Edited version of your written advice

Authorisation Number: 1051487816976

Ruling

Subject: Residency

Question

Will I remain a resident of Australia for income tax purposes when I depart Australia to take up residence in Country A under ordinary concepts of residency and Article X of the Country A Convention?

Answer

No

This ruling applies for the following period:

Year ended 30 June 20AA

Year ended 30 June 20BB

Year ended 30 June 20CC

Year ended 30 June 20DD

The scheme commenced on:

1 June 20AA

Relevant facts and circumstances

You are an Australian citizen who relocated to Country A in 20BB to take up a position with Company A. You will be seconded for a minimum time of three years in a managerial role. This is a fixed term local hire in Country A.

You will be paid by a Country A entity and added to the local payroll. Part of your salary will be a percentage for pension fund contributions which you intend to add to your Australian superannuation fund. Your salary will be deposited into a local bank account which you will open when you take up residence.

You have applied for a three year visa which allows you to live and work in Country A. This may be extended if required and was supplied by your employer.

Your intention is to reside in Country A for a minimum of three years, which is the initial term of your visa, although this may be extended depending on circumstances at the time.

You will be accompanied by your spouse who will live with you. You will a residential tenancy lease for between 12 and 26 months.

You will be required to visit the local Australian office on average approximately one week per quarter. You will also visit Australia for approximately four weeks on personal visits. Therefore you estimate that you will be in Australian for approximately eight weeks per year on a combination of personal and work travel.

You intend to retain ownership of your home in Australia (jointly owned with your spouse) while your dependent children attend university. If appropriate you may consider selling this home at a later date.

You will lease a granny flat which is attached to your permanent home for an undisclosed fee. This has been leased to a tenant under an arm’s length transaction.

You will retain your Australian private health insurance as it provides cover to your children and to retain coverage in the fund.

You are arranging to advise the Australian Electoral Commission and Medicare that you have departed Australia.

You have leased a unit in Country A with your spouse. This lease is for two years with a one year option. This unit is leased for your exclusive use.

You intend to sell your Australian vehicle but your spouse will retain theirs.

Apart from your home you only retain an Australian bank account and superannuation investments in Australia. You are divesting yourself of any other Australian assets.

Your home will be exclusively occupied by your children who will attend university in Australia. You will consider whether to sell this house when your children finish university studies.

You have shipped many household furniture and effects as well as personal effects to Country A. The remaining household furniture and effects have been retained in your home for the term of use by your children.

Your mail will be sent to your new address however most communications will be via email.

You currently have social ties with Country A and you intend to join local clubs and facilities as will your spouse to better integrate into the local community. For example you both intend to join a local gym and your spouse will join an expatriate club and a golf club. You will also join two professional associations specific to your profession.

Your spouse is employed by the Australian Commonwealth government and belongs to a Commonwealth superannuation scheme.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 995-1(1)

Income Tax Assessment Act 1936 Subsection 6(1)

Section 4 of the International Tax Agreements Act 1953

Agreement between the Government of Australia and the Government of the Republic of Country A for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (the Country A Convention)

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.

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 compared 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.

In Landy v FC of T 2016 ATC 10-435;[2016] AATA 754, the taxpayer took on a supervisory role at an oilfield in Oman that lasted 21 months. On or before departure, he cancelled his Medicare, notified his private health insurance fund, requested his name be removed from the electoral roll and completed an outgoing passenger card indicating that he was leaving Australia permanently. However, throughout his employment in Oman he financially supported his wife in Australia, garaged his two motor vehicles at her home, maintained a joint bank account with his wife, maintained his offices as director and secretary of an Australian company (his wife being the other director and shareholder) and resumed living with his wife on his return. The AAT found that the taxpayer's lack of severance of connections with Australia, and the lack of establishment of enduring and lasting living ties with Oman, required a conclusion that the taxpayer had not ceased to be a resident of Australia as ordinarily understood.

In your case, you are a citizen of Australia who will departed Australia shortly with the current intention of living in Country A for a minimum period of three years. You intend to return to Australia for brief visits. Based on the information provided, these visits to Australia are expected to total less than eight weeks per year; mainly to visit friends and for work travel.

Your spouse will also live with you in your newly established abode.

You are not a resident for tax purposes under the resides test after departure. Before this date you are considered to have maintained an enduring association with Australia as you had an abode in Australia which continued to be occupied by you and your family.

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 are a citizen of Australia. You have left Australia and have chosen to live in Country A. You have not been granted permanent residency by any country.

You have not abandoned your domicile in Australia and acquired a domicile of choice in Country A.

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.

Based on all the facts, the Commissioner is satisfied you have established a permanent place of abode outside Australia, in Country A. You are not a resident for tax purposes under the domicile test after departure.

The 183 days test

Where a person is present in Australia for 183 days during the year of income the person will be a resident, unless the Commissioner is satisfied that the person’s usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

In your circumstances you anticipate travelling to Australia for brief visits after your departure. You are not a resident for tax purposes under this test.

The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person.

You are not a contributing member of the PSS or the CSS however you are the spouse of such a person. You are a resident for tax purposes under this test.

Residency status

As you satisfy one of the four tests of residency outlined in subsection 6(1) of the ITAA 1936, you would be a resident of Australia for income tax purposes under ordinary concepts when you depart.

We will now consider the operation of the double tax agreement with Country A to establish residency under this agreement.

Treaty Resident of Country A

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Article X of the Country A Convention states –

2. Where by reason of the provisions of paragraph 1 of this Article an individual is both a Country A resident and an Australian resident-

(a) he shall be treated solely as a Country A resident:

(i) if he has a permanent home available to him in Country A and has not a permanent home available to him in Australia;

(ii) if sub-paragraph (a)(i) of this paragraph is not applicable but he has an habitual abode in Country A and has not an habitual abode in Australia;

(iii) if neither sub-paragraph (a)(i) nor sub-paragraph (a)(ii) of this paragraph is applicable but the Contracting State with which his personal and economic relations are closest is Country A;

(b) he shall be treated solely as an Australian resident-

(i) if he has a permanent home available to him in Australia and has not a permanent home available to him in Country A;

(ii) if sub-paragraph (b)(i) of this paragraph is not applicable but he has an habitual abode in Australia and has not an habitual abode in Country A;

(iii) if neither sub-paragraph (b)(i) nor sub-paragraph (b)(ii) of this paragraph is applicable but the Contracting State with which his personal and economic relations are closest is Australia You will have a permanent home available in both Country A and Australia, however, your habitual abode is considered to be in Country A, and not in Australia.

Accordingly, you would be treated as a resident of Country A under the Convention.