Edited version of your written advice

Authorisation Number: 1013090498522

Date of advice: 13 September 2016

Ruling

Subject: Residency

Question

Were you a resident of Australia for income tax purposes up until your permanent return to Australia?

Answer

No

This ruling applies for the following period:

Year ended 30 June 20YY

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Your country of origin is Australia.

You are an Australian citizen.

You were employed by a company in an overseas country.

The employment contract was for a period of X years, with the option to extend.

You, your spouse and your children relocated to the overseas country when your overseas employment commenced.

Your initial intentions were for the whole family to remain in the overseas country for the duration of your employment contract - with no specified end date in mind, as there was the option to extend the contract.

You own a property in Australia which was your primary residence prior to your departure. The property was vacant for a period of time and then rented out to unrelated parties whilst you and your family were in the overseas country.

You placed your household effects in Australia into storage prior to your departure.

You took personal effects, including a vehicle to the overseas country.

Your children attended schools in the overseas country.

You returned to Australia for a short visit in the 20XX financial year.

You rented accommodation for the first X months you were in the overseas country, in your own name, for your and your family's sole use.

During the 20YY financial year your spouse and children returned to Australia, due to the difficulty of being away from Australia. They moved back into the property that had been your primary residence prior to departing Australia.

You did not return with your family to Australia to live, you remained in the overseas country.

You had your employment contract amended to allow you time off to visit your family in Australia on a regular basis.

You visited Australia on a regular basis for short periods of time once your family had returned to Australia.

You advise the amendment to your overseas contract did not constitute a FIFO arrangement.

You sent employment funds back to your family in Australia for costs of living.

After your family had returned to Australia you moved into a house that your employer rented in their name. Your employer paid the rent. The house was in the town nearest the project. You shared the house with one other employee and occasionally the company owner stayed. When you were absent from the house no one else stayed in the house in your place.

You lodged your Australian income tax return for a previous financial year as a non-resident.

You maintained your Australian bank accounts.

You advised your Australian private health insurance provider to have your policy suspended or cancelled.

You did not advise the Australian Electoral Commission that you were departing Australia.

You did not advise Medicare that you were departing Australia.

You did not maintain any professional, social or sporting connections with Australia.

You did not establish any professional, social or sporting connections in the overseas country.

You obtained a drivers licence in the overseas country.

You obtained a bank account in the overseas country.

You lodged a foreign income tax return for a previous financial year and your residency status of the overseas country was a tax resident. You are waiting employer information to complete your current financial year foreign income tax return.

You were in the overseas country for more than 183 days in the 20YY financial year.

You returned to Australia on a break from work in the 20YY financial year and you were in Australia when your overseas employment ceased.

You or your spouse have never been employed by the Commonwealth of Australia.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

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.

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 your case:

• You lodged your Australian income tax return for a previous financial year as a non-resident of Australia

• You moved to the overseas country with your spouse and children for work purposes on during the 20XX financial year

• Whilst in the overseas country you rented a house for yourself and your family's exclusive use - for the time they were in the overseas country with you

• You retained ownership of your home in Australia and after a period of it being vacant you rented the Australian property

• You took your vehicle and personal effects to the overseas country

• Your children attended school in the overseas country

• Your spouse and children returned to Australia to live during the 20YY financial year

• You remained in the overseas country and once your family had departed you moved into shared accommodation rented by your employer for the remaining period of your employment

• Once your family had returned to live in Australia you visited them regularly for short periods of time

• You remained in the overseas country whilst your family returned to Australia. You returned to Australia at a later date in the 20YY financial year. You ceased you overseas employment in the 20YY financial year.

When you became a non-resident of Australia you broke your association or connection with Australia. Although your family relocated to Australia and renewed their association and resident status, you remained in the overseas country. In these situations, the residency status of you and your family are looked at independently from each other. As such, under the resides test, you will still be considered to be residing in the overseas country until you returned to Australia permanently.

Based on the facts above you were not residing in Australia according to ordinary concepts, until your return to Australia with the intention to reside there permanently.

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 Australia. There is no evidence to show that you have taken any steps to change your domicile to any other country. Therefore, your domicile is still 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 expression 'place of abode' refers to a person's residence, where they live with their family and sleep 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.

A permanent place of abode does not have to be 'everlasting' or 'forever'. It does not mean an abode in which a person intends to live for the rest of his or her life. 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.

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

Paragraph 23 of Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (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.

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. 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. 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 unless they can satisfy the Commissioner that a consideration of the other factors in paragraph 23 of IT 2650 leads to the conclusion that foreign place of abode has been established (paragraphs 25 and 27 of IT 2650).

Paragraph 26 of IT 2650 says that a person may be considered to have a permanent place of abode in an overseas country where they establish a home in that country not withstanding that they may move to another home in the same country, subject to the consideration of the other factors listed in paragraph 23 of IT 2650.

In your case,

• Your initial intentions were to stay in the overseas country for a period of X years or longer

• Your actual stay overseas was shorter than your initial intentions, being for a period of approximately X months

• You established a home and lived with your family in the overseas country (for approximately X months) while you carried out your employment duties

• Your children attended school in the overseas country

• The overseas country was to be your home until you returned to Australia at some point in the future

• After a period of time you rented your Australian property

• You returned to Australia once in the 20XX financial year with your family

• Your family returned to live permanently in Australia during the 20XX financial year. Upon their return they moved back into the family home

• Once your family returned to Australia you moved out of the home you had shared with them and into a house rented and paid for by your employer. You shared the home with another employee. Occasionally the owner of the company you worked for stayed in the house. This remained your home for the remainder of your employment

• Once your family had returned to Australia you visited Australia on regular basis for short periods of time to visit your family

• You maintained your Australian bank accounts

• You obtained a bank account in the overseas country.

You established a permanent place of abode overseas with your family and this continued to be the case after your family relocated to Australia. Albeit in a home in a different location in the overseas country to the one you had shared with your family. Your intentions were to remain in the overseas country for a period of X years or longer and your initial intentions changed when your family found it difficult to be away from Australia and they returned in the 20YY financial year. You remained living in the overseas country and returned to Australia at a later date in the 20YY financial year.

The Commissioner is satisfied that you established a permanent place of abode outside Australia and you are not a resident under the domicile test, until your return to Australia with the intention to reside there permanently.

Your residency status

As you did not meet any of the four tests of residency you were a not a resident of Australia, up until your permanent return to Australia.

Other comments

Completing your 20XX-YY income tax return - part year residency

Where a taxpayer is a resident for only part of the year, their income will be taxed entirely at resident rates. In other words, a person is not required to pay tax at resident and non-resident rates in one income year.

As a result, the following will apply to a part-year resident taxpayer: 

• the foreign source income received by that person during the non-resident period is not assessable in Australia, and

• the tax-free threshold will be apportioned based on the number of months in the income year that the person was a resident.

As your residency status for tax purposes changed during the 20XX-YY income tax year you will only be entitled to the tax-free threshold for part of the year. You will need to answer yes to the Australian resident question and complete item A2 on your tax return. We need this information to work out your tax-free threshold for the
20XX-YY year.

As you were a foreign resident until your permanent return to Australia you should not include any income you earned from a source outside Australia on your income tax return until that date.