Edited version of private advice

Authorisation Number: 1051941671471

Date of advice: 25 February 2022

Ruling

Subject: Residency for tax purposes

Question

Are you a resident of Australia for tax purposes under section 6(1) Income Tax Assessment Act 1936 when you relocated to XXXX?

Answer

No

This private ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

September 20XX

Relevant facts and circumstances

This private ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are different from these facts, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You advised that:

•                    You are a citizen of Australia

•                    You moved to XXXX in XXXX to take up a xxxx job there for a year. At this stage you are planning to stay there in XXXX for a few years. You have a one year contract at an xxxx xxxx, but you stated that there is a very good possibility that the xxxx will extend your contract for a few more years.

•                    You also are unsure when you will return to Australia even after your contract with the xxxx finishes. You have stated in your email that you would like to stay in XXXX for a longer period of time.

•                    Your spouse joined you in XXXX at a later date. They and your child are living with you in XXXX. Your child XXXX is still in Australia. You still have very close ties with family and friends in Australia.

•                    You own a property in XXXX located at XXXX. This property was your main residence for X years.

•                    The property has been rented out for last X months.

•                    You have all your siblings in Australia who you have very close contact with.

•                    You would like to move elsewhere when you return to Australia, therefore wish to sell this property.

•                    You also own other properties in Australia. You own X properties and your XXXX is also in Australia.

•                    You own a car and are renting a place in XXXX.

•                    You have bank accounts and loan accounts in Australia. You have also opened bank accounts in XXXX.

•                    You have advised a change of address to the banks and have updated the electoral role relating to your residential status.

•                    You continue to pay for utilities like water and council rates as normal for your properties in Australia.

•                    You intend to close your Private Health Fund in Australia.

•                    As your spouse is from XXXX, you have a very good social connection with their family and friends. You both work full time and therefore, you both have built professional ties there.

•                    Your concern is that due to your present residential status, if you sell the property you would have to pay CGT.

Relevant legislative provisions

Income Tax Assessment Act 1936, subsection 6(1)

Income Tax Assessment Act 1936, section 6-5

Income Tax Assessment Act 1997, section 118-110

Income Tax Assessment Act 1997, section 115-115

Income Tax Assessment Act 1997, section 995-1

Income Tax Assessment Act 1997, section 768-910

International Tax Agreements Act 1953

Reasons for Decision

These reasons for decision accompany the Notice of private ruling for XXXX.

Issue

Residency for tax purposes

Summary

Based on the facts you are not a resident of Australia for tax purposes from XXXX as you have relocated to XXXX for work.

Detailed reasoning

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for taxation purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

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

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.

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:

•                    physical presence

•                    intention or purpose

•                    family or business ties

•                    maintenance and location of assets

•                    social and living arrangements.

In your case, you are still a citizen of Australia, but you moved to XXXX in XXXX for a year to take up a xxxx job. You believe your contract will be extended and you will be in XXXX for a number of years. While you intend to return to Australia, you do not have any timeframe for this to happen in future. You live in XXXX with your spouse who joined you after your departure in XXXX.

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 is to remain in XXXX with your spouse for a number of years. You have also satisfied the following conditions:

•                    you have moved to XXXX in XXXX to commence a xxxx contract. This ongoing employment is your primary and reliant source of income.

•                    you and your spouse will reside in a permanent house in XXXX.

•                    you do not have any personal belongings in Australia, except for your X properties that are now on rent. This includes your main residence whilst in Australia.

•                    you have established an abode in XXXX where you stay with your spouse and your child.

•                    you have established professional and social connections in XXXX with various friends and social organisations. Your spouse is also from XXXX.

•                    you are considered a non-resident for tax purposes under the resides test because:

-        you do not maintain an enduring association with Australia and do not have any timeframe when you would return

-        you maintain strong family ties with your spouse in XXXX

-        you have XXXX bank accounts

-        you have updated your electoral roll and advised bank of your new address

-        you have now built habitual, social and economic associations with XXXX

-        you have your personal affects and assets, bought a car and a have new place of residence in XXXX.

Your circumstances taken together lead to a conclusion that you are a non-resident under this test for the 20XX-20XX tax year and thereafter. This may change if you decide to return to Australia and meet the residency test for tax purposes.

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.

Under this test, a person whose domicile is in Australia is deemed to be a resident of Australia unless the Commissioner is satisfied that the person's permanent place of abode is outside of Australia.

A person acquires at birth a domicile of origin and retains this domicile of origin unless and until he or she acquires a domicile of choice in another country. In order to show that a new domicile of choice in another country has been adopted, the individual must be able to prove an intention to make his or her home indefinitely in that country.

In the recent case of Harding v Commissioner of Taxation [2019] FCAFC 29 ("Harding"), the Full Federal Court concluded that the relevant consideration was whether Mr Harding had abandoned his residence in Australia, although his first apartment was only 'temporary' while he waited for his family to join him.

While your domicile of origin is Australia, your intention is to continue to work and reside on a permanent basis in XXXX with your spouse and child with no immediate plan to return to 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.

In your case it is considered that you have established a permanent place of abode in XXXX as:

•                    you live in a property in XXXX with your spouse and child, and it remains available to you

•                    you have XXXX bank accounts. You updated your new address with Electoral Commission that you have moved to XXXX.

•                    you have bought a car in XXXX and moved your personal affects and belongings to XXXX.

•                    you intend living in XXXX for a considerable period of time with your spouse. You believe your work contract may be extended and you will continue to remain there even after your contract.

The duration and continuity of your presence in XXXX supports the argument that you will establish a long-term place of abode in XXXX. While you are a citizen of Australia, this does not outweigh the enduring association and connection you have and will maintain in XXXX.

Whilst the question of a usual place of abode is a question of fact, generally the phrase is interpreted as the abode customarily or commonly when you are physically in a country.

Your place of abode does not have to be fixed but must have the attributes of a place of residence or a place to live. Since XXXX, your usual place of abode is XXXX.

Therefore, while you are a citizen of Australia, the Commissioner considers you have established a permanent place of abode outside Australia for tax purposes in XXXX since XXXX.

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.

For the 20XX-20XX tax year you will be present in XXXX for more than 183 days therefore, you are a non-resident for tax purposes under this test for the year.

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.

Therefore, you are not a resident for tax purposes under this test.

Application to your circumstances

Residency

You moved to XXXX with your spouse and child and since then have lived and worked there. You do not have any immediate intentions to return to Australia. You have now built long-term social and family relationships in XXXX and updated yourself on the electoral roll in Australia. Furthermore, you have set up new bank accounts in XXXX and have a permanent accommodation as your primary place of residence there. As you left Australia in XXXX, you will not be a resident for tax purposes for the XXXX tax period and thereafter as long as you are live in XXXX. This may change if you decide to return to Australia and meet the residency test for tax purposes at a future date.

Foreign residents and main residence exemption

Section 118-110 of ITAA97 provides for main residence exemption in relation to a dwelling or your ownership interest in it if you are an individual; and the dwelling was your main residence throughout your ownership period. However, foreign residents are not entitled to the main residence exemption unless they satisfy the requirements of the life events test. Please see QC 66062 at ato.gov.au for more information on the life events test.

In your case, you are a foreign resident from XXXX and based on the information you have provided, you will not meet the life events test. You will not be entitled to claim the main residence exemption if you sell your property whilst you are a foreign resident.

If in the future you again become an Australian resident for tax purposes, you may then be able to claim the main residence exemption for your property, provided all conditions are met at that time.

If you sell your property for more than $750,000, at settlement, 12.5 per cent of the proceeds will be forwarded to the ATO on your behalf under the 'foreign resident CGT withholding regime', unless you provide a clearance certificate. Further information on Foreign resident capital gains withholding can be found on ato.gov.au by searching 'QC 61018'

Once you have completed your Australian income tax return for the year when you sell your property, the withheld amount will be available as a credit towards any tax payable.

Section 115-115 of the ITAA 1997 provides for three different scenarios where a taxpayer is a foreign resident at the time of the disposal. The relevant discount percentage is calculated depending on when the asset was acquired and when you became a non-resident.

Section 115-115 of the ITAA 1997 provides for three different scenarios where a taxpayer is a foreign resident at the time of the disposal. The relevant discount percentage is calculated depending on when the asset was acquired and when you became a non-resident.