| Disclaimer You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1051983935990
Ruling
Subject: Individual residency
Question
Will Mr XYZ be an Australia resident for tax purposes throughout the ruling period?
Answer
Yes
This ruling applies for the following periods:
Year ending 30 June 2022
Year ending 30 June 2023
Year ending 30 June 2024
Year ending 30 June 2025
The scheme commences on:
1 July 2021
Relevant facts and circumstances
1. Mr XYZ was born in Australia. Mr XYZ previously resided in Melbourne with his wife Mrs XYZ (Mr XYZ and Mrs XYZ are together referred to as the XYZs).
2. Mr XYZ is a director and active participant in ABC Pty Ltd's (ABC) business, an engineering role.
3. Mrs XYZ left Australia to move to Canada in early February 2022 to commence a new job commencing on 7 February 2022. Mrs XYZ's contract does not have a termination date, however she may resign at any time.
4. Mr XYZ moved to Canada with their children on 25 February 2022.
5. The XYZs will rent accommodation with basic furnishings for the duration of their stay.
6. The XYZs currently have visas to stay in Canada for three years.
7. Mr XYZ is a founder of ABC, and is a beneficiary in the XYZ Family Trust which holds 50% of the shares in ABC.
8. Mr XYZ will continue to act as a director of ABC, and will contract to the company through DEF Pty Ltd (DEF).
9. Mr XYZ will need to return to Australia in order to attend to business matters.
10. Mr XYZ will maintain a car in Australia while overseas.
11. Mr XYZ is 25% shareholder in Plane Pty Ltd, which holds Mr XYZ's shared aircraft. Mr XYZ will be liable for maintenance costs while in Canada.
12. The XYZs will maintain:
a. Medicare registration;
b. Electoral roll enrolment;
c. Driver's licence;
d. Australian passport;
e. Membership of:
i. Institute of Railway Signalling Engineers Australasia Section;
ii. Registered Practising Engineer;
iii. Australian Commercial Pilots licence;
iv. Lifesaving Club.
13. The XYZs will pause their health insurance temporarily while overseas.
Family assets
14. The XYZs will attempt to rent out their family home throughout their stay in Canada.
15. The XYZs will continue to rent out their holiday home on a short-term basis and intend to return and stay in it for Christmas holidays as they have done in previous years to date.
16. The XYZs are both beneficiaries in the XYZ Family Trust and the XYZ Family Trust No 2.
17. The XYZ Family Trust owns 50% of the shares in ABC and has a cash balance of approximately $200,000. The valuation of ABC is approximately $15,000,000.
18. The XYZ Family Trust has a cash balance of approximately $40,000 and investments valued at approximately $200,000 including ownership of DEF.
19. The XYZs are both members of the XYZ Superannuation Fund. Mrs XYZ has a balance of approximately $650,000 and Mr XYZ has a balance of approximately $600,000.
20. The XYZs have cash deposits in various bank accounts.
21. Mrs XYZ owned a car that was sold prior to her moving to Canada.
Family
22. The XYZs have three children all 12 years old or younger.
23. Two of the children have been accepted to attend a private school and the youngest is currently on the wait list but is not of age to complete enrolment.
24. The XYZs intend to return to Australia for the commencement of the 2025 school year.
25. The XYZs have insurance bonds for each child, balances ranging between approximately $7,000 to $10,000 each.
26. Mrs XYZ's sister is on a disability pension and is cared for by her parents. The expectation is that Mrs XYZ will care for her when her parents are no longer able to do so requiring the XYZs to return to Australia earlier than expected.
27. Mr XYZ's mother is aged 75 and resides in Australia. Mr XYZ's mother has a house in Australia with three bedrooms set aside for the use of the XYZs. Mr XYZ will reside here while attending to business affairs in Australia.
28. Mr XYZ's sister resides in Australia and has directorship, power of attorney and enduring power of attorney for Mr XYZ and Mrs XYZ.
29. The XYZs' family connections include activities such as babysitting, shared holidays, interdependent care and in Mrs XYZ's case, power of attorney for her parents, and long-term responsibility for her sister.
Relevant legislative provisions
Income Tax Assessment Act 1936 Subsection 6(1)
Question
Will Mr XYZ be an Australia resident for tax purposes throughout the ruling period?
Summary
Mr XYZ will be an Australian resident for tax purposes throughout the ruling period.
Detailed reasoning
30. Subsection 6(1) of the Income Tax Assessment Act 1936 provides:
"resident or resident of Australia" means:
(a) a person, other than a company, who resides in Australia and includes a person:
(i) whose domicile is in Australia, unless the Commissioner is satisfied that the person's permanent place of abode is outside Australia;
...
31. Taxation Ruling IT 2650 Income tax: residency - permanent place of abode outside Australia provides at paragraph 8:
The primary common law rule is that a person acquires at birth a domicile of origin, being the country of his or her father's permanent home. A person retains the domicile of origin unless and until he or she acquires a domicile of choice in another country, or until he or she acquires another domicile by operation of law (Henderson v. Henderson [1965] 1 All E.R.179; Udny v. Udny [1869] L.R.1 Sc.& Div. 441; Bell v. Kennedy [1868] L.R.1 Sc.& Div. 307 (H.L.))
32. Mr XYZ's domicile by origin is Australia. As a result, he will be considered a resident of Australia unless the Commissioner is satisfied his permanent place of abode is outside of Australia.
33. IT 2650 provides at paragraph 12:
The expression "place of abode" refers to a person's residence, where one lives with one's family and sleeps at night (R v. Hammond (1852) 117 E.R. 1477 at p. 1488; Levene v. I.R.C.(1928) A.C.217 and I.R.C. v. Lysaght (1928) A.C.234).
34. IT 2650 provides at paragraph 14:
...a permanent place of abode does not have to be "everlasting" or "forever". It means something less than a permanent place of abode in which a person intends to live for the rest of his or her life. It should be contrasted with a temporary or transitory place of abode outside Australia. 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 or her usual place of abode. 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. The Federal Court also found that the taxpayer's intention regarding the duration of his stay overseas was only one relevant factor to be taken into account. Of more importance is the nature and quality of use which the taxpayer makes of a particular place of abode overseas.
35. IT 2650 provides at paragraphs 22-23:
Permanent Place of Abode
22. The word "permanent" in subparagraph (a)(i) of the definition of "resident" does not have the meaning of everlasting or forever but is used in the sense of being contrasted with temporary or transitory (Applegate 79 ATC at p.4314; 9 ATR at p.907).
23. It is clear from Applegate and Jenkins 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. Some of the factors which have been considered relevant by the Courts and Boards of Review/Administrative Appeals Tribunal and which are used by this Office in reaching a state of satisfaction as to a taxpayer's permanent place of abode include:
the intended and actual length of the taxpayer's stay in the overseas country;
(a) 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;
(b) 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;
(c) whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;
(d) the duration and continuity of the taxpayer's presence in the overseas country; and
(e) 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.
Length of overseas stay
36. IT 2650 provides at paragraph 25:
Clearly, the longer an individual's stay in any one particular place, the more permanent in nature and quality of use is likely to be the stay in that place of abode. An individual's intention regarding the duration of the overseas stay and the length of the actual stay are only relevant factors. Where a taxpayer leaves Australia for an unspecified or a substantial period and establishes a home in another country, that home will represent a permanent place of abode of the taxpayer outside Australia, subject to a consideration of the other factors listed in paragraph 23 above. As a broad rule of thumb, a period of about 2 years or more would generally be regarded by this Office 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 in paragraph 23 above.
37. IT 2650 provides at paragraph 27:
Generally speaking, a taxpayer who leaves Australia with an intention of returning to Australia at the end of a transitory stay overseas would remain a resident of Australia for income tax purposes unless he or she can satisfy the Commissioner that a consideration of the other factors listed in paragraph 23 requires the conclusion that during the year of income his or her permanent place of abode was outside Australia. What constitutes a mere transitory stay overseas for these purposes would vary with the circumstances of each case. However, as a general proposition, an overseas stay for a duration of less than 2 years would be considered as being of a transitory nature. It is stressed that the duration of the taxpayer's stay overseas is not of itself conclusive and must be considered with all the other factors listed in paragraph 23.
38. The XYZs have expressed an intention to return to Australia for the commencement of the 2025 school year. This would represent an overseas stay of approximately three years.
Intention after stay
39. The intention of the XYZs is to return to Australia and reside there in time for the commencement of the 2025 school year.
40. From moving to Canada until the point in time that the XYZs return, Mr XYZ will intermittently return to Australia in order to attend to business matters as needed.
Established home outside of Australia
41. The XYZs will reside in Canada together in a rented furnished house with their children.
42. Throughout this time, it is considered that Mr XYZ and his wife will have established a home in Canada.
Abandoned place of abode
43. The XYZs usual place of abode within Australia is their family house.
44. While they reside in Canada, the intention is to rent out the family house. When Mr XYZ returns to Australia intermittently for business, he will stay in his mother's house.
45. The XYZs have temporarily left their family house, however have not taken steps to sell it. If necessary, they have a place they can reside in if there is a need to return to Australia earlier than planned.
Duration and continuity of presence in the overseas country
46. The XYZs have expressed an intention to return to Australia for the commencement of the 2025 school year. This would represent an overseas stay of approximately three years.
47. While in Canada, Mr XYZ will be required to return to Australia from time to time to attend to business matters.
48. The XYZs intend to return to their holiday home for Christmas holidays.
Durability of association with Australia
49. The XYZs will maintain their bank accounts and professional and social memberships in Australia. The XYZs have maintained relevant registrations with government departments within Australia.
50. The XYZs will maintain their existing investments, interests and assets (other than the car that Mrs XYZ sold) in Australia.
51. The XYZs have family connections in Australia, and in the situation that Mrs XYZ's elderly parents are no longer able to care for Mrs XYZ's sister, Mrs XYZ is expected to take up carer responsibilities in their stead.
52. The XYZs have not sought to sell their family home but intend to lease the house throughout their stay in Canada.
53. The XYZs children have moved from Australia to Canada to reside with them.
54. Mr XYZ will continue to act as a director of ABC and will need to return to Australia from time to time to attend to business matters.
Analysis of factors
55. IT 2650 provides at paragraph 24:
The weight to be given to each factor will vary with the individual circumstances of each particular case and no single factor will be decisive. Applegate seems to indicate, however, that greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant. The fact that a taxpayer knows that he or she will return to Australia at a definite point in time (factor (b)) does not, of itself, mean that he or she does not have a permanent place of abode outside Australia.
56. As noted above, whether Mr XYZ's permanent place of abode will be Canada is determined in the light of all his circumstances.
57. Taxation, Federal Commissioner of v Applegate (1979) 79 ATC 4307 (Applegate) considered whether a person, whose domicile was in Australia, had been sent by his employer, a firm of solicitors, to establish a branch office in Vila, New Hebrides. His absence was to be for an indefinite period in the sense that the period was not specified or defined but it was expected that it would be of a substantial length. It was also expected that later he would be recalled to Australia. In fact, he returned to Australia after 2 years, his stay being cut short by illness.
58. In Applegate, Fisher J provided at 4317 that a permanent place of abode is:
59. 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
60. The individual in Applegate was determined to have made a permanent place of abode outside of Australia, rejecting the Commissioner's argument that a permanent place of abode required an intention to live outside Australia indefinitely without any intention of returning to live in Australia.
61. Taxation, Federal Commissioner of v Jenkins (1982) 82 ATC 4098 (Jenkins) considered a bank officer who had been transferred to the New Hebrides for 3 years. He returned to Australia after only 18 months because of ill health. The taxpayer had tried to sell the family home before going overseas but was unable to find a buyer. The Australian home was eventually leased and the taxpayer retained a bank account in Australia.
62. The individual in Jenkins was found to have had a permanent place of abode outside of Australia.
63. Harding v Commissioner of Taxation [2019] FCAFC 29 (Harding) considered a case where an individual had commenced a position in Saudi Arabia, taking up residence in Bahrain. The individual took his personal possessions with him, and those he did not take he either sold or left for his sons.
64. Davies and Steward JJ provided at [26]:
...the "place" of abode, in the specific legislative context here, also refers to a town or a country.
65. Davies and Steward JJ provided at [36]:
...The exception in subpara (i) then assumes that the person is not physically present in Australia during the year of income, but is nonetheless still domiciled here. Where it can be shown to the Commissioner's satisfaction that that person has "definitely abandoned" their Australian residence, Parliament's intention is that that person should not be subject to federal income tax. A person who ceases permanently to live in Australia, but who nonetheless considers themselves still to be an Australian might fall within this category.
66. It was considered that the individual in Harding had established a permanent place of abode in Bahrain, notwithstanding the fact that the individual did not reside in one specific dwelling.
67. There are points of distinction between Mr XYZ's situation and those in the aforementioned cases. Mr XYZ will be returning intermittently to Australia to attend to business matters and will continue to act as director of ABC, a company located in Australia. The XYZ's have not attempted to sell their home and have not attempted to sell off their investments. The XYZs have an intention to return to Australia coinciding with a firm date being a particular school year rather than based on an uncertain date related to the requirements of Mrs XYZ's employment.
68. When he returns to Australia, Mr XYZ will reside in his mother's house. While this is not the XYZs' family house, it is nonetheless a residence within Australia.
69. It is considered that Mr XYZ does not have a permanent place of abode outside of Australia, and therefore will be an Australian resident for tax purposes during the ruling period based on the relevant facts and circumstances of this private ruling.