Edited version of private advice

Authorisation Number: 1051858255629

Date of advice: 30 June 2021

Ruling

Subject: Residency

Question

Are you an Australian resident for taxation purposes for the period late-20XX to mid-20YY?

Answer

Yes

Question

Are you an Australian resident for taxation purposes for the period mid-20XX to early-20YY?

Answer

Yes

Question

Can you use the main residence exemption when you sell your property in early-20YY?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 20XX

Year ending 30 June 20YY

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a citizen of Country A with permanent residency in Australia who will departed to live and work in Country B in late-20XX.

You have been an Australian resident since 20ZZ.

Your employer will arrange a working visa which will allow you to stay in Country B.

Your spouse and children will travel with you when you depart Australia and they will live with you in rented accommodation. This will be either employer owned housing for visiting employees or you will take a temporary rent on an unfurnished apartment. You will not purchase a home in Country B.

You will retain your position with your current employer in Australia. When you travel to Country B you will take unpaid leave.

Your intention once you depart Australia is to depart Australia permanently after you stay ends in early-20YY.

You and your spouse own a home in Australia which is your residence. You purchased this home in 20ZZ. You also own an investment property in Australia. When you depart your Australian home will remain vacant.

Your household effects and personal possessions will remain in your current Australian residence while you are overseas.

Upon departure from Australia you intend to take up full-time employment in Country B.

You will return to Australia sometime between late-20XX and mid-20YY for a short-term stay required by your work if such travel is permitted by pandemic travel restrictions.

You will then depart Australia permanently.

Prior to departing Australia, you will not notify the Australian Electoral Commission of your departure as this is not required for non-citizens.

You will also not inform Medicare before your departure as you intend to keep your current address, phone number, and other life essentials pending your return so that you can resume your life in Australia upon your return.

You will retain your private medical insurance while working overseas.

You will retain ownership of an investment property in Australia which will continue to be rented. The rent will continue to be your income while you work overseas.

You will retain all your current Australian assets including home, investment property, bank accounts and personal possessions.

You will retain your membership of the Australian societies.

You and your family will suspend your memberships of local sports clubs, social activities, language school and ballet lessons. You may continue some music lessons for your children via teleconferencing arrangements if that proves practical.

When in Country B, you anticipate the family will join a local sporting club or clubs to maintain sporting activities.

You plan to sell your family home in Australia in the period January or February 20ZZ.

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)

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

Resides Test

When considering the resides test the following factors are normally considered:

•         physical presence

•         intention or purpose

•         family or business ties

•         maintenance and location of assets

•         social and living arrangements.

In your case, you are a citizen of Country A and a permanent resident of Australia who will depart Australia in late-20XX to take up employment in Country B.

This subject is addressed in Taxation Ruling 98/17 (TR98/17) Income tax: residency status of individuals entering Australia. At paragraphs 20 and 21 it states -

20. All the facts and circumstances that describe an individual's

behaviour in Australia are relevant. In particular, the following factors

are useful in describing the quality and character of an individual's

behaviour:

-       intention or purpose of presence;

-       family and business/employment ties;

-       maintenance and location of assets; and

-       social and living arrangements.

21. No single factor is necessarily decisive and many are

interrelated. The weight given to each factor varies depending on

individual circumstances.

Your intention upon departure will be to live and work in Country B on a fixed term contract basis but to return to Australia in mid-20YY. Your employment contract could be extended with mutual agreement from both parties.

While your family will accompany you, you will maintain strong ties with Australia including maintaining all your current assets and investments in Australia pending your proposed return to Australia.

You will establish what could be described as a short-term presence in Country B where you stay in a furnished short-term temporary apartment.

You will maintain a strong connection with Australia as evidenced by -

•         Your Australian abode is available to you and will remain vacant and available for immediate occupation upon your anticipated return.

•         You will retain al household effects and personal effects in your Australian home.

•         You will maintain your Medicare card and all current Australian connections.

•         You will maintain your Australian bank accounts, mortgage and mailing address.

Given your continuing connections to Australia, and your strong intention to return to Australia to resume your residency, you will remain a resident for tax purposes under the resides test after departing for Country B and upon your return to Australia between mid-20XX and early-20YY.

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 Country A and a permanent resident of Australia. You have left Australia and have chosen to live in Country B. You have not been granted, nor have you actively sought, permanent residency in any other country.

You have abandoned your domicile in Country A and established a domicile in Australia.

You will not be abandoning your domicile in Australia and acquired a domicile of choice in Country B as you will not have the right to reside permanently in that country. This is because you will not actively apply for a visa that will allow you or to remain there indefinitely. You will remain in Country B on a renewable working visa which is valid for one year only.

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

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 of 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.

This concept was further explored in Harding v Commissioner of Taxation (2019) FCAFC 29 (Harding), where Davies and Stewart JJ stated at paragraph 40 that in reference to the term 'permanent place of abode', the word 'place' should accordingly be read as only including a reference to a particular country or state.

Further, the Full Court found in Harding at paragraphs 36 and 40 that 'permanent place of abode outside Australia' involves two considerations as follows:

1) Whether a 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 your case you have not established a permanent place of abode outside of Australia as:

•         You remain a join owner of an Australian residential property.

•         You will establish only a short-term, temporary, abode in Country B.

•         You have a clear intention to return to Australia to resume your residency.

•         Your Australian residence will remain vacant and available for immediate occupation upon your return.

•         You will continue to maintain all household effects and most personal effects in your Australian home.

These indicates that you have not abandoned, in a permanent way, your Australian residence.

Consequently, the Commissioner is not satisfied that you have a permanent place of abode outside Australia, and you therefore remain a resident under the domicile test of residency during the period in Country B and upon your return to 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.

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

You will be in Australia for more than 183 days in the 20YY income year.

In the 20YY income year, you will not have a usual place of abode overseas until you depart permanently. You will have no abode in Country B. Therefore, the Commissioner is not satisfied you have a usual place of abode outside Australia until the time in which you leave permanently.

You are not a resident for tax purposes under this test for the 20XX income year. You are a resident under this test in the 20YY income year until you leave permanently.

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

You are a resident of Australia for income tax purposes in the 20XX income year and in the 20YY income year until you leave permanently.

Main Residence Exemption

You are entitled to continue to treat your home as your main residence while you are away in Country B using the absence rule.

Generally, a dwelling is considered to be your main residence if:

• you and your family live in it
• your personal belongings are in it
• it's the address your mail is delivered to
• it's your address on the electoral roll
• services such as gas and power are connected.

The main residence exemption is not based on one factor alone. The weight given to each varies depending on individual circumstances. The length of time you stay there and your intention in occupying it may also be relevant.

As a resident of Australia, you would be entitled to claim the main residence exemption upon sale of your home.