Edited version of private advice

Authorisation Number: 1051521825219

Date of advice: 7 June 2019

Ruling

Subject: Residency - Departing Australia

Question

Are you an Australian Resident for taxation purposes from Spring 20XX?

Answer

Yes

This ruling applies for the following periods:

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 are an Australian citizen, who is married with no dependants.

You accepted a three year, long term assignment overseas with your employer and relocated there from Australia together with your spouse.

Whilst on assignment you were offered an additional three year assignment with your employer. Your spouse decided not to accompany you and returned to Australia.

You held a Foreigner Residence Permit which was valid for 12 months.

Whilst residing overseas you lived in the same apartment under a long term lease. This apartment was supplied by your employer and was for your exclusive use.

You opened a bank account overseas in order to facilitate daily living expenses and you filed monthly income tax returns which reported your employment income.

You returned to Australia for a holiday and business trips which related to your employment.

You notified the Australian Electoral Commission that you were departing Australia.

When completing the incoming and outgoing passenger cards you completed them as a resident returning to Australian.

You were provided health care coverage by your employer with XXXX.

Australian Assets

Your household effects remained in Australia and you continued to maintain a joint Australian bank account. You own investment properties in Australia.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

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

Reasons for decision

Summary

The term Australian resident is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to mean a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

Subsection 6(1) of the ITAA 1936 provides four tests to determine whether a person is a resident of Australia for income tax purposes. These tests are:

·         the resides test;

·         the domicile and permanent place of abode test;

·         the 183 day test; and

·         the Commonwealth superannuation fund 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 satisfy the conditions of one of the other three tests.

The resides test

The Macquarie Dictionary defines reside as to dwell permanently or for a considerable time, have ones abode for a time.

The Shorter Oxford English Dictionary defines reside as to dwell permanently, or for a considerable time, to have ones settled or usual abode, to live in or at a particular place.

As a general concept, residence includes two elements: physical presence and the intention to treat the place as home. The period of physical presence in Australia is not by itself decisive when determining whether an individual resides here. All the facts and circumstances that describe an individual's behaviour in Australia are relevant in determining the residency status. No single factor is necessarily decisive.

Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia provides guidelines. Although you are not a migrant entering Australia, the ruling outlines some relevant principles.

As highlighted in TR 98/17 the quality and character of an individual's behaviour while in Australia assist in determining whether a person resides in Australia. The following factors are relevant:

·         intention or purpose of presence,

·         family and/or employment ties,

·         maintenance and location of assets, and

·         social and living arrangements.

Since the Commissioner published TR 98/17, there have been many more cases that have discussed residency status of Australians leaving Australia.

The resides test was considered in Iyengar v FCT 2011 ATC 10-222. In that case, the taxpayer was considered to be residing in Australia even though he had a two year work contract to work overseas and only returned to Australia twice in that time. He was in Australia for a period of 14 days and then later for a period of 10 days during that time. It was highlighted that the term 'reside' should be given a wide meaning and that a person does not necessarily cease to be a resident because they are physically absent. The test is whether the person has retained a continuity of association with that place. Iyengar had the required continuity of association with Australia and was considered a resident under the resides test. It was also considered that he did not establish a permanent place of abode outside Australia.

Residence was also discussed in Joachim v FCT 2002 ATC 2088 (Joachim's case). In that case it was highlighted that the test is whether the person has retained a continuity of association with the place, together with an intention to return to that place and an attitude that the place remains home.

In Pillay v FC of T 2013 ATC 10-324 (Pillay's case), the taxpayer had purchased and renovated a place in Bali, Indonesia, however he was still found to be an Australian resident. He had been working overseas since 2006. He was in Australia for between six to eight weeks each year. During his visits to Australia, he would spend time at his property in Australia and visiting his children and grandchild. The taxpayer had Australian bank accounts. The taxpayer maintained a continuity of association with Australia in the relevant years despite being physically absent for significant periods.

Recent case law considers the following factors relevant in determining the residency status of an individual:

·         physical presence,

·         nationality,

·         history of residence and movements,

·         habits and mode of life,

·         social and living arrangements,

·         frequency, regularity and duration of visits to Australia,

·         family and business ties and

·         maintenance of place of abode.

The period of physical presence or length of time in Australia is not by itself decisive when determining whether an individual resides here. Equally important is the quality and character of an individual's behaviour while in Australia.

Family or business ties with a country are an important factor to be taken into account in determining whether or not a person has ceased to be resident in a particular country. The location of an individual's immediate family can be decisive (Joachim's case). In Australia, family ties outweigh business ties where the two are in conflict (Shand v FC of T 2003 ATC 2080).

The domicile test and permanent place of abode

Whilst is not necessary to meet more than one test to determine residency for tax purposes (we have already established that you a resident under the resides test), we will also include a discussion of the 'domicile and permanent place of abode' test.

If a person is considered to have their domicile in Australia they will be considered an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

A person has only one domicile at the one time. A person retains the domicile of origin unless and until they acquire a domicile of choice in another country. Generally speaking, persons leaving Australia temporarily would be considered to have maintained their Australian domicile.

In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country, for example, through having obtained a migration visa. A working visa, even for a substantial period of time such as two years, would not be sufficient evidence of an intention to acquire a new domicile of choice.

The expression 'place of abode' refers to a person's residence, where one lives with one's family and sleeps at night. In essence, a person's place of abode is that person's dwelling place or the physical surroundings in which a person lives.

Taxation Ruling IT 2650 Income tax: residency - permanent place of abode outside Australia examines the factors to be taken into account in determining whether a person who leaves Australia to live overseas ceases to be an Australian resident during the absence.

The following factors are considered relevant in determining a taxpayer's permanent place of abode:

·         the intended and actual length of stay in the overseas country,

·         the establishment of a home outside Australia,

·         the abandonment of any residence or place of abode in Australia,

·         the duration and continuity of presence in the overseas country, and

·         the durability of association with a particular place in Australia.

As highlighted in paragraph 25 of IT 2650, as a broad rule of thumb, a period of about two years or more would generally be regarded as a substantial period for the purposes of a taxpayer's stay in another country. It must be stressed, however, that the duration of the taxpayer's actual or intended stay out of Australia is not, of itself, conclusive and needs to be considered with all of the factors.