Edited version of private advice

Authorisation Number: 1051807762933

Date of advice: 9 March 2021

Ruling

Subject: Residency

Question

Are you a resident of Australia for taxation purposes in the 201X financial year?

Answer

Yes

Question

Does the Agreement between the Government of the Commonwealth of Australia and Country A for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income result in a conclusion that the taxpayer is a resident of Australia for the purpose of the agreement for the 201X financial year?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 2019

The scheme commenced on:

1 July 2017

Relevant facts and circumstances

You are an Australian citizen who departed Australia about 15 years ago with your spouse and children, to live and work in Country A. At around that time you formed the intention to cease residing in Australia.

Since then you have entered or left Australia as a visitor or temporary entrant.

You are employed in Country A and your Country A employer pays for normal flights and travel to Australia with respect to work travel.

Your visits to Australia are irregular and may include weekends and public holidays. You have used annual leave entitlements to holiday in Australia. On arrival and departure to Australia you mark your immigration card as "visitor or temporary entrant".

About 10 years ago you and your spouse purchased a property in Australia which is currently occupied by your spouse and children while the children complete their education. They remain financial dependents of yours, supported by you. You also jointly own a holiday home in City A.

You initially lived in an apartment in Country A which contains your personal belongings. Later you and your spouse rented another property (Property A) which was convenient to your office, near to friends and equipped with modern facilities. You and your spouse furnished this residence.

You keep your personal possessions in this property including clothing, keepsakes (such as personal photos), artwork, sporting equipment, kitchen appliances, an entertainment system and your toolbox for minor repairs.

When travelling to Australia you take your mobile phone (which is registered in Country A), your work-issued laptop (required for all trips), clothes, toiletries and sundries and, on occasion, your personal iPad for personal purposes.

You do not leave personal possessions in either Australian property.

You do not keep any personal possessions in your jointly owned Australia residence as you have not lived in, nor treated the property as your permanent home since departing for Country A. The Australian property was purchased jointly with your spouse for the purposes of bank finance only.

Your mail is directed to the Country A property unless the mail is addressed jointly with your spouse.

You have a Country A driving license and own a vehicle which is registered locally in your name. This license allows you to drive when in Australia.

You have opened a bank account in Country A which acts as your regular transactional account and received your employment income. You meet everyday expenses from this account as well as utility costs such as water, electricity and internet charges.

You have an international health care plan. This plan offers protection for you and your family internationally, including Australia. This plan covers all employees of your employer. The only limitation of this health plan is that it excludes treatment in the Country B where the individual has travelled there to seek that treatment.

On the rare occasions where you require medical treatment in Australia the cost is reimbursed by the international health care plan.

You have joined various local social, sporting and professional clubs and associations based in Country A. You are also a member of a local gym in Country A.

You have an established routine and lifestyle in Country A including local dining, local pubs, walking in and around the city as well in the surrounding countryside. You also have a circle of friends and social networks in Country A with regular social activities.

You asked the Australian Electoral Commission to remove your name from the electoral roll.

You forfeited your Australian driver's license when you left Australia.

You believe that your circumstances satisfy the eligibility requirements for Medicare.

You retain only one membership of an Australian club and you have converted that membership to an overseas non-playing status.

You are not a member of any Australian superannuation fund and are not an eligible employee for the purposes of the Superannuation Act 1976 or the spouse or a child under 16 years of age of such a person.

You have a joint bank account and mortgage in Australia with your spouse. You use your Country A bank account while your spouse uses the Australian joint account.

You are employed by Company A (Country A), a Country A company, and you have held an employment contract with this company for many years. You are also a shareholder in Company A Holding and a director of Z overseas (non-Australian) companies.

You perform your employment duties in Country A.

You lodge local Country A tax returns.

Your visits to Australia are primarily for personal purposes. You have provided a travel schedule for the ruling year which shows that you were in Australia for over a hundred days in this year.

The Commissioner of Taxation advised you that you were considered a resident of Australia for the income years before the ruling year. This decision was made on the basis that -

1.    Your spouse and children lived in Australia.

2.    You spent more than 183 days physically in Australia each year.

3.    You had established a home office in the Australian property to assist you in carrying out your work duties in Australia.

You have since made alterations in your lifestyle since you were assessed as a resident of Australian in those financial years. The changes in your lifestyle in the ruling year is -

1.    You spend less than 183 days in Australia now.

2.    You only visit your family for holidays and special events and not to participate in ongoing ordinary child rearing responsibilities.

3.    You no longer have a home office in your Australian property, and you do not carry out work duties in Australia.

For all your trips to Australia you take annual leave for days which are not weekends or public holidays. As you are on annual leave, you are not expected to perform work duties during your time in Australia. You provided details of your trips to Australia.

Your work responsibilities are not easily delegated. While you are on annual holidays, day-to-day functions are performed by various members of your team or escalated to you for consideration only when required. You may monitor your email and take calls, but your work duties are effectively on-hold with only urgent matters escalated to you. You may respond with a short call or email for time sensitive matters.

Neither you nor your spouse has ever been employed by the Australian Commonwealth government and neither belongs to any Commonwealth superannuation scheme such as CSS or PSS.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 6(1)

Agreement between the Commonwealth of Australia and the Republic of Country A for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (the Country A Convention)

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source.

The terms 'resident' and 'resident of Australia', regarding an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are:

•   the resides test,

•   the domicile test,

•   the 183-day test, and

•   the superannuation test.

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides. However, where an individual does not reside in Australia according to ordinary concepts, they may still be a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.

Resides Test

When considering the resides test the following factors are normally considered:

•   physical presence

•   intention or purpose

•   family or business ties

•   maintenance and location of assets

•   social and living arrangements

In your case, you are a citizen of Australia who departed Australia with your family over 10 years to live and work in Country A.

Later your spouse and children moved to a residential property in Australia so that the children could complete their education.

The Commissioner of Taxation advised you that you were a resident of Australia for the income years prior to the ruling year. This decision was made on the basis that -

1.    Your spouse and children lived in Australia.

2.    You spent more than 183 days physically in Australia each year.

3.    You had established a home office in the Australian property to assist you in carrying out your work duties in Australia.

This subject is addressed in Taxation Ruling 98/17 (TR98/17) Income tax: residency status of individuals entering Australia. At paragraphs 20 and 21 it states -

20. All the facts and circumstances that describe an individual's

behaviour in Australia are relevant. In particular, the following factors

are useful in describing the quality and character of an individual's

behaviour:

•   intention or purpose of presence;

•   family and business/employment ties;

•   maintenance and location of assets; and

•   social and living arrangements.

21. No single factor is necessarily decisive and many are

interrelated. The weight given to each factor varies depending on

individual circumstances.

Your intention upon departure was to work in Country A on a permanent and indefinite basis.

However, since your family moved back to Australia, you have maintained strong family ties with Australia and nurtured these ties with regular visits.

Your spouse maintains a family home in Australia where you stay when in Australia. You relocated all personal belongings to Country A when you departed.

You have established what could be described as a long-term presence in Country A where you stay in rental accommodation. You and your spouse have furnished this leased home in Country A.

You have established professional, social or sporting connections in Country A and have withdrawn from those in Australia - apart from your family relationships. Your living arrangements in Country A are rental accommodation only with personal effects.

You are a resident for tax purposes under the resides test in the 201X financial year.

This is because you have maintained an enduring association with Australia as -

•   Your Australian abode remains available to you.

•   Your pattern of travel shows you arrive before weekends and typically spend the weekend, or the weekend and the next week, with your family in your Australian abode.

•   You were in Australia for over 100 days.

•   You spent over 50 workdays, in addition to weekends, with your family in Australia, clearly demonstrating a strong family association with Australia.

•   Your pattern of travel demonstrates that you are not living in Country A, arguably you are staying in Country A while you are working with your main focus being your Australian family.

Your pattern of travel shows that you are mainly travelling to Country A to perform your work duties, with much of your non-work time spent in Australia. This maintains your connection with Australia.

The domicile test

Under the domicile test, a person is a resident of Australia if their domicile is in Australia unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

Domicile

"Domicile" is a legal concept to be determined according to the Domicile Act 1982 and common law rules. A person's domicile is in their country of origin unless they acquire a different domicile of choice or operation of law. To obtain a different domicile of choice, a person must have the intention to make their home indefinitely in another country, usually done by obtaining a migration visa. The domicile of choice which a person has at any time continues until that person acquires a different domicile of choice.

In your case, you are a citizen of Australia. You have left Australia and have chosen to live in Country A. You have not been granted, nor have you actively sought, permanent residency in any other country.

You have not abandoned your domicile in Australia and acquired a domicile of choice in Country A as you do not yet have the right to reside permanently in that country. This is because you have not yet actively applied for, nor been issued, a visa that will allow you or to remain there indefinitely.

Therefore, you will be a resident of Australia under this test unless the Commissioner considers you have established a permanent place of abode outside of Australia.

Permanent place of abode

A person's 'permanent place of abode' is a question of fact to be determined in the light of all the circumstances of each case. (Applegate v. Federal Commissioner of Taxation 78 ATC 4051; 8 ATR 372 (Applegate))

In Applegate, the court found that 'permanent' does not mean everlasting or forever, but it is to be contrasted with temporary or transitory.

The courts have considered 'place of abode' to refer to a person's residence, where he lives with his family and sleeps at night.

Taxation Ruling IT 2650 Income Tax: Residency - Permanent place of abode outside Australia (IT 2650) provides a number of factors which are used by the Commissioner in reaching a satisfaction as to an individual's permanent place of abode. These factors include:

(a)          the intended and actual length of the individual's stay in the overseas country;

(b)          any intention either to return to Australia at some definite point in time or to travel to another country;

(c)           the intended and actual length of the individual's stay in the overseas country;

(d)          any intention either to return to Australia at some definite point in time or to travel to another country;

(e)          the establishment of a home outside Australia;

(f)            the abandonment of any residence or place of abode the individual may have had in Australia;

(g)          the duration and continuity of the individual's presence in the overseas country; and

(h)          the durability of association that the individual has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments, place of education of the taxpayer's children, family ties.

Paragraph 24 of IT 2650 states that the weight to be given to each factor will vary with individual circumstances of each case and no single factor is conclusive. Greater weight should be given to factors (c), (e) and (f) than to the remaining factors.

This concept was further explored in Harding v Commissioner of Taxation (2019) FCAFC 29 (Harding), where Davies and Stewart JJ stated at paragraph 40 that in reference to the term 'permanent place of abode', the word 'place' should accordingly be read as only including a reference to a particular country or state.

Further, the Full Court found in Harding at paragraphs 36 and 40 that 'permanent place of abode outside Australia' involves two considerations as follows:

1) Whether a taxpayer has definitely abandoned, in a permanent way, their Australian

residence, and

2) Whether the taxpayer is living permanently in a specific country rather than moving

between foreign countries.

In your case you have not established a permanent place of abode outside of Australia as:

•   You left a jointly owned residential home in Australia, and it remains available to you.

•   You do not have an established home with family in Country A as your spouse and children have elected to return and study in Australia.

•   You have visited Australia several times since your departure to maintain family connections and expect to continue with such visits in future years.

•   Your family remains in Australia, occupying the family home.

You have maintained strong connections to your Australian residence which remains in your joint ownership, is occupied by your spouse and family and you spend considerable time in this residence. This indicates that you have not abandoned, in a permanent way, your Australian residence.

You have been living in Country A for the long term. However, your pattern of travel demonstrates that -

•   You have not abandoned your residence in Australia nor your connections to Australia.

•   Your Australian residence is still available to you, and

•   you have retained a durable association with Australia, through your family who remained in Australia.

The duration and continuity of your presence in Country A supports the argument that you have been living in Country A for the long-term. However, your pattern of travel demonstrates that you are not living in Country A, arguably you are staying in Country A while you are working, with your main focus being your Australian family.

Therefore, your pattern of travel indicates that you are moving between foreign countries rather than living in a specific country i.e. Country A.

Consequently, the Commissioner is not satisfied that you have a permanent place of abode outside Australia, and you are therefore a resident under the domicile test of residency during the period in Country A.

The 183 days test

Where a person is present in Australia for 183 days during the year of income the person will be a resident, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

You are not a resident for tax purposes under this test as you were not in Australia for 183 or more days.

The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person.

You are not a contributing member of the PSS or the CSS or a spouse of such a person, or a child under 16 of such a person.

You are not a resident for tax purposes under this test.

Residency status

As you satisfy two of the four tests of residency outlined in subsection 6(1) of the ITAA 1936, you are a resident of Australia for income tax purposes in the 201X financial year.

The Country A Convention

Article X of this Convention states at paragraph 2 -

2. Where by reason of the provisions of paragraph 1 of this Article an individual is both a Country A resident and an Australian resident-

(a) he shall be treated solely as a Country A resident:

(i) if he has a permanent home available to him in Country A and has not a permanent home available to him in Australia;

(ii) if sub-paragraph (a)(i) of this paragraph is not applicable but he has an habitual abode in Country A and has not an habitual abode in Australia;

(iii) if neither sub-paragraph (a)(i) nor sub-paragraph (a)(ii) of this paragraph is applicable but the Contracting State with which his personal and economic relations are closest is Country A;

(b) he shall be treated solely as an Australian resident-

(i) if he has a permanent home available to him in Australia and has not a permanent home available to him in Country A;

(ii) if sub-paragraph (b)(i) of this paragraph is not applicable but he has an habitual abode in Australia and has not an habitual abode in Country A;

(iii) if neither sub-paragraph (b)(i) nor sub-paragraph (b)(ii) of this paragraph is applicable but the Contracting State with which his personal and economic relations are closest is Australia.

Tie-Break Test under the Convention

Under the Convention you have a permanent home available in both Australian and Country A.

You also have a habitual abode available in both Australia and Country A.

This means that the issue of residency under Article 4 of the Convention must be determined based on your personal and economic relations with the two countries.

You have personal and economic ties with both countries. It is helpful to refer to the OECD Commentaries on the Model Tax Convention on Income and on Capital: Condensed Version (2010). Under this version it can be noted that -

•   You are an Australian citizen and hold an Australian passport

•   You spouse is an Australian citizen, as are your children

•   You are an Australian resident in your recent tax returns

•   You are not entitled to Medicare benefits

•   You maintain Australian bank accounts

•   You financially maintain your family who live in a jointly owned residence in Australia

•   You spend considerable time in this Australian residence

After taking the above factors into account your personal and economic ties to Australia are closer than those to Country A. Accordingly, under the tie-break test of the Convention you would be a tax resident of Australia for the purpose of the convention.

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