Edited version of your written advice

Authorisation Number: 1013095324432

Date of advice: 21 September 2016

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for income tax purposes from the date you relocated to the overseas country?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were born in Australia and you are an Australian citizen.

You, your spouse and dependent child relocated to the overseas country after you accepted an offer of employment from a company in the overseas country.

You, your spouse and dependent child currently reside in the overseas country.

You were previously employed by the Australian division of the company. You resigned from the Australian division of the company and you were paid out all of your leave entitlements.

Your employment contract is for a certain period of time. At the completion of the overseas contract you have a contract for employment within Australia.

The overseas employer has sponsored you for an employment visa, to be renewed when required.

You intend to return to Australia at the completion of your employment contract.

You are residing in and leasing a property in the overseas country for the duration of your employment.

You shipped all of your furniture and belongings to the overseas country. Since arriving in the overseas country you have purchased some furniture, both outdoor and indoor.

You do not have any belongings held in storage in Australia.

You have established bank accounts and credit cards in the overseas country.

You have entered into a pay TV subscription in the overseas country.

You have signed up to a shopping rewards program in the overseas country.

Your child attends playgroup and regularly attends a local day-care in the overseas country two to three days per week.

You have established a network of friends in the overseas country.

Your current mailing address is an address in the overseas country.

You previously resided at a property in Australia, which you jointly own with your spouse. The property is being leased out to unrelated parties at commercial rent rates.

Since relocating to the overseas country you have returned to Australia occasionally for work purposes for short periods of time.

On the subsequent business trips since relocating to the overseas country you have marked on your Australian departure card that you are a visitor or temporary entrant departing.

Since relocating to the overseas country you have also travelled to other overseas countries. You travelled to one country with your spouse and child for a short period of time for a family holiday. The remaining visits to the other countries were for short periods of time for work purposes.

You intend to return to Australia for work purposes as required. The frequency of the business trips is likely to reduce now that your previous role with has been filled.

You intend to visit Australia with your spouse and child once a year for a short period of time.

Your extended family reside in Australia. Your spouse's extended family reside in Australia.

You own an interest in an investment property in Australia via a trust.

You own and trade a small number of livestock in Australia. Your extended family are running the operation whilst you are overseas.

You retain bank accounts in Australia.

Income you have or will receive, whilst in the overseas country, from Australian sources, include rental income from your jointly owned property, interest income on bank accounts, profits from trading livestock and potentially a distribution from the trust.

You and your spouse are not contributing members of a Commonwealth Superannuation Fund.

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 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'.

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.

You have gone overseas for work purposes, you intend to be overseas for a period of time, you are living in long term accommodation, your spouse and child have accompanied you, and you will physically spend the majority of your time in the overseas country.

Based on the facts above you are not residing in Australia according to ordinary concepts.

The domicile test

Domicile

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.

Generally speaking, persons leaving Australia would be considered to have maintained their Australian domicile unless it is established that they have acquired a different domicile by choice or by operation of law.

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 your case, 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

The Commissioner's view on what constitutes a permanent place of abode is contained in Taxation Ruling IT 2650 Income Tax: Residency - Permanent place of abode outside Australia.

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.

Paragraphs 13 and 14 of IT 2650 discuss the FCT v Applegate (79 ATC 4307; (1979) 9 ATR 899) case. The Federal Court rejected the Commissioner's argument that a permanent place of abode outside Australia required an intention to live outside Australia indefinitely without any intention of returning to live in Australia, other than at some remote, albeit specific point in time. 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 their 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 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."

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 is satisfied that you had a permanent place of abode outside Australia for the following reasons:

• You are renting a property in the overseas country for a period of time

• You shipped all of your furniture and personal belongings for your use in the overseas country

• You intend to reside in the overseas country for the duration of your employment

• Your spouse and child have accompanied you overseas

• You have opened bank accounts, secured utility contracts and established social connections in the overseas country

• You have and will be visiting Australia for only short periods of time occasionally each year for work purposes and once a year to visit extended family.

Whilst you have maintained the majority of your investments and connections with Australia - visiting extended family once a year, receiving Australian sourced income and continuing the ownership of your property, livestock, investment and bank accounts you have done so as you intend to return to Australia. The Commissioner is satisfied you have established a permanent place of abode in the overseas country.

As the above circumstances support the view that your permanent place of abode is outside of Australia, you are not a resident of Australia for tax purposes under the domicile test.

Conclusion - your residency status

From the day you relocated to the overseas country you are not a resident of Australia for taxation purposes.

Other relevant comments

Completing your 2015-16 income tax return - part year residency

If your status changes from resident to non-resident before the end of an income year you should answer 'yes' to the question 'Are you an Australian resident?' on your tax return for that year. This ensures you are taxed at resident rates for that part of the tax year you were resident in Australia. A person is not required to pay tax at resident and non-resident rates in one income year.

Your non-residency for part of the year will be taken into account by a reduction in your tax-free threshold for that year. You will be entitled to a pro-rata tax-free threshold for the number of months you were an Australian resident during the income year. To do this, you will need to complete question A2 on your tax return 'Part-year tax-free threshold'.

Non-residents of Australia do not have to pay the Medicare levy, so you can also claim the number of days that you were not an Australian resident during a tax year in your return as exempt days.

The foreign source income received by you during the non-resident period is not assessable in Australia.