Edited version of private advice

Authorisation Number: 1051998664517

Date of advice: 28 June 2022

Ruling

Subject: Residency

Question 1

Are you an Australian resident for tax purposes for the following income years?

•         Year ended 30 June 20XX

•         Year ended 30 June 20XX

•         Year ended 30 June 20XX

Answer

No.

Question 2

Are you a part-year resident of Australia for the income year ended 30 June 20XX?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are an Australian citizen.

Your country of origin is Australia.

You relocated to Country A permanently in May 20XX.

You are employed by your employer as a manager in City B.

Your employer is sponsoring your Country A residency permit for the duration of your employment.

Your current residency permit allows you to stay in Country A for five years. This permit can be automatically renewed with your employment contract.

You are intending to live in Country A for at least four years and will likely renew your employment contract and visa after five years.

In regard to future travel back to Australia, you intend to spend no more than four weeks per calendar year in Australia, and you have no intention of returning to Australia permanently.

You live in an apartment in City B which is paid for by your employer.

You have shipped your belongings to Country A.

You have a spouse who is living in Australia.

Your spouse is not permitted to accompany you to Country A under your employment conditions, due to conflict in a nearby country.

You jointly own a property with your spouse.

This was your main residence until you departed Australia.

Your spouse remains living in this property.

You do not financially support your spouse.

You have an Australian driver's license.

You have a Country A driver's license which is required by your employer.

You do not hold Australian private health insurance.

The assets you hold in Australia are:

•         A property (jointly owned with your spouse)

•         A car

•         A family SMSF

•         Stocks and shares

•         Cash.

When you left Australia, you advised all your financial institutions that you are a foreign resident.

You have informed Medicare that have relocated to Country A.

You have informed the Australian Electoral Commission that you reside in Country A.

Your employer has advised you that you are a tax resident of Country A due to your residency permit.

You are not a member of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990.

You are not an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS) which was established under the Superannuation Act 1976.

Relevant legislative provisions

Income Tax Assessment Act 1997, section 991-5

Income Tax Assessment Act 1936, subsection 6(1)

Subsection 18(1)(a) of the Income Tax Rates Act (1986)

Reasons for decision

Question 1

Summary

Residency for tax purposes.

Detailed reasoning

Overview of the law

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

The terms 'resident' and 'resident of Australia', as applied to an individual, are defined in subsection 6(1) of the ITAA 1936.

The definition offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are:

•         the resides test (also referred to as the ordinary concepts test)

•         the domicile test

•         the 183-day test, and

•         the Commonwealth superannuation fund test.

The resides test is the primary test for deciding the residency status of an individual. This test considers whether an individual resides in Australia according to the ordinary meaning of the word 'resides'.

Where an individual does not reside in Australia according to ordinary concepts, they will still be an Australian resident if they meet the conditions of one of the other tests (the domicile test, 183-day test and Commonwealth superannuation fund test).

Our interpretation of the law in respect of residency is set out in Taxation Ruling IT 2650 Income tax: residency - permanent place of abode and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.

We have considered the statutory tests listed above in relation to your situation as follows:

The resides test

The ordinary meaning of the word 'reside' has been expressed as 'to dwell permanently or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place': See Commissioner of Taxation v Miller (1946) 73 CLR 93 at 99 per Latham CJ, citing Viscount Cave LC in Levene v Inland Revenue Commissioners [1928] AC 217 at 222, citing the Oxford English Dictionary. Likewise, the Macquarie Dictionary defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

The observations contained in the case of Hafza v Director-General of Social Security (1985) 6 FCR 444 are also important:

Physical presence and intention will coincide for most of the time. But few people are always at home. Once a person has established a home in a particular place - even involuntarily: see Commissioners of Inland Revenue v Lysaght [1928] AC 234 at 248; and Keil v Keil [1947] VLR 383 - a person does not necessarily cease to be resident there because he or she is physically absent. The test is whether the person has retained a continuity of association with the place - Levene v Inland Revenue Commissioners [1928] AC 217 at 225 and Judd v Judd (1957) 75 WN (NSW) 147 at 149 - together with an intention to return to that place and an attitude that that place remains "home": see Norman v Norman (No 3) (1969) 16 FLR 231 at 235... [W]here the general concept is applicable, it is obvious that, as residence of a place in which a person is not physically present depends upon an intention to return and to continue to treat that place as "home", a change of intention may be decisive of the question whether residence in a particular place has been maintained.

The Commissioner considers the following factors in relation to whether a taxpayer is a resident under the 'resides' test:

•         period of physical presence in Australia

•         intention or purpose of presence

•         behaviour while in Australia

•         family and business/employment ties

•         maintenance and location of assets

•         social and living arrangements.

It is important to note that no one single factor is decisive, and the weight given to each factor depends on each individual's circumstances.

Because the ordinary concepts test is whether an individual resides in Australia, the factors focus on the individual's connection to Australia. Having a connection with another country, or being a resident of another country, does not diminish any connection to Australia: Logan J in Pike v Commissioner of Taxation [2019] FCA 2185 at 57 reminds us that 'it is no part of the ordinary meaning of reside in the 1936 Act that there be a "principal" or even "usual" place of residence. ... It is important that ... "resident" not be construed and applied as if there were such adjectival qualifications.' For this reason, the test is not about dominance or exclusivity.

Application to your situation

We have taken the following into consideration when determining whether you meet the resides test:

•         Physical presence - You have not been physically present in Australia since May 20XX.

•         Intention or purpose - You intend to live in Country A for a minimum of 4 years.

•         Behaviour while in Country A - You live and work in City B.

•         Employment ties - You receive income from Employment in Country A.

•         Family ties - You have a spouse in Australia. They are unable to accompany you to Country A under the terms of your contract.

•         Social and living arrangements - You are living in accommodation provided by your employer and use this address as your mailing address. You do not have private health insurance in Australia. You have advised Medicare and the AEC of your departure.

You are not a resident of Australia under the resides test for the 20XX, 20XX and 20XX income years.

You may still be an Australian resident if you meet the conditions of one of the other tests (the domicile test, 183-day test and Commonwealth superannuation fund test.)

Domicile test

Under the domicile test, you are a resident of Australia if your domicile is in Australia unless the Commissioner is satisfied that your permanent place of abode is outside Australia.

Domicile

Whether your domicile is in Australia is determined by the Domicile Act 1982 and the common law rules on domicile.

Your domicile is your domicile of origin (usually the domicile of your father at the time of your birth) unless you have a domicile of dependence or have acquired a domicile of choice elsewhere. To acquire a domicile of choice of a particular country you must be lawfully present there and hold the positive intention to make that country your home indefinitely. Your domicile continues until you acquire a different domicile. Whether your domicile has changed depends on an objective consideration of all relevant facts.

Application to your situation

In your case you were born in Australia and your domicile of origin is Australia. You immigrated to Country A in May 20XX and are living there on a residency permit for the duration of your employment.

It is considered that you have not abandoned your domicile of origin in Australia. This is because your residency permit is sponsored by your employer meaning that you can only live in Country A for the duration of your employment. Therefore, your domicile is Australia.

Permanent place of abode

If you have an Australian domicile, you are an Australian resident unless the Commissioner is satisfied that your permanent place of abode is outside Australia. This is a question of fact to be determined in light of all the facts and circumstances of each case.

'Permanent' does not mean everlasting or forever, but it is to be distinguished from temporary or transitory.

The phrase 'permanent place of abode' calls for a consideration of the physical surroundings in which you live, extending to a town or country. It does not extend to more than one country, or a region of the world.

The Full Federal Court in Harding v Commissioner of Taxation [2019] FCA 29 held at paragraphs 36 and 40 that key considerations in determining whether a taxpayer has their permanent place of abode outside Australia are:

•         whether the taxpayer has definitely abandoned, in a permanent way, living in Australia

•         whether the taxpayer is living in a town, city, region or country in a permanent way.

The Commissioner considers the following factors relevant to whether a taxpayer's permanent place of abode is outside Australia:

(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 to move on 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 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 assets in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

As with the factors under the resides test, no one single factor is decisive, and the weight given to each factor depends on the individual circumstances.

Application to your situation

We have taken the following into consideration when deciding whether your permanent place of abode is outside Australia:

•         You intend to live in Country A for at least four years and expect to extend your residency permit on expiry.

•         You have shipped your belongings to Country A.

•         You hold a Country A driver's license.

•         You advised your financial institutions that you are a foreign resident.

•         You advised Medicare of your departure from Australia.

•         You informed the Australian Electoral Commission that you reside in Country A.

The Commissioner is satisfied that your permanent place of abode is outside Australia.

Therefore, you are not a resident of Australia under the domicile test.

183-day test

Where a person is present in Australia for 183 days or more during the year of income the person will be a resident, unless the Commissioner is satisfied that both:

•         the person's usual place of abode is outside Australia, and

•         the person does not intend to take up residence in Australia.

Application to your situation

You will not be present in Australia for 183 days or more during the 20XX, 20XX and 20XX income years. Therefore, you are not a resident under this test.

However, you have been in Australia for 183 days or more in the 20XX income year. Therefore, you will be a resident under this test unless the Commissioner is satisfied that your usual place of abode was outside Australia and you do not have an intention to take up residence in Australia.

Usual place of abode

In the context of the 183-day test, a person's usual place of abode is the place they usually live, and can include a dwelling or a country. A person can have only one usual place of abode under the 183-day test. However, it is also possible that a person does not have a usual place of abode. This is the case for a person who merely travels through various countries without developing any strong connections.

If a person has places of abode both inside and outside Australia, then a comparison may need to be made to determine which is their usual place of abode. When comparing two places of abode of a particular person, we will examine the nature and quality of the use which the person makes of each particular place of abode. It may then be possible to determine which is the usual one, as distinct from the other or others which, while they may be places of abode, are not properly characterised as the person's usual place of abode: Emmett J at [78] in Federal Commissioner of Taxation v Executors of the Estate of Subrahmanyam [2001] FCA 1836.

Application to your situation

We have taken the following into consideration when deciding whether your usual place of abode is outside of Australia.

•         You departed Australia in May 20XX.

•         You intend to live in Country A for at least the next four years.

•         You resided in the property you jointly own with your spouse until you departed Australia.

You lived in Australia for over 183 days of the 20XX financial year before you emigrated to Country A. Australia was your usual place of abode for part of the 20XX income year. Country A became your usual place of abode when you departed Australia in May 20XX.

Subsection 18(1)(a) of the Income Tax Rates Act (1986) provides you will be a part-year resident of Australia for the 20XX income year until the end of May 20XX.

Superannuation Test

An individual is a resident of Australia if they are either 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 they are the spouse, or the child under 16, of such a person.

You are not a member on behalf of whom contributions are being made to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS) or a spouse of such a person, or a child under 16 of such a person. Therefore, you are not a resident under this test.

Conclusion

As you do not satisfy any of the four tests of residency, you are not a resident of Australia for income tax purposes for the 20XX, 20XX and 20XX income years.

Subsection 18(1)(a) of the Income Tax Rates Act (1986) provides you will be a part-year resident for the 20XX income year until the end of May.

Question 2

Summary

Part-year residency during the 20XX income year.

Detailed Reasoning

The residency test will usually apply to determine whether a person has ceased residence during the year. Although the legislation does not expressly exclude the application of the 183 test in such circumstances, that test is directed at visitors and migrants and only applies where the resides test does not apply. Ordinarily, persons ceasing residency in Australia will satisfy the prescribed exception to the 183 test.

The provided exception has two conditions. The person must have:

•         a usual place of abode outside of Australia.

•         an intention not to reside in Australia.

Subsection 18(1)(a) of the Income Tax Rates Act (1986) provides you will be a part-year resident of Australia for the 20XX income year until the end of May 20XX.

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