Edited version of private advice

Authorisation Number: 1052117112453

Date of advice: 11 May 2023

Ruling

Subject: International residency - assessable rental income

Question 1

Am I a foreign resident for taxation purposes for the period DD MM YYYY to DD MM YYYY?

Answer

Yes.

Having considered your circumstances and the relevant factors the Commissioner is satisfied that you are a foreign resident for taxation purposes for the stated periods.

Question 2

Is the rental income derived from your rental property in Australia assessable in Australia?

Answer

Yes.

The provisions of Article X of COUNTRY A Agreement Act will apply, requiring the rental property assessable income to be lodged in Australia.

This ruling applies for the following periods:

Period ended 30 June XXXX

Period ended 30 June XXXX

Period ended 30 June XXXX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were born in Australia.

You are a citizen of Australia.

You are not a permanent resident of any other country.

You departed Australia and entered COUNTRY A on the DD MM YYYY.

You have a visa which allows you entry into COUNTRY A For X years.

When you left Australia, your intention was to live and work in COUNTRY A for as long as legally allowable.

On arrival in COUNTRY A, you stayed with extended family.

On DD MM YYYY, you moved into long term rental accommodation in COUNTRY A

You have employment with a COUNTRY A based company, which commenced on DD MM YYYY.

Your COUNTRY A employer is withholding tax.

You have no dependants or spouse.

Your parents reside in Australia.

You have extended family residing in COUNTRY A.

You have rented out your Australian property.

You have not returned to Australia and have no immediate plans to return.

You have a bank account in COUNTRY A where your salary is paid into.

You have bank accounts in Australia where your rental income is paid into.

You have obtained private health insurance in COUNTRY A.

You have been removed from the Australian Electoral Roll.

You are not a Commonwealth Government of Australia employee and are not a member of PPS or CSS superannuation funds.

You have no sporting connections in Australia.

You have joined a sporting club in COUNTRY A and have made social connections.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1963 Subsection 6(1)

International Taxation Agreement Act 1953

Reasons for decision

Question1

Am I a foreign resident for taxation purposes for the period DD MM YYYY to DD MM YYYY?

Summary

Having considered your circumstances and the relevant factors the Commissioner is satisfied that you are a foreign resident for taxation purposes for the stated period.

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 purpose of the Income 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 Income Assessment Act 1936 (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:

1. the resides test (also referred to as the ordinary concepts test),

2. the domicile test,

3. the 183-day test, and

4. the superannuation 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 the Draft Taxation Ruling TR 2022/D2 Income tax: residency test for individuals'.

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 Commission of Taxation v Miller (1946) 73 CLR 93 at 99 per Latham CJ, citing Viscount Cave LC in Levene v Inland Revenue Commissioners [1982] 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, and

•         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 1963 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 circumstances

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

•         You left Australia and entered COUNTRY A on DD MM YYYY.

•         You went to COUNTRY A with the intention to live and work there for as long as you are legally allowed.

•         You have a visa. The visa allows you entry to COUNTRY A for X years.

•         You have employment in COUNTRY A and have maintained employment with the same company.

•         You have obtained rental accommodation and private health insurance and established a COUNTRY A bank account.

•         You have no immediate plans to return to Australia in the near future.

•         You rented out your Australian residence.

•         You have joined a club in COUNTRY A and have made social connections.

•         You have removed your name from the Australian Electoral Roll.

•         You have no dependant or spouse.

•         Your parents reside in Australia.

•         You have extended family residing in COUNTRY A.

You are not a resident of Australia under the resides test for the period DD MM YYYY TO DD MM YYYY.

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 lawfully present there and hold 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 the relevant facts.

Application to your circumstances

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

It is considered that you did not abandon your domicile of origin in Australia and acquire a domicile of choice in COUNTRY A. You were not entitled to reside in COUNTRY A indefinitely and while living in COUNTRY A, you only held a visa which allows you to stay within COUNTRY A for a maximum of X years.

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 circumstances

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

•           You have a visa for COUNTRY A. The visa allows you entry to COUNTRY A for X years.

•           You left Australia and entered COUNTRY A on DD MM YYYY. You have no immediate plans to return to Australia in the near future.

•           You went to COUNTRY A with the intention to live and work there for as long as you are legally allowed.

•           On arrival in COUNTRY A, you stayed with extended family.

•           On DD MM YYYY, you moved into rental accommodation in COUNTRY A.

•           You rented out your Australian residence.

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 from DD MM YYYY TO DD MM YYYY.

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 circumstances - Period 1 (DD MM YYYY to DD MM YYYY)

You have been present in Australia for 183 days or more during the 20XX financial year. Therefore, you will be a resident under this test unless the Commissioner is satisfied that your usual place of abode was outside Australia.

Application to your circumstances - Period 2 (DD MM YYYY to DD MM YYYY)

You have not been present in Australia for 183 days or more during the 20XX financial year. Therefore, you are not a resident under this test.

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 circumstances

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

•         You resided in your Australia property until you departed Australia for COUNTRY A on DD MM YYYY.

•         You left Australia and entered COUNTRY A on DD MM YYYY. You have no immediate plans to return to Australia in the near future.

•          You have rented out your Australian property.

•          You live and work in the COUNTRY A.

•          You have a visa for COUNTRY A. Your visa allows entry to COUNTRY A for X years.

•          On arrival in COUNTRY A, you stayed with extended family.

•          On DD MM YYYY, you moved into rental accommodation in COUNTRY A.

•          You have employment with a COUNTRY A based company, which commenced on DD MM YYYY.

•          You have not returned to Australia and have no immediate plans to return.

•          When you left Australia, your intention was to live and work in COUNTRY A for as long as legally allowable.

•          You have been removed from the Australian Electoral Roll.

•          You have joined a club in COUNTRY A and have made social connections.

Based on your circumstances, the Commissioner is satisfied that your usual place of abode was outside Australia from DD MM YYYY to DD MM YYYY.

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 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 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 period DD MM YYYY to DD MM YYYY.

Question2

Is the rental income derived from your rental property in Australia assessable in Australia?

Summary

The provisions of Article X of COUNTRY A Agreement Act will apply, requiring the rental property assessable income to be lodged in Australia.

Detailed reasoning

Income from real property

Article X of COUNTRY A Agreement Act outlines the treatment of income from real property. Article X(X) of COUNTRY A Agreement Act provided that the income derived by the resident of a Contracting State from real property may be taxed in the Contracting State in which the real property is situated.

We have taken the following into consideration when deciding where the taxation liability lies:

You were the owner of a residential property in Australia which was purchased as an owner occupier prior to departing Australia for COUNTRY A. This property has changed to an investment following your departure from Australia and is currently being tenanted.

Accordingly, as per Article X(X) of COUNTRY A Agreement Act, as your rental property is situated within Australia, you will be assessable under subsection 6-5(3) of the ITAA 1997 on the income derived from your rental property, from DD MM YYYY.

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