Edited version of your written advice

Authorisation Number: 1051341140186

Date of advice: 22 February 2018

Ruling

Subject: Residency and accommodation expenses

Question 1

Were you an Australian resident for taxation purposes?

Answer

Yes

Question 2

Are the accommodation expenses you incurred in Country Y deductible?

Answer

No

This ruling applies for the following period

Year ended 30 June 20XX

The scheme commences on

1 July 20XX

Relevant facts and circumstances

You were born in Country X

You migrated to Australia

You took up Australian citizenship

You are only a citizen of Australia

In the last five years, apart from your time working in Country Y, you have only lived in Australia.

The purpose of your visit to Country Y was to work.

You could not secure work in Australia therefore when offered this overseas job, you accepted it.

You were in Country Y on an employer sponsored visa

You did not intend to reside permanently outside Australia

You were not required to complete a foreign tax income return as your income was tax free

You do not have a partner.

You do not have any dependents, your children are independent of you.

You travelled to Country Y alone

You have no connections to professional, social or sporting groups in Australia or Country Y.

You lived in an apartment in Country Y which you personally secured and paid for monthly

You owned an apartment in Australia which your child occupied with their children whilst you were away.

The only asset you had in Country Y was a transaction account which you closed on departure.

Your main assets in Australia were your savings account and apartment.

You did not have a job waiting for you in Australia. You never worked as an employee of the Commonwealth and never contributed to an Australian Government employee superannuation fund.

You were paid an allowance under your contract of employment in Country Y

You returned to Australia in 20XX and started to reside back in your Australian apartment. You commenced looking for work when you returned to Australia.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 15-2

Reasons for decision

Question 1 - Residency

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.

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

● the resides test,

● the domicile test,

● the 183 day test, and

● the superannuation test.

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides.

However, where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.

Resides 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.

The Courts and the Tribunal have generally taken into account the following eight factors in considering whether an individual is an Australian resident according to ordinary concepts in an income year:

● 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 with Australia compare to the foreign country concerned; and

● Maintenance of a 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.

You could find no work in Australia therefore took up a position in Country Y. You maintained a home in Australia in which your child lived in rent free. You paid the mortgage payments on this property while you were in Country Y.

In the case of Iyengar v Federal Commissioner of Taxation 2011 ATC 10-222, the Administrative Appeals Tribunal held that the taxpayer was a resident of Australia, even though he was working overseas. The taxpayer's family ties, his intention (to complete his contract) and motive (to pay off his mortgage), and his maintaining an Australian place of abode while working overseas, were all indicative that he was an Australian resident during the relevant period.

In your circumstances, your family and major property remain in Australia. You have developed no social ties in Country Y and it was your intention to come back to Australia. It is considered that you are a resident under this test.

The domicile test

Under the domicile test, a person is a resident of Australia if their domicile is in Australia unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

Domicile

“Domicile” is a legal concept to be determined according to the Domicile Act 1982 and common law rules.

A person’s domicile is in their country of origin unless they acquire a different domicile of choice or operation of law. To obtain a different domicile of choice, a person must have the intention to make their home indefinitely in another country, usually done by obtaining a migration visa. The domicile of choice which a person has at any time continues until that person acquires a different domicile of choice.

In your case, you were born in Country X before moving to Australia. You obtained Australian citizenship. It is considered that your domicile of choice has changed to Australia. You have shown no intention to make Country Y your home indefinitely. You went there because you could not find employment in Australia. Therefore your domicile of choice will remain Australia.

Permanent place of abode

A person’s ‘permanent place of abode’ is a question of fact to be determined in the light of all the circumstances of each case. (Applegate v. Federal Commissioner of Taxation 78 ATC 4051; 8 ATR 372 (Applegate))

In Applegate, the court found that ‘permanent’ does not mean everlasting or forever but it is to be contrasted with temporary or transitory.

The courts have considered ‘place of abode’ to refer to a person’s residence, where he lives with his family and sleeps at night.

Taxation Ruling IT 2650 Income Tax: Residency – Permanent place of abode outside Australia (IT 2650) provides a number factors which are used by the Commissioner in reaching a satisfaction as to an individual’s permanent place of abode. These factors include:

(a) the intended and actual length of the individual’s stay in the overseas country;

(b) any intention either to return to Australia at some definite point in time or to travel to another country;

(c) the intended and actual length of the individual’s stay in the overseas country;

(d) any intention either to return to Australia at some definite point in time or to travel to another country;

(e) the establishment of a home outside Australia;

(f) the abandonment of any residence or place of abode the individual may have had in Australia;

(g) the duration and continuity of the individual’s presence in the overseas country; and

(h) the durability of association that the individual has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments, place of education of the taxpayer’s children, family ties.

Paragraph 24 of IT 2650 states that the weight to be given to each factor will vary with individual circumstances of each case and no single factor is conclusive. Greater weight should be given to factors (c), (e) and (f) than to the remaining factors.

You developed no social ties during your time in Country Y. You stayed in motel accommodation during the time you were working in the country. You retained Australian assets such as your apartment.

We are not satisfied you have established a permanent place of abode outside Australia. You are considered to be a resident of Australia under this test.

183 days test

You have not been in Australia for more than 183 days in the financial year. Therefore you do not satisfy this test

The superannuation test

You are not eligible to contribute to the PSS or the CSS Commonwealth Super Funds. Therefore you are not a resident under this test.

Your residency status

You satisfy two of the tests of residency. Therefore you will be considered a resident of Australia for tax purposes.

Question 2 – Accomodation Expenses

Section 8-1 of the ITAA 1997 allows a deduction for a loss or an outgoing to the extent to which it is incurred in gaining or producing assessable income, except where the loss or outgoing is of a capital, private or domestic nature.

In general, accommodation expenses are considered private expenses and consequently are not deductible. Court decisions and decisions of the Administrative Appeals Tribunal/Board of Review provide an independent view and confirm this.

The Federal Court decision in Federal Commissioner of Taxation v. Toms 89 ATC 4373; (1989) 20 ATR 466, held that expenses incurred in relation to accommodation near the work place while maintaining a family residence in another location, were not an allowable deduction as they were considered to be private expenses. Although the expenditure must be incurred in order to put one in a position to be able to derive assessable income, it does not necessarily mean that the expenditure is incurred in the course of gaining or producing that income.

You made a choice to live in Country Y to work as you were unable to seek employment in Australia. Therefore your living expenses in Country Y would be considered to be preliminary to your work in Country Y. You are not considered to be travelling in performing your work activities.

Consequently you are not entitled to a deduction for your accommodation expenses under section 8-1 of the ITAA 1997.