourself from your family's Australian private health insurance policy.

Through your employer you are renting a house near your work in overseas country B. The house is leased for a period of time and is renewable thereafter.

Your employment contract states you will be paid an allowance inclusive of accommodation costs.

The house is being furnished to your taste and will include some of your personal items, items of sentimental significance, and other soft furnishings.

The house is to be exclusively for your use, including during periods of leave, when you will be outside of overseas country B.

Your salary is being paid into an overseas bank account held in your name in overseas country B.

You have obtained a driving licence in overseas country B.

You intend on purchasing a motor vehicle in overseas country B to allow you to travel on weekends and pursue a hobby.

You are going to join a sporting association in overseas country B.

You are looking to start a specific course in your spare time in overseas country B.

You advised you will not be lodging any income tax returns for overseas country B and that there is no income tax to pay in overseas country B.

After initially considering joining you in overseas country B, for various reasons which will follow your spouse and child chose to remain in Australia whilst you live and work in overseas country B.

The reasons that your spouse and child chose to remain in Australia are:

• Your child's education is at a critical stage and besides the disruption they would not be able to follow a suitable or similar educational programme in overseas country B

• Your spouse is completing a course of study in Australia which will enable them to work in a certain profession. Such study is not possible in overseas country B and a move there would prejudice their future employment prospects

• Your spouse and child would be extremely limited in their potential activities whilst you are at work in overseas country B

• Your spouse and child would not be able to openly worship their religious beliefs whilst living in overseas country B.

Your child attends a school in Australia.

You have no other family in Australia.

You own a property in Australia which your spouse and child live in. You lived in the property prior to departing Australia.

You are transferring an amount of salary each month back to Australia to financially support your family.

You have given your spouse Power of Attorney in Australia and all Australian utility bills will be transferred into your spouse's name.

You will not be maintaining any professional, social or sporting connections with Australia, and you will also not be maintaining any professional or occupational memberships in Australia.

You will be removing your name from the Australian electoral roll after the vote in July 2016.

You have notified Medicare that you have departed Australia.

You have informed your Australian bank that you are a non-resident.

You will not be receiving income from any Australian sources whilst residing overseas.

You will not be making any investments in Australia whilst residing overseas.

You maintain a bank account in overseas country A.

You retain familial links to overseas country A as many of you family continue to live there.

Neither you nor your spouse, have ever been employed by the Commonwealth of Australia.

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 section 6(1)

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Question 1

Are you a resident of Australia for taxation purposes under section 6(1) of the Income Tax Assessment Act 1936 for the period from 16 March 2016?

Yes

Detailed reasoning

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.

If any one of these tests is met, an individual will be a resident of Australia for taxation purposes.

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. 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.

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 (ordinary concepts) 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 ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3^rd edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; having one's abode for a time', and according to the Compact Edition of the Oxford English Dictionary (1987), 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'.

In Dempsey and Commissioner of Taxation [2014] AATA 335 (Dempsey), the Administrative Appeals Tribunal of Australia (AATA) restated that the cases of Levene v Inland Revenue Commissioners [1928] AC 217, Lysaght v Inland Revenue Commissioners (1928) 13 TC 511 and Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 were authoritative on the meaning of the word 'resides'.

The question of whether an individual 'resides' in a particular country is a question of fact and degree and not of law. In deciding this question, the courts have consistently referred to and taken into account the following factors as being relevant:

(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.

The weight given to each factor varies with individual circumstances and no single factor is necessarily decisive. In Shand v Federal Commissioner of Taxation [2003] ATC 2080, the Tribunal stated:

Questions of residence, domicile, permanent place of abode, have frequently been found by the courts and tribunals to be difficult to assess on a factual level and not easy to define in concrete legal terms.

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 (Shord) 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.

However, as you have noted in your arguments, examples of different outcomes can be found in two recent cases, The Engineering Manager and Commissioner of Taxation [2014] AATA 969 (Engineering Manager) and Dempsey. In both of these cases, the taxpayers left Australia to work overseas and were found to be non-residents, as in the opinion of the AATA, they did not meet the resides or domicile tests of residency.

In Dempsey, the taxpayer was found to be a non-resident even though he maintained a place of residence containing his household effects and vehicles in Australia. He also stayed at the house on his occasional return visits to Australia. In this case, the taxpayer was not in a relationship and had adult children living in Australia. The AATA noted that he was a 'free agent' not only in terms of the transferability of his skills, but also in terms of his 'personal circumstances'. That is, he was a single man who left no family at the house.

In the Engineering Manager, the taxpayer was found to be a non-resident even though he maintained a place of residence in Australia in which his spouse and children lived. The AATA stated that his connection with his children was not determinative of whether he resided in Australia. However, the AATA also stated that his marital relationship was 'fractured' and that the inharmonious nature of the relationship was considered to be a 'very significant factor' (in finding that he was a non-resident).

Your circumstances are ultimately different to Dempsey as the taxpayer did not have his spouse or family living in his dwelling and it is also different from the Engineering Manager as there is nothing to indicate that you had or will have an inharmonious relationship with your spouse during the relevant period.

As noted above, to determine whether or not you are residing in Australia for taxation purposes, it is necessary for us to examine a number of factors in the context of your circumstances.

In your case, there are various factors that indicate that you may have been residing outside Australia during the relevant period, as follows:

• You intend on living and working in overseas country B for a considerable time period

• You have employer provided rental accommodation in overseas country B for your exclusive use

• You intend on joining a sporting club overseas country B

• You have economic ties to overseas country B by way of your employment and bank account.

However, there are also various factors that indicate that you may have still been residing in Australia, as follows:

• Your spouse and child have not joined you in overseas country B, they have remained in Australia in the family home you own

• You have left your fully furnished home in Australia which will be available to you during your stays in Australia

• You intend to make up to four return visits to Australia per year to visit your family

• You send funds sourced from your income earned in overseas country B to an Australian bank account to financially support your spouse and child

• You maintain an Australian bank account

• Prior to departing Australia you had lived there for a considerable amount of time, you became an Australian citizen and you lodged your income tax returns as an Australian resident

• You are employed on an open ended contract which may cease at any time by you or your employer given a period of notice

• You are on an employer initiated visa

• You have a higher value of assets in Australia than in overseas country B.

We consider that your circumstances are more closely aligned with Iyengar, where the taxpayer was found to be a resident, despite living and working overseas from May 2007 to December 2009. The AATA stated that the taxpayer retained a 'continuity of association' with Australia during the relevant income years, which included the following:

• Mr Iyengar's wife, son and daughter remained in Perth during the relevant period (except for three short visits by his wife to Dubai)

• His family home in Perth

• His harmonious marriage with his wife

• He returned almost all of his income he earned whilst working overseas to Australia for the purpose of paying the mortgage on his Perth home.

In your case, we consider it significant that your spouse and child did not join you in overseas country B. Your spouse and child decided not to join you as they are both engaged in educational programs in Australia of which they could not pursue in overseas country B. You also advised the restrictions that would be placed on your family may compromise their personal freedoms, educational development and prevent them from openly practicing their religious beliefs.

Whilst we recognise that these factors led to the decision for your spouse and child to not join you overseas, they are not situations that could be considered as unusual or out of the ordinary, nor are they unforeseen circumstances. The fact remains that your family remain living in your dwelling which remains available for your use during the time you are overseas.

You have economic ties to overseas country B by way of your employment and a bank account, along with some social connections by way of intention to join a sporting club. You also took some personal belongings and effects to overseas country B.

However your ties to Australia which include your family, along with your fully furnished home, in which your family live in whilst you are in overseas country B and is available to you whilst you are in overseas country B are stronger. You have economic ties to Australia by the way of your property and bank account. You will be sending funds sourced from your income earned in overseas country B to an Australian bank account to financially support your family. You intend to travel to Australia during your leave periods.

Consequently, we consider that, on balance, your intention to work overseas for a considerable and indeterminable time is outweighed by the continuity of association you retain with Australia.

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 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 or acquire another domicile by operation of law.

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. 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 overseas country A and therefore your domicile of origin is overseas country A. You have lived in Australia for a considerable time period and you became an Australian citizen. You moved to Australia for employment and ease of travel. You advised your family's current presence in Australia is motivated by educational reasons. You established a permanent home in Australia. You maintain ownership of your property in Australia, where your family lives. You will be transferring some of your overseas earnings to your family in Australia. Your higher value assets are located in Australia.

In your arguments you have put forward that you did not adopt Australia as a domicile of choice, that it was an economic reality that you acquired your Australian citizenship for ease of travel, access to employment, education and health facilities in Australia. As domicile is a legal concept in which an intention to establish a permanent home is made the Commissioner is satisfied that at the latest, you acquired a new domicile of choice in Australia when you acquired your citizenship which permitted you to remain in Australia indefinitely. To be eligible to obtain Australian citizenship you are required to have intended to live or maintain a close and continuing association with Australia (further information available at www.border.gov.au).

In Shord the taxpayer was born in the United Kingdom. He started living in Australia in 1978 and he became a citizen in 2004. He worked overseas on offshore vessels. It was held that his domicile would not revert to his domicile of origin upon the taxpayer forming an intention to abandon Australia as a domicile of choice as the taxpayer had not proven that he had acquired another domicile. In this case the taxpayer did not have a permanent place of abode outside of Australia.

You have not reverted to your domicile of origin as there has been no evidence to demonstrate that you intend to make your permanent home in overseas country A. Your contract with your employer in overseas country B refers to your overseas Country A nationality out of necessity as you advised that your employer was not accepting Australians at the time of hiring.

You have not obtained a new domicile of choice of overseas country B as you have not taken any legal steps, such as obtaining a migration visa, becoming a permanent resident or a citizen of overseas country B, which would prove an intention to change your domicile to overseas country B, therefore you have retained your Australian domicile. You obtained a permit in overseas country B, which allows you to live and work in overseas country B. We still consider your domicile to be in Australia as the permit is required to be renewed on a regular basis and is not sufficient evidence to acquire a domicile of choice other than Australia.

Therefore, 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."

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

Paragraph 23 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 it is considered that you have not established a permanent place of abode outside of Australia because:

• You left a fully furnished home in Australia, which you own, in which your family live whilst you are away and is available to you

• You have an employer initiated permit which only allows you to be in overseas country B for a period of time before it needs to be renewed

• Your employment is via an open contract that could be terminated at any time, with appropriate notice to be given

• You are living in a fully furnished flat, solely for your use, rented in your employer's name on a lease for a time period, renewable thereafter

• The main reason you left for overseas country B was for work reasons, and whilst you have accommodation solely for your use, your family will not be joining you, therefore you have not set up an established home with family in overseas country B

• You intend on returning to Australia, overseas country A and other locations to visit your family for a certain number of visits a year.

Although you intend on living and working in overseas country B for a considerable and indeterminable time and you took some personal belongings with you and have purchased soft furnishings you did not abandon your residence in Australia. Your Australian residence is still available to you, and you have retained a durable association with Australia, in particular through your family who remain in Australia.

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

Your residency status

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

Question 2

Is your income from your contract of employment performed in overseas country B taxable within subsection 6-5(2) of the Income Tax Assessment Act 1997?

Yes

Detailed reasoning

Section 6-5 of the 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. 

As you are a resident of Australia for income tax purposes under subsection 6(1) of the ITAA 1936, the income from your contract of employment performed in the overseas country B is taxable within section 6-5(2) of the ITAA 1997.

Foreign Income - Double Tax Agreements

Australia has double tax agreements with more than 40 countries worldwide. The main purpose of double tax agreements is to avoid double taxation as well as to prevent taxation evasion. In addition, these agreements often settle differences of interpretation and provide a system for consultation and resolution of disputes between the tax administrations of Australia and another country.

In determining liability to tax on foreign sourced income received by an Australian resident taxpayer it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953. If there is no relevant tax treaty, the income will be taxed according to Australian income tax laws.

In this case overseas country B does not currently have a tax treaty with Australia and therefore the assessability of the income you receive from the overseas country B is determined on the basis of Australian income tax law.

Therefore as noted above the income from your contract of employment performed overseas country B is taxable in Australia.