Question

Mr. Smith, an Australian citizen, began working with a company in Oman in November 2015. As part of his work arrangement, he was required to work a 35 days on and 35 days off rotation. At the end of each rotation, Mr Smith departed from Oman and, on several occasions, returned to Australia to visit family and friends. While he was working in Oman, he lived in a single room apartment with an ensuite, bed, lounge area and a mini kitchen. However, he did not have exclusive possession of his accommodation as he shared it with another employee who worked a complementary roster.

Required:
Provide an explanation of the key factors considered necessary to determine whether Mr. Smith is an Australian resident or non-resident for tax purposes.

References.

Answer 1

Introduction

Australia taxes you differently depending on whether you are an Australian tax resident or a non-resident. These differences can make a significant impact on the after tax proceeds one receives. A reader who has always lived in Australia may brush past this article thinking it does not affect them. However, this is short-sighted. Many people may spend extended periods of time overseas during their lifetime. One's child may migrate overseas for job opportunities or love. There are tax planning opportunities and pitfalls when one changes one's tax residency.

Additionally, if you want to gift an asset to an Australian non-resident beneficiary under your will it is important to understand the tax consequences of such a gift. This includes not only tax on the initial gift but tax on Australian sourced income that may be derived by the non-resident later on (e.g. dividend on a gift of Australian shares).

How do I know if I am an Australian tax resident?

It is important to know whether you are an Australian tax resident or a non-resident. Nothing can be worse than leaving Australia and ceasing to pay Australian tax because you believe that you are a non-resident, and then the Australian Taxation Office (ATO) comes knocking.

Key Factors considered necessary to determine whether a person is resident or non resident for tax purpose is :

• you ordinarily reside in Australia;
• your domicile is Australia unless you convince the ATO that your permanent place of abode is overseas;
• you are physically present in Australia for 183 days or more in a tax year unless you convince the ATO that your usual place of residence is overseas; or
• you are a member of a Commonwealth or public sector superannuation scheme, or you are a spouse or child under 16 years of such a person.

The residency tests can be difficult to apply since they are based heavily on facts. For instance, the domicile test can possibly catch an Australian resident who leaves Australia for a period of time but ultimately intends to come back to Australia (such that they have not changed their Australian domicile). If such a person never plants social and economic roots outside Australia (e.g. lives in temporary accommodation and works in non-permanent jobs) there is a risk that they may still be an Australian tax resident even if they are outside Australia for years.

If you want to leave Australia and cease your Australian tax residency then there are steps you can take to strengthen the position that you have ceased Australian tax residency, and you should seek advice on this point prior to leaving Australia.

A person is said to be resident in Australia, if he satisfies any of the below test or conditions :

Residency tests

Resides test

The primary test of tax residency is called the 'resides test'. If you reside in Australia, you are considered an Australian resident for tax purposes and you don't need to apply any of the other residency tests.

Some of the factors that can be used to determine residency status include:

• physical presence
• intention and purpose
• family
• business or employment ties
• maintenance and location of assets
• social and living arrangements.

If you don't satisfy the 'resides test', you'll still be considered an Australian resident if you satisfy one of three statutory tests.

Domicile test

You're an Australian resident if your domicile (broadly, the place that is your permanent home) is in Australia, unless we are satisfied that your permanent place of abode is outside Australia.

A domicile is a place that is considered to be your permanent home by law. For example, it may be a domicile by origin (where you were born) or by choice (where you have changed your home with the intent of making it permanent).

A permanent place of abode should have a degree of permanence and can be contrasted with a temporary or transitory place of abode.

183-day test

This test only applies to individuals arriving in Australia. You will be a resident under this test if you're actually present in Australia for more than half the income year, whether continuously or with breaks.

You may be said to have a constructive residence in Australia, unless it can be established that your usual place of abode is outside Australia and you have no intention of taking up residence here. If you have already taken up residence in Australia, this test will not generally apply regardless of the number of days you spend overseas.

The Commonwealth superannuation test

This test applies to Australian Government employees working at Australian posts overseas and who are members of the CSS or PSS schemes. It does not apply to members of the PSSAP scheme. If this is the case, you (and your spouse and children under 16) are considered to be a resident of Australia regardless of any other factors.

It does not apply to members of the PSSAP scheme.

As per facts given in question Mr. Smith is Temporarily living Oman for Job deputation whereas, he is having his family, social and living arrangements, maintainance of asset in Australia itself so as per residency test he is resident of Australia only.

Apart from that, he belongs to an australian domicile, as he is having permanent home in Australia, here in Oman he is staying in a shared flat along with his collegue, only for work purposes. Hence as per Domicile Test also he is resident of Australia.

So, based on above facts, Mr. Smith is to be considered as resident fo taxation purpose.