Australian Tax Residency: The Domicile Test and Permanent Place of Abode

Australian Tax Resident and Permanent Place of Abode

An Australian expat who relocates overseas will need to show that they have established a ‘permanent place of abode’ overseas, otherwise they will remain an Australian tax resident for tax purposes.

As a general rule, an Australian expat who relocates overseas for less than 2 years will not have established a permanent place of abode overseas and therefore remain an Australian tax resident. Furthermore, an expat that although has lived overseas for more than two years but does not live in the one country for that time will have likely not establishment a permanent place of abode overseas (for example, yachtsman).

Under the domicile test, a person whose domicile is Australian will be a resident of Australia unless the person’s permanent place of abode is outside Australia.

The concept of domicile is a legal concept, governed by common law and statute. A person is considered to acquire a domicile of origin at birth, being the country of his or her father’s permanent home.

A taxpayer retains their domicile of origin until they acquire a domicile of choice of another country. Common law considers a person to adopt a new domicile of choice when they intend to reside in a country indefinitely. The Australian Taxation Office (‘ATO’) affirmed this concept in IT 2650.

The second limb of this test is whether the taxpayer has a permanent place of abode outside Australia. An Australian taxpayer with a domicile in Australia may be classified as a non-resident if they maintain a ‘permanent place of residence’ outside of Australia.

The Australian Federal Court in Federal Commissioner of Taxation v Applegate interpreted a person’s ‘permanent place of abode’ outside Australia to mean a home or presence outside Australia where a person intends to remain for a ‘respectful but not indefinite’ period.

Taxation Ruling IT2650, as issued by the ATO, declares that an individual qualifies as having a permanent place of abode in a particular location when they have resided there for a minimum of two years and have minimized their connections and ties to Australia. This ruling emphasizes the factors that the Courts and the Administrative Appeals Tribunal deem relevant when determining an individual’s place of abode, including:

1. The intended and actual stay in a particular country
2. Whether the taxpayer intended to stay in the overseas country only temporarily and then move on to another country or return to Australia at a definite point in time
3. Whether the taxpayer established a home (a dwelling at a fixed residence with family) outside Australia
4. Whether anyone abandon their residence in Australia due to being overseas
5. The duration and continuity of a taxpayer’s presence in the overseas country and
6. The durability of association with a particular place in Australia (e.g: bank accounts in Australia, family, etc.).

No one factor is decisive but the weight of each factor will vary with the individual circumstances of each particular case. In IT 2650, the ATO recommends assigning more importance to factors c, e, and f.

As a very broad rule, an Australian expat who has worked in the same country for more than 2 years and who relocate with their family and rent out or dispose of their Australian property may have done enough to establish a permanent place of abode overseas.

Please do not hesitate to get in touch with us to discuss your circumstances further and we would be happy to assist you further.