Edited version of your written advice

Authorisation Number: 1012705440720

Ruling

Subject: Residency status of a taxpayer under subsection 6(1) of the Income Tax Assessment 1936

Question 1

Is the taxpayer a resident for Australian tax purposes under subsection 6(1) of the Income Tax Assessment 1936 for the relevant income year?

Answer

No

Question 2

In the circumstances that the Commissioner does not accept that the taxpayer is not a resident of Australia within the meaning of subsection 6(1) of the ITAA 1936, and having regard to the fact that the taxpayer was a resident of country X for its tax purposes during the relevant year, which country the tie breaker provisions under Article 4(2) of the Double Tax Agreement deem the taxpayer to be a resident of?

Answer

Not applicable

This ruling applies for the following period

1 July 20XX to 30 June 20XX

The scheme commences on

1 July 20XX

Relevant facts and circumstances

You, the taxpayer, advise that you have spent over 200 days in Country X and only 119 days in Australia in the relevant year. You have provided the travel dates to Australia to substantiate this claim. In addition, a movement record from the Department of Immigration and Border Protection also substantiates this claim.

You are a citizen of Country X and have voted in its federal election. You are not a citizen of Australia and not entitled to vote.

You have submitted your tax return as a resident of Country X the year prior to the relevant year and a letter from your tax agent in Country X substantiates this fact.

You are employed as an active director of number of entities in Country X, in which you have significant shareholdings. You have provided Tables showing the percentage of your shareholding in those companies. You continue to derive director's fees and wages in Country X as remuneration for the director services. At present you are exploring expansion of your business and working towards new investment opportunities with other countries. You maintain office in a number of locations in Country X.

You have directorship in several entities in Australia. However you are not actively involved in running the business and recently you have undergone a process of transitioning to a more advisory role. You do not receive any salary or fees from these directorships and do not have an office in Australia. Your eldest son is actively engaged in looking after these businesses and other children have taken on greater responsibility.

While you maintain residence in both Country X and Australia, the residence in Country X is 100% owned by you. You have the key to the house and it is continuously available to you. You also have residence in other locations of Country X that you own jointly with your brothers. The residence in Australia is jointly owned by you with your wife. However you do not have much of your personal effects in this residence as you spend most of the time in Country X. Your personal effects are in your primary residence in Country X and you have furnished it according to your needs. You receive personal mail at this address and attend to all expenses associated with living and maintaining your home, including electricity bills, gardening and maintenance fees, grocery shopping and managing cleaning of the house.

You maintain bank accounts and credit cards in both Country X and Australia. You have substantial bank deposits in Country X whereas you have transferred significant funds from Australia to Country X.

You have health insurance in both countries. However you go to a General Practitioner in Country X for regular visits whereas you go to a General Practitioner in Australia only on emergencies.

You have driver's licence in both countries and drive in both countries.

You actively participle in all family, social and cultural events in Country X and involved in a number of charitable organisations there. You do not participate in any religious or cultural activities in Australia.

As the eldest son of your family, you are the primary carer of your mother who is confined to a wheel chair. You have stated that one of the main reasons for you to transition to Country X is to look after your mother since your children are all grown up and have taken over your business interests in Australia. Your wife stays with the children to look after the grandchildren as is traditional in your culture.

Relevant legislative provisions

Income tax Assessment Act 1997 subsection 995-1(1)

Income Tax Assessment Act 1936 subsection 6(1)

Reasons for decision

The term 'Australian resident' is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to mean a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

Under subsection 6(1) of the ITAA 1936, 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;

(ii) Who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and that the person does not intend to take up residence in Australia; or

(iii) Who is:

(A) A member of the superannuation scheme established by deed under the Superannuation Act 1990; or

(B) An eligible employee for the purposes of the Superannuation Act 1976; or

(C) The spouse, or a child under 16, of a person covered by sub-paragraph (A) or (B); and

(b) A company …

The definition contains several tests for determining whether a person is a resident which can be summarised as follows:

(a) residency

(b) domicile and permanent place of abode

(c) 183 days test and

(d) superannuation test

Since neither you nor your spouse is either a member of a superannuation scheme or an eligible employee for the purposes of the Superannuation Act 1976, the last test does not apply to you. We now look at the other three tests as follows:

Residency

There is no definition of the word, 'reside' in Australian income tax law and takes its ordinary meaning. The Macquarie Dictionary defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

Whether a person is a resident of Australia is a question of fact and degree to be determined having regard to the circumstances of the particular case: FC of T v. Miller (1946) 73 CLR 93.

In Taxation Ruling TR 98/17 Income tax: residency status of individual entering Australia (TR 98/17), the Commissioner identifies factors which may be taken into consideration in deciding if the individual 'resides' in Australia. These include:

(a) the period of physical presence or length of time in Australia

(b) the intention or purpose of the presence

(c) family and business/employment ties

(d) maintenance and location of assets; and

(e) social and living arrangements.

For the relevant year, you have stayed in Australia 119 days and over 200 days in Country X.

When you come to Australia, you visit your immediate family members and stay at the house you jointly own with your wife for a short time. Your intention is more social than business or employment as your employment and business interests are in Country X. Since your elder son has taken over the responsibilities of running the family business, your role has changed to an advisory one.

You maintain offices in Country X and draw salary as a director from a number of companies. You are looking to expand your business interest even further by entering into business relationships with entities in other countries.

You have sole ownership of a residence in Country X and it is available to you at all time. Your personal effects are also in this primary residence. The use of this house has the nature of settled living as you receive your personal mails to this address and undertake necessary expenses for continued living and maintenance.

You have voted in the federal election in Country X and have submitted the income tax return as a resident of Country X in the year prior to the relevant year.

Your involvement in social, political and cultural activities are predominantly in Country X and your intention to transition to Country X is primarily motivated by taking care of your elderly mother.

You maintain bank account in both countries but you have withdrawn a large amount of money from your Australian bank account and transferred to Country X's bank account which also indicates your gradual transition to Country X.

Considering the above facts against the criteria of residency in the TR 98/17, you cannot be said to be a resident of Australia, within the ordinary meaning of the term for the relevant year. Rather the facts indicate that you are a resident of Country X.

Domicile and permanent place of abode

According to this test, an individual will be an Australian resident for domestic tax purposes if they are domiciled in Australia and do not have a permanent place of abode outside Australia.

In FC of T v Applegate (1979) 79 ATC 4307 (herein after referred as Applegate), it was held that a permanent place of abode is located where the taxpayer dwells or has his physical surroundings in which he lives and is essentially a question of fact, to be determined on the relevant facts and circumstances.

In Taxation Ruling IT 2650 Income tax: residency - permanent place of abode outside Australia (IT 2650) provides guidance in respect of the permanent place of abode.

Citing the Applegate case at 4314, paragraph 22 of IT 2650 states that 'permanent' does not have the meaning of everlasting or forever but is used in the sense of being contrasted with temporary or transitory.

Paragraph 23 of IT 2650 sets out the following factors:

(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 move 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 a 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 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 payment should be stopped, place of education of the taxpayer's children, family ties and so on.

In your case, you have stayed more than half the relevant year in Country X. Your Movement Record from the Department of Immigration and Border Protection substantiates this.

Your intention is to gradually transition to Country X due to family commitment, employment, business and social reasons. Establishment and maintenance of a main residence and a number of business offices in Country X as well as planned expansion of your business indicate this intention. Transferring a large amount of money from Australian bank account to Country X bank account further substantiates this intention.

The primary residence in Country X is available to you at all time and you have set it up according to your personal need. You receive your personal mails in this address and pay all the expenses in maintaining this residence. These indicate that you have established a fixed residence outside Australia.

From the facts you have presented to us, there is no indication that you intend to stay in Country X only temporarily and then move on to another country or return to Australia at some definite point in time. The facts indicate that you will continue visiting your wife, children and grandchildren in Australia occasionally for shorter period while stay more permanently in Country X.

While you have not abandoned your family home in Australia, your stay here is more of a visit to your family rather than living your day to day life. Your employment, business and planned expansion of the current business in Country X indicate the more permanent nature of your stay in Country X as opposed to 'temporary' or 'transitory' stay in Australia.

From the above, you are considered to have a permanent place of abode outside Australia.

183 days test

Under this test, if an individual is physically present in Australia for more than half of an income year (whether continuously or intermittently), they are regarded as an Australian resident for Australian tax law purposes.

You have provided documentary evidence that you have stayed in Australia for 119 days and more than 200 days in Country X in the relevant year. Therefore, you do not satisfy this test.

Conclusion

From the consideration of the above tests and their application in your case, as per the facts provided by you, you do not satisfy the requirements of subsection 6(1) of the ITAA 1936. Accordingly, you are not a resident of Australia for income tax purposes for the relevant income year.

However, if your circumstances change, you need to reassess your residency status. In the Applegate case at 4309, Franki J held that liability to tax arises annually and the question of where the taxpayer's permanent place of abode is, if relevant, must be determined annually.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).