Edited version of your written advice

Authorisation Number: 1051510927802

Date of advice: 06 May 2019

Ruling

Subject: Residency

Question

Did you cease to be a resident of Australia for income tax purposes when you departed Australia?

Answer

No

Question

Are you an Australian resident for the purposes of the Double Tax Agreement between Australia and Country A in accordance with Article X of the Agreement after you departed Australia?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2019

Year ended 30 June 2020

Year ended 30 June 2021

The scheme commenced on:

1 July 2018

Relevant facts and circumstances

You are an Australian citizen with no other citizenships who received an offer of employment from Company A. You departed Australia for Country A to take up the position.

You have been issued a work permit which allows you to work for up to XX months and may be renewed. This visa was supplied by your employer. Your current intention is to reside in Country A permanently and to make your home there, renewing your visa if required.

You are currently renting an apartment on a 12 month lease with an option to renew for another 12 months.

You have established a mobile phone, internet, a credit card and a local bank account to allow you to live in your new accommodation. Your wages are paid into this new local bank account.

Your spouse is an Australian citizen. Your spouse and your children remained in Australia have lived in Australia all of their lives and are currently living in a house that is jointly owned.

You intend to change the ownership proportions to x% for yourself and y% for your spouse and have started negotiations with the holder of your home mortgage to allow this change to occur.

Your eldest child now attends school at a local Australian school in a nearby suburb.

You intend to move your family to live with you when practical but a date for this has not been set. You eldest child has recently started school and has been diagnosed with an illness. In the interests of health you and your spouse have decided to maintain the stability of staying in Australia and to monitor the health condition until you believe this child will be able to safely handle the relocation.

You have only informed the Australian Electoral Commission that you have departed Australia but have not informed Medibank.

You own no other major assets in Australia. You have closed all Australian bank accounts with a positive balance. You retain a home loan account, a transaction account and a credit card in Australia.

You have a registered ABN in Australia which had business receipts for the period mid to late 20AA. This ABN remains active.

You retain an Australian driver’s license.

You have negotiated an arrangement under which you have the opportunity to return to Australia for some days of every fortnight. You estimate that you will use this opportunity to return to Australia approximately 75% of the time. If so you may be in Australia for less than 80 days per calendar year or slightly longer with annual leave.

You established a company in Country B to offer management consulting services.

You intend to study in Asia and are currently applying to be a student through an overseas university in Country B.

You have received advice from a local legal practitioner that you will be a tax resident of Country A from the date of your arrival in that country.

Neither you nor your spouse has ever been employed by the Australian Commonwealth government and neither belongs to any Commonwealth superannuation scheme such as CSS or PSS.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 6(1)

Section 5 of the International Tax Agreements Act 1953

International Tax Agreements Act 1953 Subsection 4(1)

Agreement between the Government of Australia and the Government 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)

OECD Commentaries on the Model Tax Convention on Income and on Capital: Condensed Version (2010)

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 departed Australia with the stated intention of residing overseas permanently.

You intend return to Australia regularly to spend weekends with your family. Based on the information provided, these visits to Australia should total less than 80 days. These visits are maintenance of connection with both your family and Australia; they demonstrate that while your intention is to work overseas you home is still Australia.

While you have established a place in Country A to stay while you are working and not at home in Australia with your family, you have nevertheless maintained a home in Australia.

You have maintained an enduring association with Australia as you had a home in Australia which continues to be occupied by you with your family.

Accordingly, you continue to be a resident for tax purposes under the resides test after you first left Australia.

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” 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 work in Country A.

You have not abandoned your domicile in Australia and acquired a domicile of choice in Country A as you have not demonstrated the intention to reside permanently in that country. This is because while you have been working there and staying in a rented property while working you have not obtained or commenced to obtain anything other than a working Visa, albeit a long term Visa.

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 establishment of a home outside Australia;

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

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

(f) 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 not satisfied you have established a permanent place of abode outside Australia, in Country A.

You are working in Country A and returning regularly to live with your family in Australia. You have a place to stay overseas but you have not given up your home in Australia nor, as demonstrated by your returning to Australia regularly to live with your family, have you established a permanent place of abode overseas.

Therefore you are a resident for tax purposes under this test after departing Australia.

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 have (and will) travelled to Australia for brief visits after your departure (for a total of approximately 80 days or less per calendar year). 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 or a spouse of such a person, or a child under 16 of such a person. You are not a resident for tax purposes under this test.

Residency status

As you satisfy two of the four tests of residency outlined in subsection 6(1) of the ITAA 1936, you are a resident of Australia for income tax purposes after you departed Australia.

Country A Convention

Article X of this Convention explains the test to determine residency status for the purpose of the Convention when a person is a taxation resident of both countries –

Tie-Break Test under the Convention

Under the Convention it is clear that you have a permanent home available in both Australian and Country A.

You also have an habitual abode available in both Australia and Country A.

This means that the issue of residency under Article X of the Convention must be determined on the basis of your personal and economic relations with the two countries.

It is clear that you have personal and economic ties with both countries. It is helpful to refer to the OECD Commentaries on the Model Tax Convention on Income and on Capital: Condensed Version (2010). Under this version it can be noted that -

● You are an Australian citizen and hold an Australian passport

● You spouse is an Australian citizen, as are your children

● You self-described as an Australian resident in your recent tax return

● You hold an ABN and this ABN is still active

● You are entitled to Medicare benefits

● You maintain Australian bank accounts

● You retain your Australian driver’s license

After taking the above factors into account your personal and economic ties to Australia are closer than those to Country A. Accordingly, under the tie-break test of the Convention you would continue to be a tax resident of Australia.