Edited version of private advice

Authorisation Number: 1052034380368

Date of advice: 21 September 2022

Ruling

Subject: Residency

Question 1

Are you an Australian resident for tax purposes for the 20XX financial year?

Answer

Yes.

Question 2

Are you an Australian resident for tax purposes for the 20XX financial year up until you relocated to Country Z in early 20XX?

Answer

Yes.

Question 3

Are you treated solely as an Australian resident under the tiebreaker test in Article Z of the Double Tax Agreement between Country Y and Australia up until you relocated to Country Z in January 20XX?

Answer

Yes.

Question 4

Is your employment income subject to tax only in Australia under Article X of the Double Tax Agreement between Country Y and Australia?

Answer

Yes.

Question 5

Are you entitled to a tax offset against Australian tax payable in respect of Country Y tax payable on your employment income under Article Y of the Double Tax Agreement?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a citizen of Country X.

You have lived in Country Y since 20XX.

You held an employment pass in County Y.

You have full time employment with a company based in Country Y.

You have held this position since 20XX.

You rented an apartment in Country Y on a year-by-year basis.

You have a spouse and dependants who are all Australian citizens.

Your family lived with your parents in law in Australia for over a year in 20XX.

You travelled to Australia every 4-5 weeks to visit your family.

You spent the majority of your time in Country Y each year.

You were issued with a visa to enter Australia in 20XX.

You last arrived in Australia in late 20XX.

Your visa was issued for one year.

You extended your visa for an additional year and then for a further 5 years.

You rented a house in Australia and had an X month rental agreement in place.

You did not intend to reside in Australia permanently.

You were a member of a sports club in Australia.

You lodged foreign income tax returns whilst living in Australia.

You had return flights booked to Country Y as you needed to return for work.

You worked remotely when you were in Australia due to Covid-19 travel restrictions.

You have bank accounts in both Country Y and Australia.

You relocated from Australia to Country Z for work in early 20XX.

You informed Medicare that you were departing Australia.

You informed your private health insurance provider that you were departing Australia.

You intend to travel extensively for work to Country Y, Continent X, Australia and within Country Z.

You do not own property in any country.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 subsection 6 (1).

International Tax Agreements Act 1953

Reasons for decision

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,

•        the domicile test,

•        the 183 day test, and

•        the superannuation 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.

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.

Case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the 'resides' test:

•         Physical presence

•         Intention or purpose of presence

•         Family and business/employment ties

•         Maintenance and location of assets, and

•         Social and living arrangements.

These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in Taxation Ruling IT 2650 Residency - Permanent place of abode outside Australia (IT 2650) and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia (TR 98/17).

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.

TR 98/17 explains that an individual may be considered a resident under the resides test if their behaviour while they are here is such that they exhibit a degree of continuity, routine or habit that is consistent with a person residing in Australia according to the ordinary meaning of the word 'reside'.

As a broad principle, where a person has a settled routine for six months or more (for example, the person has stayed in one place or has been with one employer for six months at the same location) they may satisfy the resides test. The period of time of the settled routine need not be confined to one financial year. As long as the pattern of behaviour is exhibited the individual may be regarded as being a resident from the time of their arrival.

We consider that your circumstances are consistent with you residing in Australia up until early 20XX when you departed Australia for Country Z.

This is because:

•         You lived with your family in Australia for approximately XX months.

•         You signed a X month lease on a rental property in Australia.

•         You worked remotely whilst living in Australia.

•         You have an Australian bank account.

•         You held a sporting membership whilst in Australia.

•         You extended visa for an additional X years after it was issued in 20XX.

You are a resident under this 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 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 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.

In your case, you were born in Country X and your domicile of origin is Country X. You subsequently relocated to Country Y.

It is considered that you did not acquire a domicile of choice in Australia. You were not entitled to reside in Australia indefinitely and while living in Australia, you held a visa that was only valid for a limited period of time.

You are not a resident under this test.

183-day 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 have been present in Australia for 183 days or more during both of the relevant income years. We now need to consider whether we are satisfied that, during the 20XX and 20XX income years, your usual place of abode was outside Australia, and your intention was to take up residence in Australia.

The Commissioner is not satisfied that your usual place of abode was outside Australia during the 20XX income year and for the 20XX income year up until you relocated to Country Z. This is because you lived in Australia for approximately XX months, rented a property with your family, carried out your employment duties in Australia, extended your visa twice and did not ultimately return to Country Y.

You are a resident under this test.

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 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 under this test.

Conclusion

You satisfy the resides and the 183-day tests of residency and so are a resident of Australia for income tax purposes for the year ended 30 June 20XX and for the year ended 30 June 20XX up until the time you relocated to Country Z in early 20XX.

Question 3

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. If this is the case, in determining your liability to pay tax in Australia it is necessary to consider 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.

Article Z of the Country Y 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 Country Y Agreement states that where an individual is both a resident of Country Y and an Australian resident, they shall be treated solely as a resident of Country Y if they have a permanent home available to them in Country Y and do not have a permanent home available to them in Australia, or if not applicable, they have a habitual abode in Country Y and do not have a habitual abode in Australia. If neither are appliable, the Contracting State in which their personal and economic relations are closest is Country Y.

An individual shall be treated solely as an Australian resident if they have a permanent home available to them in Australia and do not have a permanent home available to them in Country Y, or if not applicable, they have a habitual abode in Australia and do not have a habitual abode in Country Y. If neither are applicable, the Contracting State with which their personal and economic relations are closest is Australia.

Permanent home

Permanent home is not defined in the Double Tax 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.

You rented accommodation in Country Y and also rented accommodation in Australia up until the time you relocated to Country Z. These dwellings were available for your use continuously during the relevant period.

Therefore, you had a permanent home available to you in both Country Y and Australia.

Habitual abode

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.

You arrived in Australia in 20XX and left in 20XX. Instead of returning to Country Y, you relocated to Country Z. You had a habitual abode in Australia during the relevant period as you chose to spend all of your time in Australia and did not return to Country Y at any time since you arrived. You lived in a property with your spouse and children that you signed an X month lease on. Your regular life and mode of habit for the 20XX and 20XX income years was in Australia.

You had a habitual abode in Australia and not a habitual abode in Country Y during the relevant period.

Conclusion

You are a resident solely of Australia under the Country Y Agreement during the relevant period.

Question 4

Article X of the Country Y Agreement deals with remuneration or other income derived in respect of personal (including professional) services.

The article states that remuneration or other income derived by an individual who is a resident of one of the Contracting States in respect of personal (including professional) services shall be subject to tax only in that Contracting State unless the services are performed or exercised in the other Contracting State. If the services are so performed or exercised such remuneration or other income as is derived therefrom shall be deemed to have a source in, and may be taxed in, that other Contracting State.

In your case, you are a resident of Australia for the purposes of the Country Y Agreement and you carried out your employment services solely in Australia for the relevant period.

Therefore, your employment income is subject to tax only in Australia under Article X of the Country Y Agreement

Further, as you did not carry out the services in Country Y, the income you derived is not deemed to have a source in Country Y and should not be taxed in Country Y.

Question 5

Section 770-10 of the ITAA 1997 provides that you are entitled to claim a foreign income tax offset for foreign income tax paid in respect of an amount that is included in your assessable income.

For the purposes of section 770-10, foreign income tax includes only that which has been correctly imposed in accordance with the relevant foreign law or, where the foreign jurisdiction has a tax treaty with Australia (having the force of law under the International Tax Agreements Act 1953), has been correctly imposed in accordance with that tax treaty.

Article Y of the Country Y Agreement relevantly states that subject to the provisions of the law of Australia which relate to the allowance of a credit against Australian tax of tax paid in a country outside Australia, Country Y tax paid under the law of Country Y and in accordance with this Agreement, whether directly or by deduction, in respect of income derived by a person who is a resident of Australia from sources in Country Y shall be allowed as a credit against Australian tax payable in respect of that income.

In your case, you are a resident of Australia for the purposes of the Double Tax Agreement and your employment income was not taxed by Country Y in accordance with the Agreement as required by Article Y. Further, the income you derived was not deemed to have a source in Country Y as previously mentioned.

Therefore, you are not entitled to a tax offset against Australian tax payable in respect of Country tax payable on your employment income under section 770-10 of the ITAA 1997 and Article Y of the Double Tax Agreement.

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