Edited version of private advice

Authorisation Number: 1051811204720

Date of advice: 20 April 2021

Ruling

Subject: Residency of Australia for taxation purposes

Question 1

Are you a resident of Australia for taxation purposes for the 20XX income year?

Answer

Yes.

Question 2

Are you required to declare the income derived while in Country Z in your Australian tax return?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were born in Country Z.

You are a citizen of Country Z.

You are a permanent resident of Australia.

You have lived in Australia with your family since mid 20YY.

You went to Country Z on late 20XY to work.

You went to Country Z as you had been unemployed in Australia for XX months and you and your family were suffering financial hardship.

Your work contract was for an indefinite period of time.

The expectation was that your family would join you in Country Z once your child had finished the school year and the house had been sold in Australia.

This intention changed and your spouse and child decided not to join you in Country Z.

You rented accommodation in Country Z through a work colleague.

The rental property was a two-bedroom premises in Country Z.

You paid for the rental property out of your salary in Country Z along with other household expenses.

You took clothes and some linen to Country Z with you as you left all other household items in Australia in the family home for your spouse and child to use.

You joined the local library while in Country Z but had no other social or sporting connections in Country Z.

You have some family members in Country Z.

You returned to Australia in 20XY and stayed several days.

Covid-19 hit and travel restrictions commenced, and you return to Australia on early 20XX.

You secured a position with a bank in Australia.

Your spouse and child remained in Australia living in the family home and you financially supported them for the period you were in Country Z.

Your Australian assets consist of the family home and a car along with household items.

You had no assets in Country Z.

You and your spouse are not eligible to contribute to the relevant Commonwealth super funds.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 subsection 6(1)

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, if you are a foreign resident, your assessable income includes only income derived from an Australian source (subsection 6-5(3) of the ITAA 1997).

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. These tests are:

1.    the resides test

2.    the domicile tests

3.    the 183-day test

4.    the superannuation tests

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.

1. The resides test

The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'. As the word 'reside' is not defined in Australian taxation law, it takes its ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936.

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3^rd edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; having one's abode for a time', and according to the Compact Edition of the Oxford English Dictionary (1987), is 'to dwell permanently, or for a considerable time, to have one's settled or usual abode, to live in or at a particular place'.

In considering the definition of 'reside', the High Court of Australia, in Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 at page 99-100, per Latham CJ, noted the term 'reside' should be given a wide meaning for the purposes of section 6(1) of the ITAA 1936. Similarly, in Subrahmanyam v Commissioner of Taxation 2002 ATC 2303, Deputy President Forgie said at paragraphs 43 and 44 that the widest meaning should be attributed to the word 'reside'.

The question of whether an individual 'resides' in a country is a question of fact and degree and not of law. In deciding this question, the courts have consistently referred to and considered the following factors as being relevant:

(i)            physical presence in Australia;

(ii)           nationality;

(iii)          history of residence and movements;

(iv)          habits and 'mode of life';

(v)           frequency, regularity and duration of visits to Australia;

(vi)          purpose of visits to or absences from Australia;

(vii)        family and business ties with Australia compared to the foreign country concerned; and

(viii)       maintenance of a place of abode.

The weight given to each factor varies with individual circumstances and no single factor is necessarily decisive. In Shand v Federal Commissioner of Taxation 2003 ATC 2080, the Tribunal stated (at 35):

Questions of residence, domicile, permanent place of abode, have frequently been found by the courts and tribunals to be difficult to assess on a factual level and not easy to define in concrete legal terms.

You left Australia in late 20XY to go to Country Z to work. You rented accommodation in Country Z and did not take personal and household items with you as these remained in your family home in Australia. Your spouse and child did not accompany you to Country Z as they remained in Australia for your child to complete their school year and for the family home to be sold. The intention changed and your family decided to stay in Australia a not join you in Country Z. You financially supported your spouse and child while you were in Country Z. You returned to Australia in 20XY for several days.

Based on the information provided to us you did not break your connection with Australia when you went to Country Z to work.

You maintained your continuity of association with Australia as your spouse and child did not move to Country Z with you and you supported them financially while you were working in Country Z.

You were a resident under this test for the relevant period.

2. The domicile test

If a person's domicile is Australia, they will be an Australian resident unless the Commissioner is satisfied, they have a permanent place of abode outside of Australia. In order to show that a new domicile of choice in a country outside of Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country.

The concept of Domicile was discussed in the Marriage of (1980) 5 Fam LR 662:

A person may abandon his domicile of origin and acquire a domicile of choice but in order to establish a change of domicile there must be clear evidence of an intention to abandon the domicile of origin and to make a new permanent home in the country to which the person has removed. In my view a person cannot be said to acquire a new domicile until there has been a firm intention of establishing a permanent residence in another country and also the confirmation of that intention by actual residence in that country.

Declarations as to intention are rightly regarded in determining the question of a change of domicile, but they must be examined by considering the person to whom, the purposes for which, and the circumstances in which they are made and they must further be fortified and carried into effect by conduct and action consistent with the declared expression:

The Commissioner's view on how a domicile of choice may be acquired can be found in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia, at paragraph 21:

In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country e.g., through having obtained a migration visa. A working visa, even for a substantial period of time such as 2 years, would not be sufficient evidence of an intention to acquire a new domicile of choice.

Ross v Ross [1930] AC 1 at 6-7 per Lord Buckmaster... Where the court finds that at a relevant point of time there is a conflict between the actual conduct of the party concerned and the verbal expression of his intention doubtless the court will in most cases prefer the act to the word - as an ancient proverb puts it: "what you do speaks so loudly that I cannot hear what you say."

Further, in Fremlin v Fremlin (1913) 16 CLR 212; [1913] HCA 25 per Barton J:

In Winans v. Attorney-General, Lord Halsbury L.C. said:-"Now the law is plain, that where a domicile of origin is proved it lies upon the person who asserts a change of domicile to establish it, and it is necessary to prove that the person who is alleged to have changed his domicile had a fixed and determined purpose to make the place of his new domicile his permanent home." In the much older case of Udny v. Udny Lord Westbury said: -"Domicile of choice is a conclusion or inference which the law derives from the fact of a man fixing voluntarily his sole or chief residence in a particular place, with an intention of continuing to reside there for an unlimited time. This is a description of the circumstances which create or constitute a domicile, and not a definition of the term. There must be a residence freely chosen, and not prescribed or dictated by any external necessity, such as the duties of office, the demands of creditors, or the relief from illness; and it must be residence fixed not for a limited period or particular purpose, but general and indefinite in its future contemplation. It is true that residence originally temporary, or intended for a limited period, may afterwards become general and unlimited, and in such a case so soon as the change of purpose, or animus manendi, can be inferred the fact of domicile is established." Lord Curriehill in the case of Donaldson v. M'Clure says: -"To abandon one domicile for another means something far more than a mere change of residence. It imports an intention not only to relinquish those peculiar rights, privileges and immunities which the law and constitution of the domicile confer on the denizens of the country in their domestic relations, in their business transactions, in their political and municipal status, and in the daily affairs of common life, but also the laws by which the succession to property is regulated after death. The abandonment or change of a domicile is therefore a proceeding of a very serious nature, and an intention to make such an abandonment requires to be proved by satisfactory evidence." Lord Halsbury, in Marchioness of Huntly v. Gaskell, expressed strong approval of Lord Curriehill's judgment, quoting this passage.

Your domicile of origin is the Country Z.

You came to Australia in 20XX and became a permanent resident of Australia. You have established a home in Australia with your family. Your domicile of choice therefore became Australia. You moved back to Country X for work however your family stayed in Australia in the family home. You were only in Country X for approximately X months before returning to Australia. You have not shown that you intended to be return to Country X indefinitely.

Therefore your domicile is Australia.

Permanent place of abode

The expression 'place of abode' refers to a person's residence, where they live with their family and sleep at night. In essence, a person's place of abode is that person's dwelling place or the physical surroundings in which a person lives.

A permanent place of abode does not have to be 'everlasting' or 'forever'. It does not mean an abode in which a person intends to live for the rest of his or her life. An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a permanent place of abode elsewhere.

The Full Federal Court in Harding v Commissioner of Taxation [2019] FCAFC 29 stated at 41 that it favoured the construction of the phrase 'permanent place of abode' as used at first instance in Applegate v Commissioner of Taxation [1978] 1 NSWLR 126 at 134:

"place of abode" may mean the house in which a person lives or the country, city or town in which he is for the time being to be found. I am of the view that the latter is the meaning of the expression used in s. 6(1.) of the Act.

The Full Federal Court at 40 summarised its thoughts on 'permanent place of abode' as follows:

•         the word 'place' in the context of the phrase 'outside Australia' involves a consideration of the town or country in which a person is physically residing 'permanently';

•         so long as the taxpayer has 'definitely abandoned' his or her residence in Australia, it is not necessary for the taxpayer to be permanently located at a particular house or flat in a particular town within a foreign country or for the person to live in one particular town, suburb or village within a given country;

•         the word 'place' should accordingly be read as including a reference to a country or state;

•         moving between foreign countries is not the same as being permanently in one country; and

•         the words 'permanent place' require the identification of a country in which the taxpayer is living permanently.

Consequently, it is considered that the Full Federal Court in Harding provides two key considerations in determining whether a taxpayer has their permanent place of abode outside Australia. These are:

(1)  whether the 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.

The Commissioner is not satisfied that you set up a permanent place of abode outside Australia for the following reasons:

•         you rented accommodation in Country Z on a month by month basis

•         you took very few personal items to Country Z with you and no household items as they remained in the family home in Australia

•         your spouse and child did not join you in Country Z

•         you financially supported your spouse and child while you were in Country Z

•         you made a trip back to Australia in 20XY

You did not abandon your family home in Australia as you returned to this home when you came back to Australia for the a break and your spouse remained in this property while you were in Country Z and you financially supported your spouse and child during this period.

As stated above the Commissioner is not satisfied that you had a permanent place of abode outside Australia for the period you were in Country Z.

You are a resident under this test.

3. The 183-day test

Under the 183 day test, a person is a resident of Australia if they are actually physically present in Australia for more than 183 days in an income year unless the Commissioner is satisfied that their usual place of abode is outside of Australia and they have no intention of taking up residence here.

You were not in Australia for more than 183 days in the 20XX income year as you left Australia on late 20XY and arrived back in Australia on early 20XX.

You are not a resident under this test.

4.The superannuation tests

This test covers Commonwealth government employees - members of the Commonwealth superannuation funds (as well as their spouses and children under 16 years of age).

A person is a resident under this test if they are:

•         a member of the superannuation scheme established by deed under the Superannuation Act 1990; or

•         an eligible employee for the purposes of the Superannuation Act 1976; or

•         the spouse, or a child under 16, of a person covered by either of the above.

You are not a resident under this test.

Your residency status

For the period you were in Country Z you were a resident of Australia for taxation purposes.

You were a resident of Australia for the 20XX income year.

You are required to declare your income for this period in your Australian tax return.

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