Edited version of private advice

Authorisation Number: 1052100349088

NOTICE

The private ruling on which this edited version is based has been overturned on objection.

This notice must not be taken to imply anything about the correctness of other edited versions.

Edited versions cannot be relied upon as precedent or used for determining how the ATO will apply the law in other cases.

Date of advice: 4 April 2023

Ruling

Subject: Residency

Question 1

Did you cease to be an Australian resident for tax purposes on DDMMYYYY?

Answer

No.

Question 2

Did you cease to be an Australian resident for tax purposes on DDMMYYYY?

Answer

Yes.

This ruling applies for the following periods:

For the year ending 30 June YYYY

For the year ending 30 June YYYY

For the year ending 30 June YYYY

For the year ending 30 June YYYY

For the year ending 30 June YYYY

The scheme commenced on:

DDMMYYYY

Relevant facts and circumstances

You were born in Australia in YYYY and are a citizen of Australia.

You have worked for your employer since DDMMYYYY.

Your employer initially sponsored your work visa in YYYY to work from their overseas location (Country B) however in YYYY you returned to live and work from Australia where your spouse and children lived.

You have been a permanent resident of Country B since YYYY which allows you to live permanently in that country at any time.

During the COVID-19 pandemic you were stood down from your employer from DDMMYYYY to DDMMYYYY.

You departed Australia on DDMMYYYY and now live in Country B again in order to seek continued employment.

Your spouse and children remained living in your family home in Australia until the children were a suitable age for your spouse to depart.

Your main source of employment income is from Country B and your spouse has been recently working on a casual basis in Australia knowing they would soon leave Australia to live with you overseas.

You will plan to retire in YYYY, so you and your spouse will live in Country B until then.

From MMYYYY to MMYYYY you financially supported your family in Australia in terms of mortgage, school fees, university costs and general living costs.

From MMYYYY to MMYYYY, you shared an apartment in Country B owned by a fellow colleague and paid them monthly rent based on a verbal agreement.

You hold 2 bank accounts in Country B which provide evidence of the address where you lived in the shared accommodation since YYYY.

You travelled to see your family in Australia on 3 different occasions for XX days, X days, then XX days.

You plan to recommence your Country B sporting club memberships this year.

You do not have any cars registered in your name in Australia any longer. You are attempting to sell your spouse's car in Australia. You use public transport in Country B.

You notified the Australian government that you have departed and are no longer on the electoral roll for voting.

On DDMMYYYY your spouse departed Australia to live with you in Country B.

In MMYYYY you leased a larger rental property in Country B so you can live there with your spouse. The initial rent-free period of X days was from DDMMYYYY to DDMMYYYY with the terms of the lease effective until DDMMYYYY.

Your personal effects have been relocated to Country B.

You own three properties at Locations 1, 2 and 3 in Australia.

Location 1 is your family home however from DDMMYYYY it will become a rental property and you have appointed a local agent to find a tenant and collect the rent.

Location 2 and 3 have been rental properties since YYYY and YYYY respectively.

Your two children will remain living Australia. Child 1 is an independent adult, does not live at home and has full time employment. Child 2 is studying and lives on campus at university.

You stored some household effects in Australia such as the children's furniture which they will use once they complete university.

You have 3 mortgages for the Australian properties located at 1, 2 and 3, a daily transaction account to manage those loans which you are looking to refinance.

You hold a superannuation account in Australia from when you were working there but plan to close the account down given there are no recent contributions since you moved to Country B.

Your personal mail is sent only to Country B now that your spouse moved there recently.

Child 1 and Child 2 remain listed on your health insurance in Australia, however you name has been removed and your spouse will have their name removed as you both live in Country B.

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.

You are not the spouse or a child under 16 of a person who is a member of the PSS or an eligible employee in respect of the CSS.

You have not advised your Australian financial institution/s with whom you have investments with that you are a foreign resident for tax purposes so that non-resident withholding tax can be deducted on any interest income received.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 995-1

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 (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 Draft Taxation Ruling TR 2022/D2 Income tax: residency tests for individuals.

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:

•         You departed Australia on DDMMYYYY and currently live and work overseas.

•         You intend to remain living in Country B until your planned retirement in YYYY. You will decide then if you will return to Australia.

•         Your spouse and children remained living in your family home in Australia.

•         Your main source of income is from your employer overseas. Your spouse has been recently working on a casual basis in Australia and did not seek full-time work knowing they would soon leave Australia to join you overseas.

•         You financially support your family in Australia in terms of mortgage, school fees, university costs and general living costsfrom overseas.

•         Your accommodation overseas to date has been a shared apartment in Country B owned by a work colleague and you paid them monthly rent based on a verbal agreement.

•         You hold 2 overseas bank accounts which evidence the shared address where you have been living.

•         You travelled to Australia to see your family in Australia on 3 occasions of 49 days, 5 days and 40 days.

•         You do not own any vehicles registered in your name in Australia. You are currently attempting to sell your spouse's car in Australia. You use public transport overseas.

•         You notified the Australian Electoral Commission (AEC) of departing Australia.

You are not a resident of Australia under the resides test for the period DDMMYYYY to DDMMYYYY

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.

In Fremlin v Fremlin (1913) 16 CLR 212 at 233, Barton J referring to what Lord Westbury said in Udny v Udny (1869) L.R. 1 H.L. (Sc.) 441 at 458 provided that a 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.

In Pike v FC of T [2019] FCA 2185 discusses that you can only have one domicile at a time despite having residences in more than one place:

71. Residence and domicile are not to be equated. As for example in the present case, a person may be resident in more than one place. But a person may only ever have one domicile at a time:

Radich v Bank of New Zealand (1993) 45 FCR 101 at 108 (Radich).

In Arjunan and FC of T [2020] AATA 4024 it was said that "a person's domicile is determined by common law rules as modified by the Domicile Act 1982 (Cth). Every person has a domicile of origin that arises at birth. This domicile of origin cannot be lost or displaced and can only be replaced by a domicile of choice. Unless a new domicile is inferred by the law from the combination of actions and intentions as to residence, a person's pre-existing domicile survives."

Application to your situation

In your case, you were born in Australia and your domicile of origin is Australia.

Based on the facts and circumstances contained in this private ruling, it is considered that you have not abandoned your domicile of origin (Australia) and acquired a domicile of choice in Country B. While you have held permanent residency in Country B since DDMMYYYY which allows you to visit and stay in that country at any time, you remain a citizen of Australia.

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 (Harding) 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:

•         the intended and actual length of the taxpayer's stay in the overseas country;

•         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;

•         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;

•         whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;

•         the duration and continuity of the taxpayer's presence in the overseas country; and

•         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

As mentioned above in relation to the Harding case, one of the two key considerations in determining whether a taxpayer has their permanent place of abode outside Australia is whether the taxpayer has 'definitely abandoned, in a permanent way, living in Australia'.

In your case, during the period from DDMMYYYY to DDMMYYYY, you were employed in Country B, had your own accommodation in Country B and spent the majority of your time outside Australia. However, it is noted that:

•         your spouse was still living in the family home in Australia

•         you financially supported your spouse and children in Australia in terms of mortgage, school fees, university costs and general living costs.

•         you returned to Australia to see your spouse and children for periods of 49 days, 5 days and 40 days.

Consequently, it is considered that the above factors together demonstrate that from DDMMYYYY to DDMMYYYY you maintained a durability of association with Australia and had not definitely abandoned, in a permanent way, living in Australia.

Therefore, the Commissioner is not satisfied that your permanent place of abode was outside Australia from DDMMYYYY to DDMMYYYY.

You were still a resident of Australia for tax purposes under the domicile test from DDMMYYYY to DDMMYYYY.

However, the Commissioner is satisfied that your permanent place of abode was outside of Australia from DDMMYYYY when you took further significant steps to cut ties with Australia with your spouse joining you to live in Country B and your Australian residence being leased to tenants.

Therefore, you are not a resident of Australia for tax purposes under the domicile test from DDMMYYYY. Ensure you complete question A2 on your tax return.

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 were not present in Australia for 183 days or more during the income year ended DDMMYYYY or the ruling periods after. Therefore, you are not a resident of Australia 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.

Application to your situation

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 of Australia under this test.

Conclusion

You did not cease to be a resident of Australia for tax purposes from DDMMYYYY due to your domicile being Australia and the Commissioner not being satisfied you had a permanent place of abode outside of Australia.

However, the Commissioner is satisfied that from DDMMYYYY you established a permanent place of abode outside of Australia in Country B, so you ceased to be a resident for tax purposes from that date.

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