Edited version of your written advice

Authorisation Number: 1051381830707

Date of advice: 18 June 2018

Ruling

Subject: Residency

Question1

Are you a resident of Australia while you were working in Country A?

Answer

Yes

Question 2

Are you a resident of Australia in accordance with the double tax agreement with Country A?

Answer

Yes

This ruling applies for the following periods:

Year ended June 20XX

Year ended June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were born in Country B and are an Australian citizen.

You were employed by an overseas company based in Country A as a financial controller.

You were paid from the Country A company into an Australian bank account.

You remained in Country A on a permanent work visa supplied by your employer.

You resided in an apartment provided by your employer in Country A.

You did not have private health insurance prior to your departure.

You shared payment of bills and rent for the apartment you shared with your wife before and during your appointment in Country A.

You returned to Australia for holidays in June 20XX and December 20XX. During these holidays you stayed with your wife in the property you rent together.

You have indicated you arrived in Country A in the 20XX-XX year, and that you intended to stay in Country A for approximately four years to meet your employment commitments. You intended on returning to Australia at completion of this post. Instead, you were offered a promotion in Country C after XX years in Country A.

Prior to leaving Australia, you were living with your wife in a house you rented. You retained your home and personal belongings in Australia, and your wife remained in Australia.

You have never been an employee of the Commonwealth Government and are not a member of any government superannuation scheme.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 6(1)

Income Tax Assessment Act 1997 Section 6-5(1)

International Tax Agreements Act 1953 Section 4

International Tax Agreements Act 1953 Section 5

Reasons for decision

Under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997), assessable income of an Australian resident for tax purposes includes ordinary income from all sources, whether inside or outside of Australia.

Section 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides four tests to determine whether a taxpayer is a resident of Australia for tax purposes. The four tests are:

● The resides test;

● The domicile test;

● The 183-day test; and

● The Commonwealth Superannuation test.

If any one of these tests is satisfied, an individual will be considered a resident of Australia for tax purposes.

The resides test

When determining residency under this test, the word ‘resides’ should be given its widest meaning. Recent case law has identified a number of factors which assist in determining whether an individual is a resident of Australia for tax purposes:

● 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 of different countries; and

● Maintenance of place of abode.

Whether a person ‘resides’ in Australia is a question of fact and degree. There is no single decisive factor; weight is given to each factor based on the circumstances of the case: Federal Commissioner of Taxation v Miller 73 CLR 91 at 101 per Rich J and at 103 and 104 per Dixon J.

Physical presence in Australia

Physical presence or the length of time spent in Australia does not itself determine residency. A person does not cease to be a resident because they are no longer physically present in Australia or have been away for long periods of time. The resides test considers whether the individual has reflected a degree of continuity, routine or habit consistent with being an Australian resident: Joachim v FCT (2002) ATC 2088.

Nationality

You were born in Country B and are an Australian citizen. You had no intentions of becoming a citizen of Country A.

Frequency, regularity and duration of visits to Australia and purpose

During the years ended 30 June 20XX and 30 June 20XX you returned to Australia for two brief periods. You remained in Country A solely for work purposes. Your visits home were to visit your family and for seasonal holidays. During these visits you stayed with your wife in the apartment you continued to rent together. Although you were only present in Australia for brief periods of time, this does not preclude you from being considered an Australian resident for tax purposes: Joachim v Federal Commissioner of Taxation (2002) ATC 2088 at 2090. When departing Australia for Country A, you indicated you were an Australian citizen departing temporarily, and did not inform the electoral commission of your absence.

Family and business ties with Australia compared to Country A

Your wife and family pet remained in Australia. Your wife continued to live in the property you rented together prior to relocating overseas. During your time in Country A, your personal belongings and household effects remained in this property. You purchased a motor vehicle in Country A which you sold upon your departure.

You therefore remained an Australian tax resident for the duration of your time in Country A as you maintained a number of associations with Australia. These facts indicate a lack of severance with Australia and a subjective intention of continuity with Australia: Landy v FCT [2016] ATAA 754.

You are considered a resident of Australia for tax purposes under the resides test.

The domicile test

An individual whose domicile is Australia is considered a resident of Australia for tax purposes unless the Commissioner is satisfied the person’s permanent place of abode is outside Australia.

Domicile is determined according to the Domicile Act 1982 and common law rule. A person’s domicile is usually their country of birth, unless they obtain a different domicile by choice or by law.

In your case, your domicile of origin is Country B, and you have acquired a domicile by choice in Australia. Your domicile remains Australia for your time in Country A, unless you established a permanent place of abode in Country A.

Permanent place of abode

Whether a person has established a permanent place of abode outside of Australia is a question of fact determined on all circumstances of the case: Applegate v Federal Commissioner of Taxation 78 ATC 4051; 8 ATR 372 (‘Applegate’); FCT v Jenkins 82 ATC 4098; (1982) 12 ATR 745.

Courts have considered ‘place of abode’ as the physical dwelling where one lives and sleeps at night. Permanent does not have to mean everlasting or forever, but should be distinguished from temporary or transitional.

Taxation ruling IT 2650 Income Tax: Residency – Permanent place of abode outside Australia (‘IT 2650’) sets out the following factors considered by the Commissioner in determining whether an individual has set up a permanent place of abode outside Australia:

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

(b) Whether the individual intended to stay in the overseas country temporarily and move on to another country, or to return to Australia at some definite point of time;

(c) Whether the taxpayer established a home in the overseas country;

(d) Whether an abode exists in Australia or has been abandoned because of the overseas absence;

(e) The duration and continuity of the taxpayers presence in the overseas country; and

(f) The durability of association that the person has with Australia.

Paragraph 24 of IT 2650 provides no single factor is decisive and weight should be given to each factor varying on the circumstances. However, greater weight should be given to factors (c), (e) and (f): Applegate.

In your case:

● The length of your overseas stay in Country A was XX years. As a general rule of thumb, a period of 2 years or more is considered a substantial period of stay: IT 2650 at paragraph 25. However, this is not conclusive and should be considered with all factors listed above.

● You have indicated you intended to return to Australia at expiry of your work permit extension, however were offered a promotion in Country C and did not return to Australia.

● Accommodation in Country A was provided by your employer and you did not secure any permanent accommodation for yourself. You maintained your bank account in Australia, receiving income from Country A into your Australian bank account. You purchased a motor vehicle in Country A, which was sold before departure for Country C.

● You have not abandoned your abode in Australia. Your wife remained in the property you rented together prior to your departure. While in Country A, you continued to share payment of bills and rent for the apartment. Your personal belongings and household effects remain in this apartment. When you visited Australia you stayed at this property with your wife.

● While in Country A, you did not establish any professional, social, or sporting connections, or obtain any overseas qualifications such as a drivers license.

The facts provided suggest you retained your Australian domicile and did not set up a permanent place of abode in Country A. Therefore, you are considered a resident under the domicile test.

The 183-day test

Where an individual is present in Australia for 183 days or more during the income year, they are an Australian resident for tax purposes. This is unless the Commissioner is satisfied the individual’s usual place of abode is outside Australia.

During the relevant income years you only returned to Australia for brief visits not exceeding 183 days in total. As such, you do not satisfy the 183-day test and are not considered a resident for tax purposes under this test.

The Commonwealth superannuation fund test

You have never been an employee of the Commonwealth Government, and are not a member of any government superannuation schemes. Therefore, you are not considered a resident under this test.

Your residency status

As you satisfy two of the four residency tests outlined in subsection 6(1) of the ITAA 1936, you are considered a resident of Australia for tax purposes for year ended 30 June 20XX and 30 June 20XX. As a resident of Australia for tax purposes, income you derive from Australia and Country A during these income years is assessable.

Double Tax Agreement

In determining your liability to pay tax in Australia, it is necessary to consider the application of any relevant double tax agreements.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates the ITAA 1936 and ITAA 1997 to ensure the acts are read as one.

The Agreement between Australia and Country A for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income [1990] ATS 44 (Country A Agreement) operates to avoid double taxation of income received by residents of Australia and Country A. Section 5 of the Agreements Act provides the Country A Agreement force of law.

Article 4 of the Country A Agreement provides the tie-breaker test for determining residency for the purpose of Country A tax.

Whilst an individual may be a resident of more than one country for taxation purposes, the Country A Double Tax Agreement states that:

(a) A person is considered a resident solely in the contracting home where a permanent home is available to them.

(b) If a permanent home is available to the person in both countries, the person is considered a resident of the country where the person has a habitual abode.

(c) If the person has an habitual abode in both countries, the person is deemed a resident of the country the person has the strongest personal and economic ties with.

In Australia and Country A, you have both a permanent and habitual home available to you. We then consider the third rule of the tie breaker test. Whilst in Country A you maintained a number of links and associations with Australia including financial, electoral and family. You remained an Australian citizen, a contributing factor to determining personal and economic ties.

Under this tie breaker test, you will be considered solely a tax resident of Australia under article 4 of the Country A Agreement.