Edited version of private advice

Authorisation Number: 1052107168101

Date of advice: 13 April 2023

Ruling

Subject: Residency

Question

Are you a resident of Australia for income tax purposes from DD/MM/YYYY?

Answer

Yes.

This ruling applies for the following period:

The income year ended 30 June 20XX

The scheme commenced on:

DD/MM/YYYY

Relevant facts and circumstances

You are a citizen of Country X.

Your country of origin is Country X.

You migrated to Australia on DD/MM/YYYY.

For the X years prior to your arrival in Australia, you lived in a city in Country X.

You and your wife entered Australia on a visa. Your visas allow you and your wife to stay in Australia permanently.

You intend to reside in Australia permanently, however, you have been transitioning into this as you need to organise your businesses, assets and life both in Australia and Country X.

In Australia, yourself, your spouse and adult child live with your relative at your relative's property. You do not own nor rent your relative's property.

Your spouse stays with you at all times.

Your child is studying full time in Australia.

In Australia, you own the following properties:

•         Commercial Property A and Commercial Property B.

•         A vacant residential property.

You run your business out of Commercial Property A. You still start running a business out of Commercial Property B in the coming months.

You plan to hire at least X employees for your businesses in Australia.

You are considering building a home on the vacant residential property soon.

You have approximately $XX in an Australian bank account.

Your commercial properties and business name in Australia are worth approximately $XX in total.

The vacant residential property is worth approximately $XX.

Your businesses in Australia are in their early stages of running.

Your company in Country X is still trading.

Your company in Country X will continue running into the future and at the same time, you will manage your businesses in Australia.

Due to having a company in Country X that is still operating, you fly back to stay in Country X every X to X months.

Since arriving in Australia on DD/MM/YYYY, you were absent from Australia between DD/MM/YYYY and DD/MM/YYYY for the purpose of attending to business in Country X. You have continued to make trips to Country X in later income years and currently hold a return airline ticket to Country X.

When you visit Country X, you attend to overseeing the running of your company and meeting with clients. You also visit friends and relatives while in Country X.

You have a house in Country X, which is where you resided prior to entering Australia. You use this as your home whenever you return to Country X. You rent part of your home in Country X to your company.

You have kept some personal belongings in your home in Country X, however also brought some with you to Australia.

You also own a commercial property in Country X. You rent the commercial property to your company and receive rental income from that.

You continue to receive a monthly salary of approximately $XX from your company in Country X.

Your company in Country X has X employees.

You provided the value of sales your company in Country X recorded in recent years.

Your business assets in Country X are worth approximately $XX.

You have personal savings in Country X, as you continue to earn income there.

Your personal assets in Country X, including your home, commercial property, and bank accounts, are worth approximately $XX.

You have held life insurance with Insurer 1 since DD/MM/YYYY.

You have held life insurance with Insurer 2 since DD/MM/YYYY.

You have held life insurance with Insurer 3 since DD/MM/YYYY.

You have a drivers licence in Country X.

You do not have a drivers licence in Australia. You plan to learn to drive in Australia.

In Country X, you maintain friends, relatives, business partners, employees, and customers.

You have not yet established many social or sporting connections in Australia, however, you have started making new friends and have a business network including a lawyer, accountant, business partners and suppliers

You were in Australia for less than 183 days during the income year ended 30 June 20XX.

You and your spouse are not Commonwealth of Australia Government employees for superannuation purposes.

You are not enrolled in a course of study in Australia that is more than 6 months long.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

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

Reasons for decision

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 ITAA 1936 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:

•         Period of physical presence in Australia - From the time you entered Australia on DD/MM/YYYY, you were present in Australia for approximately XX days during the ruling period. In later income years, you have continued to be present in Australia, while making trips to Country X every X to X months for business purposes.

•         Intention or purpose of presence - You intend to reside in Australia permanently.

•         Behaviour while in Australia - Due to your visa requirements, you brought a significant amount of savings to Australia. You have purchased commercial properties and are in the process of establishing businesses on these premises. You have purchased a vacant residential property and are considering building a home on this in the near future. Your child is studying full time in Australia.

•         Family ties - Your spouse and child are living with you at your relative's house in Australia. You still have relatives in Country X, which you visit when you return to Country X for business.

•         Business/ employment ties - In Australia, you have purchased 2 commercial properties. You plan to run businesses out of these. You plan to hire at least X employees for your businesses in Australia and have established a business network including a lawyer, accountant, business partners and suppliers. Your business in Country X has X employees and will continue operating into the future. You maintain business partners, employees, and customers in Country X.

•         Maintenance and location of assets - In Australia, your commercial properties and business name are worth approximately $XX. Your vacant residential land is worth approximately $XX and you have approximately $XX in an Australian bank account. In Country X, your business assets are worth approximately $XX. Your personal assets in Country X, including your home, commercial property, and bank accounts, are worth approximately $XX.

•         Social and living arrangements - You have commenced establishing social connections in Australia and have started making new friends. You, your spouse, and child live with your relative in Australia. You still have friends and relatives in Country X, who you see when you return to Country X for business.

You are a resident of Australia under the resides test for the period from DD/MM/YYYY to 30 June 20XX.

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

Domicile test

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 Country X and your domicile of origin is Country X. You migrated to Australia on DD/MM/YYYY. Your visa allows you to reside in Australia permanently.

Due to your continuing ties to Country X, it is considered that you have not abandoned your domicile of origin in Country X and acquired a domicile of choice in Australia.

Therefore, your domicile is Country X, and 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 have not been present in Australia for 183 days or more during the income year ended 30 June 20XX. Therefore, you are not 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.

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 under this test.

Conclusion

You satisfy the resides test of residency and so are a resident of Australia for income tax purposes from the time you entered Australia on DD/MM/YYYY and for the remainder of the income year ended 30 June 20XX.

Double Taxation Agreement

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.[1]

Article 4 of the Double Tax Agreement between Australia and Country X (the Double Tax 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.

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 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 had a permanent home in both Australia and Country X based upon the following considerations:

•         Your relative has made their home available for you, your spouse and child to reside in. This home is always available to you, continuously and not occasionally.

•         You still own your home in Country X. Your home in Country X still contains some of your personal belongings and is always available for your use. You stay in your home in Country X when you visit for business purposes.

Personal and economic ties (centre of vital interests)

The OECD commentary states that 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 based on the following considerations:

•         Your immediate family, being your spouse and child, reside in your relative's home with you in Australia.

•         Since migrating to Australia on DD/MM/YYYY, you have spent most of your time residing with your family in Australia.

•         You intend to reside in Australia permanently.

•         Your trips to Country X are for the main purpose of overseeing the operation of your business, however you also see friends and relatives during these visits.

•         The total value of your personal and business assets in Australia are similar to the total value of these assets in Country X.

Conclusion

We have concluded that the tiebreaker tests in Article 4 of the Double Tax Agreement apply so that you are deemed to be a resident only of Australia for treaty purposes. The provisions of the Double Tax Agreement will therefore apply on the basis that you are a resident of Australia for tax purposes and not of Country X.

[1] See also ATO ID 2003/1195 Income tax: Assessability of employment income received by a dual resident of Australia and the United States.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).