Edited version of private advice

Authorisation Number: 1051781458623

Date of advice: 17 November 2020

Ruling

Subject: Residency

Question 1 and answer:

Are you a resident of Australia for income tax purposes for the period you were in Country Z?

No.

Question 2 and answer:

Are you a resident of Australia for income tax purposes on and from the day in 20XX you returned to Australia?

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts:

A is married to B. They had resided in Australia for all of their respective lives.

A worked for a multi-national company as a consultant and in the early part of 20XX was offered an opportunity to move to the Country Z to work in the company's office there.

A and B agreed to the opportunity, with A signing a contract commencing late 20XX and concluding late 20XX for about X years. A and B departed Australia in mid 20XX to ensure they could settle into their new residence prior to A commencing work, thereby extending the proposed overseas commitment slightly. There is also a provision in the employment agreement for the arrangement to continue further by mutual consent between the parties. In that sense the 'Relevant Period' should be defined as encompassing the period mid 20XX until such time as A and B return, which should not be any earlier than circa late 20XX, or longer if the contract is extended.

In late 20XX A and B had their first child, (C), meaning C was born in Country Z. Since that time, the child did not return to Australia until late 20XX with A and B. Together A, B and C are considered the 'Family Members'.

A and B retain a property in Australia, which they purchased over X years ago and lived in as their main residence since that time until circa mid 20XX. At that time they commenced renting the property out due to their impending departure to the Country Z. They maintain an outstanding debt (i.e. mortgage) on the property.

A and B also retain bank accounts in Australia. Otherwise the only investments retained is a small amount invested via B, being a diversified investment structure with a current market value of less than $X and superannuation investments.

B is part of a family group which more broadly encompasses some Australian resident companies and trusts. B is not a director, shareholder or appointor of any entities, but is a discretionary beneficiary of some trusts pursuant to the terms of those trust deeds. As a further result of the terms of such trusts (i.e. encompassing spouses and children of beneficiaries) discretionary beneficiaries of these trusts would also encompass A and B.

A key aspect to accepting the role overseas was A's family being from the Country Z originally and wanting to take the opportunity to reconnect with the family background and culture that A has to date not had the opportunity for.

A's employment is treated in an equivalent manner as all locals, notably as part of the arrangement receiving holiday pay, is considered for local bonuses and has access to company car schemes.

The only reason B does not have a job is due to the recent arrival of C.

Country Z bank account has been opened for receipt of A's wages and payment of living expenses.

Furniture for the new home, clothing specific for Country Z conditions. A has obtained a domestic driver's licence in case A needs to travel for (primarily) work purposes.

As formal residents A and B qualified for a local nurse to assist at their home with the initial period following the arrival of C. They have also registered for local health insurance and have applied to receive child benefits from the government which is currently being reviewed but is expected to be successful.

A and B have also utilised all the local health services for C, including immunisations and other general health visits, and also are utilising the local child community health centre. In addition, A and B have also already made enquiries as to attendance at the local childhood education centre.

B has joined a local exercise studio for ongoing classes, whilst A has joined an expat community group. The Family Members have also since arriving been attending church and have been meeting and communicating directly with the priest there to assist in preparation for C's baptism, which will specifically encompass local requirements and practices.

A and B indefinitely suspended their Australian health insurance, as well as entirely cancelling their respective gym memberships.

A took lessons to learn the local language to more actively embrace the local culture and assist with work opportunities. A is also not merely working whilst over there, A has also taken on significant additional responsibilities since arriving including managing local recruitment, and also leading a particular industry service line in A's broader team.

After the outbreak of COVID-19 A's employer suggested A (and A's family) should return home to Australia given they greatly appreciate the difficulty of living in a foreign country in such a difficult and unprecedented time. The health risks in the Country Z are much worse than Australia, and there is great difficulty for them as they don't speak the local language in understanding all the changing restrictions, legal obligations and the like.

The employer also appreciates the negative impact on their young child who is unable to really go outside much at all, is unable at all to go to childcare or similar to interact with other kids and develop accordingly, amongst other restrictions. Clearly there is a long-term effect because of this which the employer understands, as well as appreciating the difficulty for the parents in dealing with the situation being so far removed from their support network.

This distance and isolation from family and support systems has become amplified as a result of COVID-19 and made the situation much more difficult and the impact on well-being is magnified.

Further complicating the matter is that there are expectations in Country Z that a second wave of the virus is likely to hit in the upcoming months. As a result, A feels it best for the family in the long term to return to Australia whereby they can be close to family, much more easily informed and indeed reside in a country where the impact of COVID-19 seems to be a lot less severe and therefore mitigate the associate health risks accordingly.

If it weren't for the COVID-19 situation it was certainly highly likely that A's employment overseas would have been extended. The way the employer operates is to provide an initial X year engagement, but as mentioned there is a provision for extension to that period by mutual agreement between the parties.

To that end, A has in fact been already put forward for promotion and the local office has discussed the desire for A to remain for the medium term (i.e. at least a couple more years) such has been how well A has integrated into the business and the working culture.

A's working Visa obtained is one which can be extended as far as X years to allow for the possibility of an extension in due course, and although the overseas employer would much prefer to extend, with the situation at play their hands are understandably tied. To illustrate the situation further, A had 'promotion meeting/assessment' even though the local employer is generally appreciative that it is most likely A would be returning to Australia. However, the impact A has had they still felt warranted the process being undertaken, which only speaks to how well the employment has worked and the opportunities which will unfortunately be lost by A as a result of COVID-19.

A and B originally stayed in a serviced apartment for a week, upon their arrival in the Country Z.

They then moved into leased premises in which they have remained in unto their departure date.

You all left the Country Z on a flight in mid to late 20XX to Australia.

Assumptions:

You will remain in Australia for the remainder of the income year ending 30 June 20XX after your return to Australia.

Relevant legislative provisions:

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-10

Reasons for decision

Section 6-5 and 6-10 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 ITAA 1936. The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. A taxpayer is a resident of Australia for tax purposes if they satisfy any one of the tests. These tests are:

•                     the resides test

•                     the domicile test

•                     the 183 day test

•                     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. None of the other tests need be applied if the 'resides test' is satisfied.

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 5^th edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; have one's abode for a time', and according to the Compact Edition of the Oxford English Dictionary (1987), is 'to dwell permanently, or for a considerable time, to have one's settled or usual abode, to live in or at a particular place'.

The Commissioner's view on the resides test is contained in Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia (TR 98/17).

An individual may be considered a resident under the resides test if their behaviour while they are here is such that they exhibit a degree of continuity, routine or habit that is consistent with a person residing in Australia according to the ordinary meaning of the word 'reside'. Factors that can be taken into account when ascertaining the character of a person's behaviour include the intention or purpose of the individual's stay in Australia, presence of family in Australia, location of assets and social and living arrangements.

As a broad principle, where a person has a settled routine for six months or more (for example, the person has stayed in one place or has been with one employer for six months at the same location) they may satisfy the resides test. The period of time of the settled routine need not be confined to one financial year. As long as the pattern of behaviour is exhibited the individual may be regarded as being a resident from the time of their arrival.

For the period you were in Country Z.

We note that:

•                     A left Australia to live and work for an indefinite period in the Country Z.; B would have worked apart from the birth of C

•                     A was working on a permanent full-time basis during the stay in the Country Z

•                     you all lived together in a lease premise during your stay in the Country Z apart from the first week

•                     A would have remained employed in the Country Z if the COVID-19 outbreak had not occurred

•                     the return to Australia was at the suggestion of the employer because of the danger of COVID-19 and living in a country without the family having functional understanding of the language during the pandemic, and

•                     both A and B maintained assets in Australia which include superannuation accounts and the house previously lived in and which they eventually returned to. None of these assets required an Australian presence.

Based on the above, it is considered that you have established a settled routine in Country Z which you intend to continue indefinitely. Although you returned to Australia much earlier than intended it is clear you were not residing in Australia according to ordinary concepts for the period you were in the Country Z.

Therefore, you have not satisfied the resides test of residency for the period you were in Country Z and the other tests need be considered.

The domicile test

Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia, unless the Commissioner is satisfied that their permanent place of abode is outside of Australia.

Domicile

'Domicile' is a legal concept determined according to the Domicile Act 1982 (Domicile Act) and common law rules.

A person's domicile is usually 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. The domicile of choice which a person has at any time continues until that person acquires a different domicile of choice.

The Commissioner's view on how a domicile of choice may be acquired can be found in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia, at paragraph 21:

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 e.g., through having obtained a migration visa. A working visa, even for a substantial period of time such as 2 years, would not be sufficient evidence of an intention to acquire a new domicile of choice.

The courts have provided guidance on the concept of domicile over the years. Although the recent case decided by the Full Federal Court of Australia, Harding v Commissioner of Taxation [2019] FCAFC 29 (Harding), did not have to determine the domicile of the taxpayer, the court restated some observations from earlier cases concerning evidence of an intention to change domicile:

30. In Terrassin v Terrassin (1968) 14 FLR 151, Selby J observed that a person alleging a change of domicile had to prove by "clear and cogent evidence that the change has taken place" (at 154-155). His Honour referred to the decision of Lord Curriehill in Donaldson v M'Clure (1857) 20 D. 307, where his Lordship said:

... it is proper to keep in view what is meant by an animus or intention to abandon one domicile for another. It means something far more than a mere change of residence. It imports an intention not only to relinquish those peculiar rights, privileges, and immunities which the law and constitution of the domicile confer on the denizens of the country,-in their domestic relations ... in their purchases and sales and other business transactions ... in their political or municipal status,-and in their daily affairs of common life; but also the laws by which the succession to property is regulated after death. The abandonment or change of a domicile is therefore a proceeding of a very serious nature, and an intention to make such an abandonment requires to be proved by satisfactory evidence.

36. As Lord Macnaghten observed once in Winans v Attorney-General [1904] AC 287 at 291:

Lord Chelmsford's opinion [in Udny v Udny (1869) LR 1 HL, Sc 455] was that "in a competition between a domicil of origin and an alleged subsequently acquired domicil there may be circumstances to shew that however long a residence may have continued, no intention of acquiring a domicil may have existed at any one moment during the whole of the continuance of such residence. The question in such a case is not whether there is evidence of intention to retain the domicil of origin, but whether it is proved that there was an intention to acquire another domicil."

In your case, you:

•                     left Australia in Mid 20XX to live and work overseas indefinitely and did not return to Australia until mid to late 20XX

•                     apart from the first week lived in premises on a long-term lease at the same address in the Country Z.

•                     received a work visa which could be extended for a period up to X years

•                     established a bank account in the Country Z

•                     acquired transport

•                     commenced a language course

•                     have a network of friends in the local area and take part in social activities until restricted by the pandemic.

•                     A's family were originally from the Country Z and this provided extra connections.

No steps were taken to change your domicile from Australia. To be non-residents the Commissioner must be satisfied that you have established a permanent place of abode overseas,

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. 'Permanent' does not mean everlasting or forever but it is to be distinguished from temporary or transitory.

In FC of T v Applegate (79 ATC 4307; (1979) 9 ATR 899), Fisher J described 'permanent place of abode' as being:

... the taxpayer's fixed and habitual place of abode. It is his home, but not his permanent home. It connotes a more enduring relationship with the particular place of abode than that of a person who is ordinarily resident there or who has there his usual place of abode. Material factors for consideration will be the continuity or otherwise of the taxpayer's presence, the duration of his presence and the durability of his association with the particular place.

In your case, although your domicile was still Australia you had established strong social connections and established a long-term home as a family in the one location in the Country Z.

If the COVID-19 pandemic had not made living and working in the Country Z problematic the Commissioner is of the opinion you would have remained there for a considerable period.

The Commissioner is satisfied that you had a permanent place of abode outside Australia during that period.

Therefore, you are not a resident of Australia under this test for the relevant period.

The 183 day test

Under the 183 day test, a person is a resident of Australia if they are actually physically present in Australia for more than 183 days in an income year unless the Commissioner is satisfied that their usual place of abode is outside of Australia and they have no intention of taking up residence here.

You were not in Australia for more than 183 days in the 20XX income year.

While you will be in Australia for more than 183 days in the 20XX year this does not make you a resident for the period 1 July 20XX until your return to Australia. Although it will for the period after you return to Australia.

The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the Public Service 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 resident under this test.

For the period from your return to Australia in 20XX

You have returned to Australia to resume your life in Australia albeit earlier than intended by yourselves and A's employer. A will continue working in Australia and you will live as a family in your home for an indeterminate time.

You will be residents under the resides test.

You will also be residents under the domicile test. This is because you have an Australian domicile (as outlined previously) and you now no longer have a permanent place of abode outside Australia.

You will also be residents of Australia under the 183 day test as you will be present in Australia for more than 183 days and you do not have a usual place of abode overseas and do have an intention of being a resident of Australia for the foreseeable future.

The superannuation test does not have application to you.

You will be residents of Australia on and from the day of your return to Australia.

Summary

You are not residents of Australia for the period you were in Country Z. You were and are residents before and after that time.