Edited version of private advice

Authorisation Number: 1052026300205

Date of advice: 1 September 2022

Ruling

Subject: Residency

Question 1

Will you remain a resident of Australia for tax purposes from the date you relocate to Country C until the income year ending 30 June 20YY?

Answer

Yes.

Question 2

Will you be a resident solely of Australia under Article X of the Agreement between the Government of the Commonwealth of Australia and the Government of Country C for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income during the relevant period?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20YY

Year ended 30 June 20YY

The scheme commences on:

1 July 20YY

Relevant facts and circumstances

You were born in Country A and are a citizen of Country B. You do not hold any other citizenships.

Your spouse is a dual citizen of Country B and Country D, and your school aged children are citizens of Country B only.

You arrived in Australia in 20YY to commence employment in Australia. You were a tax resident of Australia who was eligible for temporary resident concessions from this date.

On DD MM YYYY you departed Australia to commence a long-term international assignment with your employer in Country E. Your family accompanied you on your assignment.

On DD MM YYYY, you departed Country E and returned to Australia to resume employment with the Australian entity.

From DD MM YYYY, your role changed.

Between DD MM YYYY and DD MM YYYY, you commenced a commuter arrangement spending approximately 50% of your time in Australia with the remaining time spent overseas (primarily in Country F).

Your spouse and children remained in Australia during the commuter arrangement period to enable your children to attend schooling in Australia.

Your commuter arrangement formally came to an end at the close of 20YY in consideration of the worsening COVID-19 pandemic and difficulty of travel.

From DD MM YYYY to date you have spent the majority of your workdays in Australia.

As your employer is exploring moving its head office to Country C and has another site in Country C, you are required to be based in Country in order to perform your role as effectively as possible.

You will be on a permanent local employment contract with the Country C entity.

It is your intention to relocate to Country C indefinitely before the end of the 20YY calendar year.

You do not have any definitive plans to return to Australia.

You will obtain a long-term lease for a 2-3 bedroom apartment in Country C.

You may look to purchase a property in Country C in the future.

You will take all of your personal belongings with you to Country C.

Your employment contract in Country C does not have a fixed term; it will be a permanent local role.

You will set up bank accounts in Country C which will be used to receive salary and to pay for daily living expenses.

You will obtain an employment pass in Country C which enables you to work in Country C.

You will establish a gym/yoga membership in Country C and transfer your driver's licence to Country C.

You intend to purchase a motor vehicle in Country C.

You will lodge resident Country C tax returns.

Your mail will be redirected to Country C.

Your spouse and children will remain in Australia.

The family's main residence is owned in the sole name of your spouse. Your spouse and children will continue to reside in the main residence.

Since their birth, the children have spent the vast majority of their life and education in Australia (with the exception of the period they were in Country E).

You and your spouse decided it would be better for your children to complete their high school education in Australia to ensure continuity.

There are no current plans for the spouse or children to relocate to Country C. Their focus for the time being is for the children to complete their high school education in Australia.

Your family's intention is to make X trips to Country C each year with a duration of approximately X weeks per trip. The family would reside with you in your Country C home.

You are expected to travel to Australia approximately X times a year with each trip lasting no more than X-X weeks. You would not travel to Australia any more often than the other markets you are required to travel to, for example Country G and Country H.

These trips would all be primarily for business purposes and are required as part of your role.

All of your trips to Australia are expected to be to City A, with the exception of one trip to City B. On the City A trips you will stay in the home with your family.

When you travel to City B you intend to stay in temporary accommodation such as a hotel.

On your visits to Australia, you will bring only the necessary belongings for that trip in your suitcase. All of your belongings will otherwise remain in Country C.

You will transfer a portion of your income back to Australia to facilitate home loan payments as needed. Your income will also be used to support the family's living expenses.

You will cancel your Australian gym and other local memberships.

You own X rental properties in XXX, Australia.

You will maintain your Australian bank accounts to pay expenses relating to the Australian properties and to support your family's living expenses.

You have a self-managed super fund and a retail super fund in Australia.

You are not:

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

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

•                     the spouse, or a child under 16, of a person covered by sub-subparagraph (a) or (b).

You and your spouse lodged your Australian income tax returns for the year ended 30 June 20YY as full year tax residents eligible for temporary resident concessions.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 subsection 6-5(1)

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

International Tax Agreements Act 1953

Reasons for decision

Question 1

Summary

You will remain a resident of Australia for taxation purposes from the day you departed for Country C, as you meet the resides and the domicile tests of residency.

Detailed reasoning

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 primary test for deciding the residency status of an individual is whether they reside 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.

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', 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'. These definitions have been highlighted in cases as being definitive observations of the meaning of resides (see Viscount LC in Levene v Commissioners of Inland Revenue [1928] AC 217 and Logan J in Stockton v Federal Commissioner of Taxation [2019] FCA 1679).

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 not 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 paragraph 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.

There are numerous cases that consider the issue of residency for taxation purposes.

You have provided references to a number of Tribunal decisions to support your interpretation of the term 'resides' and how it applies to your situation.

It was stated by Logan J in Harding v FC of T [2019] FCAFC 29 at paragraph 8 "it is of cardinal importance not to elevate into matters of principle in a later case the particular facts found decisive in the different circumstances of an earlier case". The facts of your case will not be compared to the facts of the previous cases.

Application to your situation

•         You have lived and worked in Australia between DD MM YYYY and DD MM YYYY, and again since DD MM YYYY.

•         You are in Australia on a temporary visa which is granted to Country B citizens to stay and work in Australia indefinitely as long as you are a Country B citizen.

•         Your family is in Australia with you; being your spouse and children.

•         Your spouse and children will stay in Australia while you work in Country C.

•         Your children attend school in Australia, which you wish to maintain to ensure continuity and not disrupt their senior schooling years.

•         Your spouse has purchased a home in Australia which you and your family live in.

•         Your spouse and children will continue to live in the family home while you work in Country C.

•         You make and will continue to make payments towards the home loan as needed.

•         You will transfer a portion of your income to Australia to support your family's living expenses.

•         You will live with your family when you are in Australia for work. You are not estranged from your spouse.

•         You will rent accommodation in Country C, and possibly purchase in the future.

•         You have purchased X properties in Australia which you use as rental properties.

•         You have a self-managed super fund and a retail super fund in Australia which you will maintain.

You will continue to have a strong continuity of association with Australia and are a resident of Australia under the resides test for the relevant period.

Although the law only requires you to be considered a resident under one test, for completeness the other tests are also considered.

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 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 you must 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

•         You were born in Country A and have since become a citizen of Country B.

•         Your spouse has dual citizenship with Country B and Country D. Your children are citizens of Country B.

•         You have been in Australia since 20YY, with an overseas assignment between DD MM YYYY and DD MM YYYY.

•         Your family accompanied you to Australia and you have all have settled in Australia.

•         You are in Australia on a temporary visa which permits you to stay and work in Australia indefinitely for as long as you remain a citizen of Country B.

•         Although this visa expires when you leave Australia, you will be granted another when you re-enter Australia whilst you are a citizen of Country B.

•         You have remained with the same employer since coming to Australia.

•         Although you will take up a permanent role in Country C, an initial Employment Pass to work in Country C is only granted for up to X years (with renewals up to X years at a time).

•         Your employer is required to apply for an Employment Pass on your behalf and it will only be granted if you satisfy a number of eligibility criteria.

Based on the facts provided, we consider Australia to have become your domicile of choice at some point in time after you established yourself here in 20YY. Further, at this point in time there is insufficient evidence available to determine whether you may acquire a domicile of choice in Country C during the ruling period.

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

•                     You are taking your belongings and will rent a property in Country C to live while working in Country C.

•                     Your role in Country C is considered permanent.

•                     You have an established home in Australia which your family will continue to live in while you are working in Country C.

•                     Your family will remain in Australia in the family home.

•                     You will live with your spouse and children in the family home whenever you work in Australia.

•                     You make and will continue to make payments towards the home loan as needed.

•                     You will transfer a portion of your income to Australia to support your family's living expenses.

Based on the facts provided we consider you to have a place of abode in both Australia and Country C. However, we are not satisfied that you have a permanent place of abode in Country C because you have not definitely abandoned Australia due to your family and family home in Australia.

Therefore, you are 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.

Given you will leave Australia prior to the end of the YYYY calendar year, you will not be present in Australia for 183 days or more during the YYYY income year. As well, you advise you will only be in Australia for short periods during the YYYY and YYYY income years so you will not be present in Australia for 183 days or more for these years.

You are not a resident of Australia under this test for the relevant period.

The Commonwealth Superannuation Fund 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.

Application to your situation

You are not a contributing member of 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 of Australia under this test.

Question 1 Conclusion

You satisfy the resides test and domicile test of residency and so will be considered to be a resident of Australia for income tax purposes for the years ended 30 June 20YY and 20YY.

Question 2

Summary

We have concluded that the tiebreaker tests in Article 3 of the Country C agreement apply so that you are deemed to be a resident only of Australia for treaty purposes.

Detailed reasoning

It is possible to be a resident for tax purposes of more than one country at the same time in respect of an income year or part of an income year. Where this is the case, in determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

Sections 4 and 5 of the International Tax Agreements Act 1953 (Agreements Act) incorporate that Act with the ITAA 1936 and the ITAA 1997 and provide that the provisions of a double tax agreement have the force of law.

Taxation Ruling TR 2001/13 discusses the Commissioner's views about interpreting double tax agreements. Paragraph 104 provides that the OECD Model Tax Convention and Commentary will often need to be considered in interpreting double tax agreements (see also ATO ID 2003/1195).

Australia has entered into a double tax agreement with Country C (Country C agreement).

The Country C agreement operates to avoid the double taxation of income received by residents of Australia and Country C.

Article X of the Country C Agreement sets out the tiebreaker rules for residency for individuals. The tiebreaker rules ensure that the individual is only treated as a resident of one country for the purposes of working out liability to tax on their income under the double tax agreement. The tiebreaker rules do not change a taxpayer's residency status for domestic law purposes.

The tie-breaker tests in cascading order are whether the individual has a permanent home in one of the countries, in which country the individual has an habitual abode, or to which country the individual's personal and economic relations are closest.

Permanent home

The first arm of the tie-breaker test considers where you have a permanent home.

Permanent home is not defined in the Country C Agreement. Therefore, recourse can be made to supplementary materials in order to aid construction. The OECD commentary to the Model Tax Convention is taken to be a legitimate aid to construction (Thiel v Commissioner of Taxation [1990] HCA 37: 171 CLR 338).

The OECD Commentary provides that in relation to a 'permanent home':

a.            for a home to be permanent, an individual must have arranged and retained it for his or her permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be of short duration. The dwelling has to be available at all times continuously and not occasionally for the purposes of a stay, which owing to the reasons for it is necessarily of short duration (e.g. travel for pleasure, business travel, attending a course etc) For instance, a house owned by an individual cannot be considered to be available to that individual during a period when the house has been rented out and effectively handed over to an unrelated party so that the individual no longer has possession of the house and the possibility to stay there.

b.            any form of home may be taken into account, including a house or apartment belonging to or rented by the individual and a rented furnished room.

We have concluded that you have a permanent home in Australia and Country C based on the following considerations:

•                     You are taking your belongings with you to Country C.

•                     You will rent a property in Country C to live while working in Country C.

•                     Your role in Country C is considered permanent.

•                     You have an established home in Australia which your family will continue to live in while you are working in Country C.

•                     Your family will remain in Australia while you are working in Country C.

•                     You will live in the family home with your family whenever you work in Australia.

Habitual abode

The second arm of the tie-breaker test considers where your habitual abode is.

The OECD commentary provides that in determining a taxpayer's habitual abode, it requires a determination of whether the individual lived habitually, in the sense of being customarily or usually present, in one of the two States but not in the other during a given period.

The test will not be satisfied simply by determining in which of the two Contracting States the individual has spent more days during the period (JJ Davies, White and Steward in Pike v Commissioner of Taxation [2020] FCAFC 158 at [29]).

The notion of habitual abode refers to the frequency, duration and regularity of stays that are part of the settled routine of an individual's life and are therefore more than transient. It is possible for an individual to have an habitual abode in two states where the individual was customarily or usually present in each State during the relevant period.

ATO view of habitual abode

There are a number of ATO Interpretative Decisions which contain the ATO view regarding 'habitual abode'.

In ATO ID 2004/774, a taxpayer who spent time at their homes in both Australia and the US during a single income year was held to have a habitual abode in both Australia and the US because it was 'part of their usual pattern of activity'.

ATO ID 2006/184 considers a taxpayer working in Australia for a period of four years, but 'spending time' in Italy during this period, and who had a home available to him there. The 'reasons for decision' in this ATO ID states, in part, that:

The notion of an habitual abode is not simply a test of where a person stays more frequently but also looks to whether living in a particular country is normal or customary having regard to the taxpayer's circumstances. As it is usual or customary for the taxpayer to spend time in both countries, the taxpayer has a habitual abode in both countries.

Under the second arm of the test the Commissioner considers that you have a habitual abode in Australia due to your spouse and children remaining in Australia in your family home. He also considers that you have a habitual abode in Country C.

As there is not a clear decision based on the first two arms of the residence tie-breaker test the third arm must be considered.

Personal and economic ties (centre of vital interests)

The third arm considers which State your personal and economic relations are closest.

The OECD commentary states regard should be had to the taxpayer's family and social relations, their political, cultural or other activities, their place of business, the place from which they administer their property etc. As noted in Pike v Commissioner of Taxation [2020] FCAFC 158 at [39], the clause does not place greater weight on personal factors over economic factors. In each case it will be a matter of fact and degree as to whether a taxpayer's personal and economic relations, viewed as a whole, support ties closer to one contracting state over the other contracting state.

We have concluded that your personal and economic ties are closer to Australia at this point in time, based on the following considerations:

•                     Your spouse and children remain in Australia.

•                     Your spouse and children remain in the family home.

•                     You have investment properties in Australia which you receive rental income from.

•                     Although reduced by your time away, you will continue to have social connections in Australia.

•                     Your employment is in Country C, which earns you your salary and wages.

•                     You will have financial obligations in Country C, being the payment of rent for your long-term accommodation while working in Country C.

•                     You will establish social connections in Country C.

Question 2 Conclusion

We have concluded that the tiebreaker tests in Article 3 of the Country C agreement apply so that you are deemed to be a resident only of Australia for treaty purposes. The provisions of the Country C agreement will therefore apply on the basis that you are a resident of Australia for tax purpose and not of Country C.

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