Edited version of private advice

Authorisation Number: 1051856318625

Date of advice: 5 July 2021

Ruling

Subject: Residency

Question

Are you a resident of Australia for taxation purposes?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2019

Year ended 30 June 2020

Year ending 30 June 2021

The scheme commenced on:

1 July 2018

Relevant facts and circumstances

General

You were born in Australia.

You are a citizen of Australia.

You are not a citizen of any other country and you have not been granted permanent residency of any other country.

You are working in the tourism industry on a vessel owned by an International employer.

You started working on vessels overseas in mid-2019, and you have been on the same vessel for the entire time.

Prior to this you were living in Australia.

You have a permanent contract working on the vessel and you intend on continuing the employment for the foreseeable future, and if you had to estimate a time frame it would be between two to five years before you would return to Australia.

Since working on the vessel overseas you have returned to Australia for roughly a month each year to visit family and friends.

On average you would spend half to three-quarters of the year out of port or at anchor.

Your home port is in Country A, and this is where you have spent the most extended periods. Apart from that you have spent periods of time in various other countries in Continent A. The time frames spent in each location vary over the duration of your employment.

You are unable to give the details of the vessels itinerary due to confidentiality, however the vessel is continually moving and has no fixed base.

You live onboard the vessel all year round apart from times you take annual leave.

You have been granted a Visa, which is a short-stay visa that allows a person to travel to members of the relevant area, per stays up to 90 days for tourism or business purposes.

The relevant area signifies a zone where several countries in Continent A abolished their internal borders for the free and unrestricted movement of people.

When you are onboarding the vessel, your Visa is not stamped into any Country you visit. You only get stamped into a country if you are ashore for extended periods and/or more than 2 hours away from the vessel.

You never use your 90-day limit as you are normally stamped out and onboard the vessel before that 90-day period.

You needed a tourist visa when the vessel entered the Country B, however your employer organised this visa for you as it was required for the crew of the vessel as part of your cursing permit for the owners. As such this tourist visa was not used for going ashore.

You do not hold a Medicare card.

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

You do not hold private health insurance in Australia, however you are covered overseas through your employment on the vessel.

Accommodation

You have a room onboard the vessel which you share with one other crew member.

You have not provided any furniture for this room.

You do not pay any rent for your accommodation as it is provided as part of your employment contract, and as such there is no lease agreement.

You have permanent rights to the room onboard the vessel for as long as you were employed. However, your right to the room onboard the vessel would be terminated when your employment ceased, where you would be repatriated to Australia.

Apart from your shared cabin on the vessel, you have no other permanent accommodation overseas in any other Country.

Prior to living and working on the vessel you were living with your parents in Australia.

Assets

You are paid for your employment in a foreign currency, and you have accumulated earnings which you have spread between Bank accounts in Australia and an overseas bank account.

You do not own any property in Australia. However, you intend on purchasing an Australian investment property in the next few years.

You have not lodged any Australian or overseas income tax returns whilst you have been overseas.

You have a small share account in Australia.

Prior to leaving Australia you had no household effects as they all belonged to your parents.

Prior to leaving Australia you sold and gave away all of your personal effects except for photos which you have stored on a USB and at your parent's house in Australia.

You do not receive any income from Australian sources.

Family and social connections

You are single and you have no dependants.

All of your family lives in Australia.

You have not maintained any professional, social or sporting connections with Australia.

You have obtained qualifications connected with working on a vessel whilst you have been overseas.

You have not maintained any professional or occupational memberships in Australia.

Employment

Prior to working on-board the overseas vessel, you worked on small to medium vessels in Australia, but none were overnight charters.

Once you saved enough money you moved overseas to the South of Country C to find employment.

Your job onboard the vessel is to help maintain the vessel and the equipment onboard. This can include painting, cleaning, and other general duties.

You have never been employed by the Commonwealth of Australia.

You are not a member of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990.

You are not an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS) which was established under the Superannuation Act 1976.

You are not the spouse or a child under 16 of a person who is a member of the PSS or an eligible employee in respect of the CSS.

You do not have a position or job being held for you in Australia.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 6(1)

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, if you are a foreign resident, your assessable income includes only income derived from an Australian source (subsection 6-5(3) of the ITAA 1997).

The terms resident and resident of Australia, regarding 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. These tests are:

1. the resides test
2. the domicile tests
3. the 183-day test
4. the superannuation tests

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 a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.

The resides test

The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'. As the word 'reside' is not defined in Australian taxation law, it takes its ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936.

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3^rd edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; having 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'.

In considering the definition of 'reside', the High Court of Australia, in Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 at page 99-100, per Latham CJ, noted the term 'reside' should be given a wide meaning for the purposes of section 6(1) of the ITAA 1936. Similarly, in Subrahmanyam v Commissioner of Taxation 2002 ATC 2303, Deputy President Forgie said at paragraphs 43 and 44 that the widest meaning should be attributed to the word 'reside'.

The question of whether an individual 'resides' in a country is a question of fact and degree and not of law. In deciding this question, the courts have consistently referred to and considered the following factors as being relevant:

(i)         physical presence in Australia;

(ii)        nationality;

(iii)      history of residence and movements;

(iv)      habits and 'mode of life';

(v)       frequency, regularity and duration of visits to Australia;

(vi)      purpose of visits to or absences from Australia;

(vii)     family and business ties with Australia compared to the foreign country concerned; and

(viii)    maintenance of a place of abode.

The weight given to each factor varies with individual circumstances and no single factor is necessarily decisive. In Shand v Federal Commissioner of Taxation 2003 ATC 2080, the Tribunal stated (at 35):

Questions of residence, domicile, permanent place of abode, have frequently been found by the courts and tribunals to be difficult to assess on a factual level and not easy to define in concrete legal terms.

These factors are also similar to those which the Commissioner has said are relevant in determining the residency status of individuals in IT 2650 Income Tax: Residency - permanent place of abode outside Australia and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.

It is also important to note the weight given to each factor listed above depends on individual circumstances.

In your case:

•                Whilst you will have a remaining connection with Australia through your parents and other family, you do not have a permanent place of abode in Australia.

•                You left Australia with the intention of living and working on the vessel for the next two to five years.

•                You only spend approximately one month each year in total in Australia to visit your family and friends.

•                You are single and have no spouse or children of your own.

Based on these facts, you are not residing in Australia according to the ordinary meaning of the word.

Therefore, you do not meet the 'resides test' and you are a non-resident of Australia for tax purposes under this test.

However, you will be an Australian resident if you meet the conditions of any of the remaining tests.

The domicile test

Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence.

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. A person may acquire a domicile of choice in another country if they have the intention of making their home indefinitely in that country (section 10 of the Domicile Act 1982).

If a person's domicile is Australia, they will be an Australian resident unless the Commissioner is satisfied, they have a permanent place of abode outside of Australia. In order to show that a new domicile of choice in a country outside of Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country, and this intention needs to be demonstrated in a legal sense (for example by way of obtaining a migration visa, becoming a permanent resident or becoming a citizen of the country concerned).

The concept of domicile was discussed in the Marriage ofHall (1980) 5 Fam LR 662:

A person may abandon his domicile of origin and acquire a domicile of choice but in order to establish a change of domicile there must be clear evidence of an intention to abandon the domicile of origin and to make a new permanent home in the country to which the person has removed. In my view a person cannot be said to acquire a new domicile until there has been a firm intention of establishing a permanent residence in another country and also the confirmation of that intention by actual residence in that country.

Declarations as to intention are rightly regarded in determining the question of a change of domicile, but they must be examined by considering the person to whom, the purposes for which, and the circumstances in which they are made and they must further be fortified and carried into effect by conduct and action consistent with the declared expression:

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.

Ross v Ross [1930] AC 1 at 6-7 per Lord Buckmaster... Where the court finds that at a relevant point of time there is a conflict between the actual conduct of the party concerned and the verbal expression of his intention doubtless the court will in most cases prefer the act to the word - as an ancient proverb puts it: "what you do speaks so loudly that I cannot hear what you say."

Further, in Fremlin v Fremlin (1913) 16 CLR 212; [1913] HCA 25 (Fremlin v Fremlin) Per Barton J:

In Winans v. Attorney-General, Lord Halsbury L.C. said:-"Now the law is plain, that where a domicile of origin is proved it lies upon the person who asserts a change of domicile to establish it, and it is necessary to prove that the person who is alleged to have changed his domicile had a fixed and determined purpose to make the place of his new domicile his permanent home." In the much older case of Udny v. Udny Lord Westbury said: -"Domicile of choice is a conclusion or inference which the law derives from the fact of a man fixing voluntarily his sole or chief residence in a particular place, with an intention of continuing to reside there for an unlimited time. This is a description of the circumstances which create or constitute a domicile, and not a definition of the term. There must be a residence freely chosen, and not prescribed or dictated by any external necessity, such as the duties of office, the demands of creditors, or the relief from illness; and it must be residence fixed not for a limited period or particular purpose, but general and indefinite in its future contemplation. It is true that residence originally temporary, or intended for a limited period, may afterwards become general and unlimited, and in such a case so soon as the change of purpose, or animus manendi, can be inferred the fact of domicile is established." Lord Curriehill in the case of Donaldson v. M'Clure says: -"To abandon one domicile for another 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 business transactions, in their political and municipal status, and in the 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." Lord Halsbury, in Marchioness of Huntly v. Gaskell, expressed strong approval of Lord Curriehill's judgment, quoting this passage.

In your case, you were born in Australia, and despite the fact that you have left Australia to live and work on a vessel, you have not taken any legal steps which would have proven an intention to change your Australian domicile to any other country. As such you have therefore retained your Australian domicile.

Therefore, you will be a resident of Australia under this test unless the Commissioner considers you have established a permanent place of abode outside of Australia.

Permanent place of abode

The expression 'place of abode' refers to a person's residence, where they live with their family and sleep 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.

It is clear from the case law that a person's permanent place of abode cannot be ascertained by the application of any hard and fast rules. It is a question of fact to be determined in the light of all the circumstances of each case.

A place of abode must exhibit the attributes of a place of residence or a place to live, as contrasted with the overnight, weekly or monthly accommodation of a traveller.

A permanent place of abode does not have to be 'everlasting' or 'forever'. It does not mean an abode in which a person intends to live for the rest of his or her life. An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a permanent place of abode elsewhere.

Paragraph 23 of Taxation Ruling IT 2650 Residency - Permanent place of abode outside Australia sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode:

(a)       the intended and actual length of the taxpayer's stay in the overseas country;

(b)       whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time;

(c)       whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia;

(d)       whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;

(e)       the duration and continuity of the taxpayer's presence in the overseas country; and

(f)        the durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

As with the factors under the resides test, no one single factor is decisive and the weight given to each factor depends on the individual circumstances.

If an individual with a usual place of abode in Australia has no fixed or habitual place of abode overseas but moves from one country to another, any association with a particular place overseas would be purely temporary or transitory and he or she would not be considered to have adopted an alternative domicile of choice or permanent place of abode outside Australia. This would also include situations where an individual lives and works on a vessel. In such a case, if the person could not be said to have acquired a domicile of choice or permanent place of abode outside Australia, the taxpayer would be considered to be a resident of Australia.

The Full Federal Court in Harding stated at 41 that it favoured the construction of the phrase 'permanent place of abode' as used at first instance in Applegate v Commissioner of Taxation [1978] 1 NSWLR 126 at 134:

"place of abode" may mean the house in which a person lives or the country, city or town in which he is for the time being to be found. I am of the view that the latter is the meaning of the expression used in s. 6(1.) of the Act.

The Full Federal Court at 40 summarised its thoughts on 'permanent place of abode' as follows:

•                the word 'place' in the context of the phrase 'outside Australia' involves a consideration of the town or country in which a person is physically residing 'permanently';

•                so long as the taxpayer has 'definitely abandoned' his or her residence in Australia, it is not necessary for the taxpayer to be permanently located at a particular house or flat in a particular town within a foreign country or for the person to live in one particular town, suburb or village within a given country;

•                the word 'place' should accordingly be read as including a reference to a country or state;

•                moving between foreign countries is not the same as being permanently in one country; and

•                the words 'permanent place' require the identification of a country in which the taxpayer is living permanently.

Consequently, it is considered that the Full Federal Court in Harding provides two key considerations in determining whether a taxpayer has their permanent place of abode outside Australia. These are:

(1)  whether the taxpayer has definitely abandoned, in a permanent way, their Australian residence, and

(2)  whether the taxpayer is living permanently in a specific country, rather than moving between foreign countries.

In consideration of the factors above, despite the fact that you will not be maintaining any Australian residence whilst you are overseas, the Commissioner is not satisfied that you have a permanent place of abode outside of Australia based on the following:

•                Your accommodation whilst being employed on the vessel is of a transitory nature.

•                Apart from your shared cabin on the vessel, you have no other permanent accommodation overseas in any other Country.

•                You will be living permanently on board the vessel, which will be moving between countries as part of its itinerary. The only exception to this is when you will take annual leave.

•                You have permanent rights to the room onboard the vessel for as long as you were employed. However, your right to the room onboard the vessel would be terminated when your employment ceased, where you would be repatriated to Australia.

•                You have been granted a Visa, which is a short-stay visa that allows a person to travel to members of the particular area, per stays up to 90 days for tourism or business purposes.

•                You never use your 90-day limit on your Visa as you are normally stamped out and onboard the vessel before that 90-day period.

•                Whilst you have obtained the Visa you have not obtained or applied for permanent residency in any other overseas country.

•                You needed a tourist visa when the vessel entered Country B, however your employer organised this visa for you as it was required for the crew of the vessel as part of your cursing permit for the owners. As such this tourist visa was not used for going ashore.

•                You have not established any associations with another country.

•                You have not lodged any foreign income tax returns whilst you have been overseas.

In addition, in reference to the two key considerations in determining whether a taxpayer has their permanent place of abode outside Australia, adopted from the Harding case, we consider that you have abandoned your Australian residence (the room at your parent's place), which is evidenced by your intention to live and work on the vessel for the next two to five years.

However, we do not consider that you are living permanently in a specific country, as you are living and working on the vessel, which involves moving between countries as part of its itinerary. The only exception to this is when you will take annual leave.

Therefore, as your domicile is Australia and the Commissioner is not satisfied that you have established a permanent place of abode outside of Australia, you are a resident of Australia under the domicile test of residency.

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 have not been in Australia for more than 183 days in the 2019-20 and 2020-21 financial years since leaving Australia in May 2019.

As such, the Commissioner is satisfied that you are not a resident under this test for those financial years.

However, you were been in Australia for more than 183 days in the 2018-19 financial year, as you did not leave Australia to live and work on the vessel until mid-2019.

Therefore, you are a resident of Australia under this test for the 2018-19 financial year unless the Commissioner is satisfied that your usual place of abode is outside Australia and you do not intend to take up residence in Australia.

Usual place of abode

In the context of the 183- day test, a person's usual place of abode can include both a dwelling or a country where the person usually resides. A person can have only one usual place of abode under the 183- day test.

In your case, you have not established a place of abode overseas following you leaving Australia to live and work on the vessel. As noted above under the Domicile test, a shared room aboard the vessel does not qualify as a place of abode. In addition, you have not established a usual place of abode any particular Country. Based on the analysis of other tests, you would retain your Australian residency during your trip away.

As such the Commissioner is not satisfied that your usual place of abode is outside Australia and that you do not intend to take up residence in Australia.

You are a resident under this test for the 2018-19 financial year.

The superannuation tests

This test covers Commonwealth government employees - members of the Commonwealth superannuation funds (as well as their spouses and children under 16 years of age).

A person is a resident under this test if they are:

•                a member of the superannuation scheme established by deed under the Superannuation Act 1990; or

•                an eligible employee for the purposes of the Superannuation Act 1976; or

•                the spouse, or a child under 16, of a person covered by either of the above.

You are not a member of the superannuation scheme established by deed under the Superannuation Act 1990.

You are not an eligible employee for the purposes of the Superannuation Act 1976.

You are not the spouse, or a child under 16, of a person covered by either of the above.

Therefore, the Commissioner is satisfied that you are not a resident under this test.

Your residency status

Despite the fact that you were a non-resident under the resides test, 183 day test (for the 2019-20 and 2020-21 financial years) and Superannuation tests, as you will be a resident under the domicile test for all relevant financial years to which the ruling applies to, you are a resident of Australia for income tax purposes under subsection 6(1) of the ITAA 1936.

As you are a resident of Australia, according to section 6-5 of the ITAA 1997, your assessable income includes income gained from all sources, whether in or out of Australia.

You may, however, be entitled to a foreign income tax offset for any foreign tax you pay overseas.