Edited version of private advice

Authorisation Number: 1051996641003

Date of advice: 21 June 2022

Ruling

Subject: Residency

Question

Are you an Australian resident for taxation purposes from the date you depart to Country A for employment?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are an Australian citizen, and you were born in Australia.

You will be relocating to Country A to take up a full-time employment opportunity.

You anticipate departing to Country A within two to three months of signing the employment contract.

Your employment contract is for an extended period of time with potential to have the contract extended.

You intend to reside in Country A for the full term specified in the employment contract and intend to continue residing in Country A afterwards provided the employment contract is renewed.

You will be renting a dwelling within a compound in Country A for the whole period you are employed.

Your employer will be organising a visa that allows you to stay in Country A for as long as you are employed. The visa will not allow you to reside permanently there.

You have a spouse and dependent children.

Your spouse and children will not accompany you to Country A as your spouse is still employed in Australia, your children are still attending school in Australia and for other personal reasons.

Your spouse and children will remain in the family home in Australia which you own.

You intend to return to Australia for annual leave which will be for a few weeks per year to visit family.

You will have a vehicle, personal effects and a bank account which your salary will be paid into in a bank account in Country A.

You will still have household effects, personal effects, vehicle, bank account, superannuation and main residence in Australia.

You will be financially supporting your family in Australia.

You will not have any social or sporting connections in Australia while you are in Country A.

You will not have any social or sporting connections in Country A.

You will be unenrolling from the Australian electoral roll.

You will be informing your financial institutions that you will be a non-resident.

You will be informing Medicare and your private health insurance provider you are leaving Australia.

You will not have employment in Australia to return to while in Country A.

You will not have any Australian sourced income while in Country A.

Neither you nor your spouse have ever been a member of the Commonwealth Superannuation Scheme or the Public Sector Superannuation Scheme.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

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

Reasons for decision

Overview of the law

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

The terms 'resident' and 'resident of Australia', as applied to an individual, are defined in subsection 6(1) of the ITAA 1936.

The definition offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are:

•         the resides test (also referred to as the ordinary concepts test)

•         the domicile test

•         the 183-day test, and

•         the Commonwealth superannuation fund test.

The resides test is the primary test for deciding the residency status of an individual. This test considers whether an individual resides in Australia according to the ordinary meaning of the word 'resides'.

Where an individual does not reside in Australia according to ordinary concepts, they will still be an Australian resident if they meet the conditions of one of the other tests (the domicile test, 183-day test and Commonwealth superannuation fund test).

Our interpretation of the law in respect of residency is set out in Taxation Ruling IT 2650 Income tax: residency - permanent place of abode and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.

We have considered the statutory tests listed above in relation to your situation as follows:

The resides test

The ordinary meaning of the word 'reside' has been expressed as 'to dwell permanently or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place': See Commissioner of Taxation v Miller (1946) 73 CLR 93 at 99 per Latham CJ, citing Viscount Cave LC in Levene v Inland Revenue Commissioners [1928] AC 217 at 222, citing the Oxford English Dictionary. Likewise, the Macquarie Dictionary defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

The observations contained in the case of Hafza v Director-General of Social Security (1985) 6 FCR 444 are also important:

Physical presence and intention will coincide for most of the time. But few people are always at home. Once a person has established a home in a particular place - even involuntarily: see Commissioners of Inland Revenue v Lysaght [1928] AC 234 at 248; and Keil v Keil [1947] VLR 383 - a person does not necessarily cease to be resident there because he or she is physically absent. The test is whether the person has retained a continuity of association with the place - Levene v Inland Revenue Commissioners [1928] AC 217 at 225 and Judd v Judd (1957) 75 WN (NSW) 147 at 149 - together with an intention to return to that place and an attitude that that place remains "home": see Norman v Norman (No 3) (1969) 16 FLR 231 at 235... [W]here the general concept is applicable, it is obvious that, as residence of a place in which a person is not physically present depends upon an intention to return and to continue to treat that place as "home", a change of intention may be decisive of the question whether residence in a particular place has been maintained.

The Commissioner considers the following factors in relation to whether a taxpayer is a resident under the 'resides' test:

•         period of physical presence in Australia

•         intention or purpose of presence

•         behaviour while in Australia

•         family and business/employment ties

•         maintenance and location of assets

•         social and living arrangements.

It is important to note that no one single factor is decisive, and the weight given to each factor depends on each individual's circumstances.

Because the ordinary concepts test is whether an individual resides in Australia, the factors focus on the individual's connection to Australia. Having a connection with another country, or being a resident of another country, does not diminish any connection to Australia: Logan J in Pike v Commissioner of Taxation [2019] FCA 2185 at 57 reminds us that 'it is no part of the ordinary meaning of reside in the 1936 Act that there be a "principal" or even "usual" place of residence. ... It is important that ... "resident" not be construed and applied as if there were such adjectival qualifications.' For this reason, the test is not about dominance or exclusivity.

Application to your situation

We have taken the following into consideration when determining whether you meet the resides test:

•         You will physically be absent from Australia other than for a few weeks per year to visit family.

•         Your intention is to work and reside in Country A for the contract period and potentially beyond that period.

•         You will be employed in Country A on a full-time contract basis for a specific period of time.

•         You will be renting a dwelling in Country A for the duration of the employment contract.

•         You will not have any social and sporting connections in Australia or Country A.

•         You will take steps to sever ties with Australia such as removing yourself from the electoral roll and notifying your financial institutions, Medicare and your private health insurance provider of your absence.

You will not be a resident of Australia under the resides test for the ruling period.

You may still be considered an Australian resident if you meet the conditions of one of the other tests (the domicile test, 183-day test and Commonwealth superannuation fund test).

Domicile test

Under the domicile test, you are a resident of Australia if your domicile is in Australia unless the Commissioner is satisfied that your permanent place of abode is outside Australia.

Domicile

Whether your domicile is in Australia is determined by the Domicile Act 1982 and the common law rules on domicile.

Your domicile is your domicile of origin (usually the domicile of your father at the time of your birth) unless you have a domicile of dependence or have acquired a domicile of choice elsewhere. To acquire a domicile of choice of a particular country you must be lawfully present there and hold the positive intention to make that country your home indefinitely. Your domicile continues until you acquire a different domicile. Whether your domicile has changed depends on an objective consideration of all relevant facts.

Application to your situation

In your case, you were born in Australia and your domicile of origin is Australia.

It is considered that you did not abandon your domicile of origin in Australia and acquired a domicile of choice in Country A. You are not yet entitled to reside in Country A indefinitely and while living in Country A you will only hold a visa that allows you to reside there as long as you are employed in Country A.

Therefore, your domicile is Australia.

Permanent place of abode

If you have an Australian domicile, you are an Australian resident unless the Commissioner is satisfied that your permanent place of abode is outside Australia. This is a question of fact to be determined in light of all the facts and circumstances of each case.

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

The phrase 'permanent place of abode' calls for a consideration of the physical surroundings in which you live, extending to a town or country. It does not extend to more than one country, or a region of the world.

The Full Federal Court in Harding v Commissioner of Taxation [2019] FCA 29 held at paragraphs 36 and 40 that key considerations in determining whether a taxpayer has their permanent place of abode outside Australia are:

•         whether the taxpayer has definitely abandoned, in a permanent way, living in Australia

•         whether the taxpayer is living in a town, city, region or country in a permanent way.

The Commissioner considers the following factors relevant to whether a taxpayer's permanent place of abode is outside Australia:

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 assets 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.

Application to your situation

We have taken the following into consideration when deciding whether your permanent place of abode is outside Australia:

•         You will be physically present in Country A for a substantial amount of time.

•         You will only visit Australia for a few weeks per income year to visit your family.

•         You do not have an intention to return to Australia permanently until the completion of your employment. You will potentially continue to reside in Saudi Arabia after your contract expires depending on whether your employment contract is renewed.

•         You will establish a home in Country A in a compound. You intend to reside there for the duration of your employment contract.

•         You will establish a continuing association with Country A by having a bank account which your salary will be paid into, personal effects, vehicle and full-time employment on a contract basis.

•         You will take steps to sever your ties with Australia such as removing yourself from the electoral roll, advising financial institutions, Medicare and your private health insurance provider of your absence.

•         Your durability of association to Australia will be limited to family ties and assets. You will still have some household effects, bank account, superannuation and ownership of your family home which your spouse and children will continue to reside in.

The Commissioner is satisfied that your permanent place of abode will be outside Australia.

Therefore, you will not a resident of Australia under the domicile test.

183-day test

Where a person is present in Australia for 183 days or more during the year of income the person will be a resident, unless the Commissioner is satisfied that both:

•         the person's usual place of abode is outside Australia, and

•         the person does not intend to take up residence in Australia.

Application to your situation

You will not be present in Australia for 183 days or more during the ruling period. Therefore, you will not be a resident under this test.

Superannuation Test

An individual is a resident of Australia if they are either 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 they are the spouse, or the child under 16, of such a person.

Application to your situation

You are not a member on behalf of whom contributions are being made to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS) or a spouse of such a person, or a child under 16 of such a person. Therefore, you will not be a resident under this test.

Conclusion

As you will not satisfy any of the four tests of residency, you will not be a resident of Australia for income tax purposes for the ruling period.