If you want to understand how to define your status as resident or non-resident you must first examine the rules that are currently in place and how an individual is qualified under them:
- Primary or ‘Ordinary Concepts’ test of residence
- Satisfies one of three statutory residence tests: Domicile Permanent Place of Abode Test, The 183 Day Test, Commonwealth Superannuation Fund Test
A person may be held to be resident in Australia, even though living permanently abroad, if this person visits Australia for part of the year or on a regular basis. Yacht crew for example, will be resident in Australia if they maintain a family home in Australia where they spend time while in Australia, even though they are absent for the majority of the year.
Residency in Australia is further examined in the context of behaviour over a considerable time (six months) that displays a degree of continuity. The following factors are useful in describing the quality and character of an individual's behaviour:
- Purpose of the person’s presence in Australia
- The extent of the person’s family or business/employment ties with Australia
- The maintenance & location of the person’s assets
- Individual’s social & living arrangements
Domicile/Permanent Place of Abode Test
Domicile is a complex concept of general law, but your domicile is usually the country your father considered his permanent home when you were born. A person whose domicile is in Australia is deemed to be resident of Australia unless the Commissioner is satisfied that the person’s permanent place of abode is outside Australia (the domicile/permanent place of abode test).
IT 2650 is the most pertinent tax ruling from the ATO in place for yacht crew. This ruling examines the factors to be taken into account when determining whether a person who leaves Australia temporarily to live overseas acquires a permanent overseas place of abode there.
The issue that may cause some uncertainty is whether a yacht or ship, contrasted with a fixed dwelling, can constitute a permanent place of abode. There have been legal authorities which support the position that a yacht or a ship can constitute a permanent place of abode in the right circumstances (Koitaki Para Rubber Estates Limited v FC of T (1941) 64 CLR 241).
However in the taxation ruling (IT 2650) ‘individuals or a family group who “make do” in temporary accommodation with limited resources and facilities such as in barracks, singles’ quarters, aboard ships, oil rigs, or mining towns, will be less likely to be considered to have established a permanent place of abode overseas’.
The 183 Day Test
The second statutory residence test, constructive residence in Australia is attributed to a person who is actually present in Australia for more than 183 days a fiscal year. This test is known as ‘183 day’ test. However this rule is not hard and fast.
Commonwealth Superannuation Fund Test
An individual is a resident under the third statutory test if he/she is a contributing member (or is the spouse or child under 16 of a person who is a contributing member) of the superannuation fund for Commonwealth government officers. Yacht crew need to be particularly mindful of this as case studies have proven that even if you cease to reside in Australia, but retain membership of an Australian government superannuation scheme, you can still be deemed resident as per this test.
As demonstrated in this article it is very hard to apply hard and fast rules that will work for all where residency is concerned. However it is possible to significantly minimise the chance of being considered resident in Australia. The most obvious route is to spend less than 183 days a year in Australia and not be part of a government superannuation scheme.
The transient unpredictable nature of yacht crew precludes the chance of falling foul of the ordinary concepts rule. However efforts should still be made on behalf of an individual to not establish behavioural patterns over considerable time. Individuals who are most susceptible for this are those who work on rotation. In our professional opinion we would always advise that you do not establish a behavioural pattern that could be interpreted for the purpose of this rule and thus deem you to be resident.
The Domicile/Permanent Place of Abode Test is the most common rule that yacht crew are deemed to be resident under. It is very hard for an individual working on a yacht to establish the necessary degree of permanence to prevent this rule coming into effect. The IT2650 tax ruling clearly states that individuals ‘aboard ships, oil rigs, or mining towns, will be less likely to be considered to have established a permanent place of abode overseas’. However there have been successful cases that have managed to overturn this ruling such as (Koitaki Para Rubber Estates Limited v FC of T (1941) 64 CLR 241).
Any tax advice in this publication is not intended or written by Marine Accounts to be used by a client or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party matters herein.
If you've found this story to be 'a report worth reading' and you would like to enjoy access to even more articles, insight and information from The Superyacht Group, then you may well be interested in our print subscription packages, which include the most comprehensive and up-to-date information on the state of the superyacht market. Subscribe here, to these 'Reports Worth Paying For'