Edited version of private advice

Authorisation Number : 1052118081731

Date of advice: 19 May 2023

Ruling

Subject: Residency

Question

Will the taxpayer be a 'resident of Australia' as defined in subsection 6(1) of the Income Tax Assessment Act 1936 for the entirety of the income year ended 30 June 20XX?

Answer

No.

This ruling applies for the following period

For the income year ended 30 June 20XX

Relevant facts and circumstances

The taxpayer was born in Australia and is an Australian citizen. Sometime in early 20XX, the taxpayer departed Australia to live in Country A. Prior to departing Australia, the taxpayer had been an Australian resident at all times.

Following the finalisation of divorce proceedings and property settlement with their former spouse, the taxpayer moved to Country A.

The taxpayer's de-facto spouse also relocated with them to Country A. The taxpayer's de-facto spouse was residing in Australia prior to the taxpayer relocating to Country A in early 20XX.

The taxpayer states that they intend on remaining in Country A indefinitely.

In the income year ending 30 June 20XX, the taxpayer did not visit Australia. In the income year ended 30 June 20XX (20XX income year), the taxpayer intends to visit Australia not spending more than 90 days in Australia in 20XX income year.

In this regard, the taxpayer has made three trips on an intermittent basis for varying periods of time which range from 2 to 4 weeks. The purpose of these trips was to visit family friends and to pursue other recreational activities.

The taxpayer generally stayed in hotels when they made these visits.

The taxpayer has and will continue to visit Australia during the remainder of the 20XX income year, for a period of 3 weeks in total, either in a single trip or through multiple trips.

From late 20XX to late 20XX, the taxpayer also travelled to Country Y from Country A. Three trips were undertaken of varying duration totalling from 4 weeks to 8 weeks. The purpose of these trips was to holiday and visit friends.

Before the end of the 20XX income year, the taxpayer is proposing a further trip to Country Y of 3 weeks duration and also a trip to another country of one week's duration. This trip is for the purpose of a holiday.

The taxpayer has retained the ownership of their former main residence in Australia which is occupied by their adult son. A caveat over this property is in place to secure a binding financial agreement. The property also secures loans made to entities related to the taxpayer.

The taxpayer's son pays rent for this property under a lease which was executed for a commercial market rent.

The taxpayer also owns another property in Australia where their mother has resided for a considerable period of time.

The taxpayer does not possess any furniture and household effects in Australia. Most of the taxpayer's personal possessions were taken with them to Country A.

The taxpayer no longer owns any motor vehicles in Australia.

The taxpayer has ceased their membership of social clubs in Australia.

The taxpayer's children are adults and all children, apart from a one child, will remain in Australia for the immediately foreseeable future. The other child has moved to Country Y to live.

The taxpayer is self-funded and has been for many years and was not employed prior to leaving Australia.

The taxpayer's overseas assets include stock investments listed on the stock exchange in Country A and an overseas rental property and block of land.

The taxpayer's assets in Australia include bank accounts, shares and gold bullion.

The taxpayer was a director of Australian companies and a beneficiary of a family trust. The taxpayer has since resigned as director of these companies and is excluded from being a beneficiary the family trust. Further, the taxpayer is not involved in, nor influences, the conduct or operation of the day-to day activities of these companies.

The taxpayer has written to the Australian Electoral Commission requesting that their name be removed from the Australian electoral roll. The taxpayer has cancelled their private health insurance and also has notified Medicare of the change in their residency status.

In Australia, the taxpayer has also advised their local bank and broker of their change of residency.

The taxpayer and their de-facto spouse are not a contributing member of the Public Sector Superannuation Scheme or the Commonwealth Superannuation Scheme.

In Country A, the taxpayer has acquired a home in their own name which they occupy with their de-facto spouse.

The taxpayer also undertook the following in Country A:

• acquired a motor vehicle for personal use;
• acquired a Country A driver's licence;
• fully furnished their home;
• joined social clubs;
• lodged tax returns with the Country A taxing authority;
• opened bank accounts in Country A.
• acquired stock investments which are listed on the Country A stock exchange.

The taxpayer has existing friends and other social contacts in Country A.

The taxpayer's mail is redirected to them in Country A.

Relevant legislative provisions

Subparagraph 6(1)(a)(i) of the Income Tax Assessment Act 1936

Subparagraph 6(1)(a)(ii) of the Income Tax Assessment Act 1936

Subparagraph 6(1)(a)(iii) of the Income Tax Assessment Act 1936

Reasons for decision

All the legislative references that follow are to the Income Tax Assessment Act 1936 unless otherwise stated.

Detailed reasoning

The term 'resident of Australia' is relevantly defined in subsection 6(1) to mean:

(a) a person, other than a company, who resides in Australia and includes a person:

(i)    whose domicile is in Australia, unless the Commissioner is satisfied that the person's permanent place of abode is outside Australia;

(ii)   who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and that the person does not intend to take up residence in Australia; or

(iii)  who is:

(A)  a member of the superannuation scheme established by deed under the Superannuation Act 1990; or

(B)  an eligible employee for the purposes of the Superannuation Act 1976; or

(C)  the spouse, or a child under 16, of a person covered by sub-subparagraph (A) or (B); and

Hence, an individual can be a 'resident of Australia' as defined in subsection 6(1) if the individual resides in Australia within the ordinary meaning of 'resides' (ordinary concepts test) or, satisfies the domicile test, the 183 day test or the Commonwealth Superannuation Fund test.

In the present case, the tests of most relevance are the ordinary concepts test in paragraph 6(1)(a) and the domicile test in subparagraph 6(1)(a)(i).

In relation to the 183 day test in subparagraph 6(1)(a)(ii), one of the requirements to be met to satisfy this test is that an individual must be present in Australia for more than 183 days during an income year continuously or intermittently. The taxpayer will be present in Australia during the 20XX income for less than 90 days, therefore the taxpayer will not be a resident under the 183 day test.

The taxpayer is also not a resident under the Commonwealth Superannuation Fund test in subparagraph 6(1)(a)(iii). The taxpayer is not a contributing member of the Public Sector Superannuation Scheme or the Commonwealth Superannuation Scheme, a spouse of such a person or a child under 16 years of age of such a person.

Ordinary Concepts test

The term 'resides' in paragraph 6(1)(a) is not defined in the income tax provisions either the ITAA 1936 or ITAA 1997, and therefore it takes on its ordinary meaning. Draft Taxation Ruling TR 2022/D2 Income Tax: residency tests for individuals (TR 2022/D2) provides guidance on the Commissioner's interpretation of the ordinary meaning of the word 'resides'.

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'.

In TR 2022/D2, the Commissioner considers the following factors in relation to whether a person 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 above 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.

Further, in determining an individual's residency status, it is appropriate to look beyond the period the period spent in (or out of) Australia. Regard must be given to factors from the entire income year and surrounding income years in determining an individuals' residency status.

In relation to the period of physical presence, TR 2022/D2 provides that an individual's period of physical presence or length of time in Australia, although an important factor, is not a determinative factor when considering an individual's residency status. An individual must have some connection to Australia that characterises their presence as 'residing' in it.

Broadly, the Commissioner considers a visit to Australia of less than 6 months is not sufficient time to be regarded as residing here. This is because a person does not usually establish a sufficient connection to Australia in this time.

This can be contrasted to a situation where a person has previously spent a long time in Australia despite only spending short periods in Australia in the relevant income year. In such a case, the shorter period of physical presence in Australia assumes less relevance if the person has retained a continuity of association with Australia, or a particular place within Australia, together with an intention to return to Australia and an attitude that Australia remains their home.

Paragraph 30 of TR 2022/D2 states that an individual's intention, purpose or reason for being in Australia assists in determining whether an individual resides here. Intention is to be determined objectively, having regard to all relevant facts and circumstances.

A settled purpose, for example a pre-arranged long-term employment may support an intention to reside in Australia, particularly when coupled with other connections to Australia that are consistent with residing here.

Paragraph 39 of TR 2022/D2 explains that when looking at an individual's behaviour, their behaviour relevantly includes the way they live as part of the regular order of their life. If the way they live reflects a degree of continuity, routine or habit, coupled with other factors such as intention, it may be consistent with residing in Australia.

Paragraphs 44 to 48 of TR 2022/D2 explains that the presence or absence of immediate family and the type and term of an individual's business or employment ties in Australia are relevant indicators in determining an individual's residency status. Additionally, the presence or absence of family and business or employment ties in the overseas country will be relevant in giving context to the individual's connection to Australia.

When considering the maintenance and location of assets, paragraph 49 of TR 2022/D2 provides that occupying a dwelling in Australia that the individual owns or is purchasing, suggests establishment of a home in Australia. The presence of other assets in Australia, such as motor vehicles, superannuation investments and bank accounts also add further weight to the individual having established behaviour consistent with residing here. Both the significance of the assets and the reasons why they were acquired or maintained will be relevant.

An individual's social and living arrangements e.g., joining sporting or community organisations or redirecting mail to Australia, may indicate residency, particularly when combined with other factors. What is important is the routine and habit associated with the social and living arrangements (paragraph 51 to 52 of TR 2022/D2).

Residence has been considered in a numerous court cases. In Joachim v FCT 2002 ATC 2088 (Joachim's case), it was highlighted that the test is whether the person has retained a continuity of association with the place, together with an intention to return to that place and an attitude that the place remains home.

In Pillay v FC of T 2013 ATC 10-324 (Pillay's case), the taxpayer had purchased and renovated a place in Bali, Indonesia, however he was still found to be an Australian resident. He had been working overseas since 2006. He was in Australia for between six to eight weeks each year. During his visits to Australia, he would spend time at his property in Australia and visiting his children and grandchild. The taxpayer had Australian bank accounts. The taxpayer maintained a continuity of association with Australia in the relevant years despite being physically absent for significant periods.

Factors that were relevant to the question of whether the taxpayer resided in Australia included their physical presence in Australia; their nationality; history of residence and movements; habits and "mode of life", frequency, regularity and duration of visits to Australia; purpose of visits to or absences from Australia; family and business ties with Australia; and maintenance of a place of abode in Australia.

Application of the 'Ordinary Concepts' test

In the present circumstances, the taxpayer resided in Australia until early 20XX at which time they departed Australia to live in Country A indefinitely.

The taxpayer did not return to Australia until the middle of 20XX i.e., they were absent from early 20XX to the middle of 20XX. From the middle of 20XX, the taxpayer returned to Australia on an intermittent basis staying for short periods of time ranging from 2 to 4 weeks. In total, the taxpayer's stay was less than 90 days in the 20XX income year.

The purpose of each visit was to mainly to visit family and friends and undertake other recreational activities. In this regard, the taxpayer mainly stayed at hotels - they did not stay at their property, which is occupied by a family member.

The short period of time spent in Australia by the taxpayer and the lack of any settled purpose in the taxpayer's visits to Australia is suggestive that the taxpayer is not residing here.

Furthermore, although the taxpayer's immediate family which includes their adult children and mother resides in Australia, the taxpayer's de-facto spouse resides with them in Country A.

Additionally, the taxpayer has taken steps to sever their ties to Australia such as disposing of any household effects and motor vehicles, ceasing membership of clubs, cancelling their private health insurance, removing their name from the Australian Electoral Roll and taking most of their personal possessions to Country A. They have also severed their business connections in Australia by resigning as director of several companies.

Conversely, the taxpayer has sought to establish ties to Country A by acquiring a home, motor vehicle and other assets, joining social clubs and developing social connections in Country A.

All these characteristics indicate the taxpayer's lack of connection to Australia.

Therefore, it is considered that the taxpayer is not a resident of Australia under the 'ordinary concepts test' as they did not reside in Australia in the 20XX income year.

Domicile test

Under the domicile test in subparagraph 6(1)(a)(i), a person is a resident of Australia if their domicile is in Australia unless the Commissioner is satisfied that the person's permanent place of abode is outside Australia.

Whether a person's domicile is in Australia is determined by the Domicile Act 1982 (Cth) and the common law rules on domicile. A person's domicile is generally their country of birth - referred to as the 'domicile of origin'. A person's domicile continues until a different one is acquired, either by choice or operation of the law.

In Draft Taxation Ruling TR 2022/D2 Income Tax: residency tests for individuals (TR 2022/D2) at paragraphs 56 to 60, the concept of domicile of choice is discussed where it is stated:

57. To acquire a domicile of choice you must have both lawful physical presence in a foreign country and an intention to make your home indefinitely in that country.

58. When considering intention, we have regard to objectively observable conduct. While assertions of intention will always be relevant, if there is a difference between that assertion and the conduct, we may rely on the conduct.

59. Obtaining a visa to migrate to a particular country would be consistent with an intention to make your home indefinitely in that country. A working visa, even for a substantial period of time, would usually not be sufficient evidence of an intention to acquire a new domicile of choice.

60. If you have an Australian domicile and you are living outside Australia, you will retain your Australian domicile if you intend to return to Australia on a clearly foreseen and reasonably anticipated contingency; for example, at the end of your employment contract, even if it is for a substantial period. This is because you lack the necessary intention to settle in that country indefinitely. On the other hand, if you only have in mind a vague possibility of returning to Australia, such as making a fortune or some sentiment about dying in the land of your forebears, such a state of mind is consistent with the intention required by law to acquire a domicile of choice in the foreign country

Application of the 'Domicile test'

As the taxpayer was born in Australia their domicile of origin is Australia. Therefore, the taxpayer's domicile of origin, Australia will continue until the taxpayer acquires a new domicile of choice.

In early 20XX, the taxpayer departed Australia in order to reside in Country A. The taxpayer has expressed that it is their intention to reside in Country A on an indefinite basis. Their actions, to date, are consistent with that intention - the taxpayer has acquired a home in Country A, their de-facto spouse resides with them in Country A, they have opened bank accounts in Country A and acquired other assets in Country A. The taxpayer also has joined social clubs and has existing friends and associates in Country A.

Further, the taxpayer has been physically present in Country A from the time of their departure, albeit on an irregular basis in the 20XX income year. The taxpayer is permitted to reside in Country A on an indefinite basis.

In light of the above, it is likely that the taxpayer has acquired a domicile of choice in Country A. It therefore follows that the taxpayer's domicile is no longer Australia.

As the taxpayer's domicile is outside of Australia, it is not necessary to consider whether the taxpayer has established a permanent place of abode outside of Australia.

Accordingly, the taxpayer is not a resident of Australia under the domicile test in subsection 6(1).

As the taxpayer does not satisfy any of the tests prescribed under the definition of 'resident of Australia' in subsection 6(1) in relation to the 20XX income year, they are not a resident of Australia for the year.

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