Edited version of private advice

Authorisation Number: 1051837900154

Date of advice: 13 May 2021

Ruling

Subject: Residency

Question

Are you a resident of Australia for taxation purposes?

Answer

Yes.

This ruling applies for the following period periods:

Year ending 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were born in Country Y.

You are a citizen of Country Y.

You are a permanent resident of Australia.

You became a permanent resident of Australia in XXX. You lived and studied in Australia until XXXX when you returned to Country Y visiting Australia from time to time.

You have been living in Australia since XXXX.

One of the reasons you came back was that you had been living outside Australia for a while and there was a possibility your permanent residency would be cancelled.

Another was that the smog in Country Y was serious and to provide your child with a better living environment, decided to come to Australia.

Your spouse has not been living with you in Australia.

Before the pandemic, they had visited you at least twice a year.

Your spouse has been living in Country Y in your family home.

In XXXXX you went back to Country Y.

Your house in Australia was left vacant when you went to Country Y.

Your child went with you to Country Y.

You lived with your father for part of the time and with your spouse for part of the time you were in Country Y. Most of your time was spent living with your father.

When you lived with your spouse in Country Y, you stayed at the apartment you owned with them.

You returned to Australia on XXXXX.

Since you arrived in Australia in XXX you have been working for a Country Y employer remotely in Australia.

When you went back to Country Y in XXXX you continued to work for your Country Y employer in Country Y.

When you returned to Australia in XXX you continued your work for the Country Y employer, and you were made redundant in 20XX. You intend on finding a job in Australia post this.

You paid tax in Country Y on your income.

You have not declared this income in your Australian tax return.

You have a house in Australia which you and your child live in.

Your child goes to school in Australia.

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.

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 have been a permanent resident of Australia since XXXX.

You have been living on and off in Australia up until XXX when you moved to Australia on a permanent basis.

In XXX you went back to Country Y and remained there until XXXX when you moved back to Australia.

You have worked for a Country Y employer for XX years both in Country Y and in Australia.

You were made redundant from this employer in XXXX.

You and your child live in a property you purchased in Australia.

Your child goes to school in Australia.

Based on the information provided to the Commissioner, you are residing in Australia according to ordinary concepts.

You have been living and working in Australia your child goes to school in Australia.

Your behaviour is consistent with someone who is residing in Australia.

You are a resident under this test.

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 (Fremlin v Fremlin) 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 Country Y.

You are a permanent resident of Australia.

Your domicile of choice is therefore Australia as you have Australian permanent residency and from the facts provided you intend on living in Australia indefinitely.

Your domicile is therefore 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 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 have a permanent place of abode outside Australia for the following reasons:

•         you and your child live in Australia

•         your child goes to school in Australia

•         you have purchased a home in Australia where you and your child live

The Commissioner is satisfied that you are a resident under this test as you have a home in Australia and although your spouse lives in Country Y you do not consistently visit Country Y to be residing there.

You have not abandoned your Australian home and it is your intention to live in Australia.

You are a resident under this test.

The 183-day test

Under the 183 day test, a person is a resident of Australia if they are actually physically 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 have been present in Australia for more than 183 days in the 20XX and 20XX income years.

The Commissioner is satisfied that you do not have a usual place of abode outside Australia as your home is in Australia and you live and work in Australia with your child.

You only visit Country Y from time to time and you do not intend on leaving Australia permanently.

You are a resident under this test.

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

You are a resident of Australia for taxation purposes for the 20XX and 20XX income years.

You are required to declare your worldwide income in your Australian tax return.

Foreign Income Tax Offset

Foreign income tax is a tax imposed by a law other than an Australian law, on income profits or gains (subsection 770-15(1) of the ITAA 1997).

To be entitled to a foreign income tax offset:

•         -the foreign tax must be foreign income tax

•         -you must have actually paid, or be deemed to have paid, the foreign income tax

•         -the income or gain on which you paid foreign income tax must be included in your assessable income (or your NANE income under section 23AI or 23AK of the ITAA 1936) for Australian income tax purposes.

To count towards a tax offset, the foreign income tax must have actually been paid by the taxpayer or be deemed to have been paid by them. It is not enough that the tax is payable.

If the taxpayer is entitled to a refund of the foreign income tax, or if another benefit worked out by reference to the amount of the foreign income tax (other than a reduction in the amount of the foreign tax) is received as a result of a tax payment, the tax is not considered to have been paid.

It is not necessary for you to have paid the foreign income tax in the same income year in which the income or gain on which the tax has been paid is included in your income for Australian income tax purposes. The tax could be paid before or after the income year in which you derive the income. However, the offset can only arise when the foreign income tax is paid, and it is applied to the income year in which the relevant income or gain is included in your assessable income (or your NANE income under section 23AI or 23AK).

You are eligible for a FITO in relation to the tax you have paid on your income in Country Y once that foreign income has been declared in your Australian tax return.

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