Edited version of private advice

Authorisation Number: 1052144556043

Date of advice: 8 August 2023

Ruling

Subject: Residency

Question 1

Did you cease to be an Australian resident for tax purposes on DD MM 20YY?

Answer

No.

Question 2

Did you cease to be an Australian resident for tax purposes from DD MM 20YY?

Answer

Yes.

Question 3

Are you a resident of Australia under Article X of the Double Tax Agreement with Country B?

Answer

No.

This ruling applies for the following periods:

For the year ending 30 June 20YY

For the year ending 30 June 20YY

For the year ending 30 June 20YY

For the year ending 30 June 20YY

The scheme commenced on:

DD MM 20YY

Relevant facts and circumstances

You were born in Country A in 19YY.

In MM 20YY you moved to Australia.

You are a citizen of Country A and Australia.

In Australia you were employed by your Australian employer until DD MM 20YY.

You then departed Australia and moved to Country B.

You do not intend on returning to Australia to live.

Your reasons for moving overseas were to improve your long-term financial position for you and your family.

Your entry visa into Country B is a temporary residence permit.

You are now employed by X (your Country B employer) under an employment contact which commenced on DD MM 20YY and expires on DD MM 20YY.

Your visa was sponsored by your Country B employer and expires on DD MM 20YY.

You work in construction activities for a major Country B project.

You lease long term apartment accommodation in Country B.

You are a tax resident of Country B, and you lodge and pay tax in Country B.

You operate a bank account in Australia and in Country B.

You hold an Australian driver's licence.

You advised Medicare to have your name removed from their records.

You advised the Australian Electoral Commission to have your name removed from the electoral roll.

Your family home in Australia is currently leased to a relative since MM 20YY. Your spouse has been living elsewhere in Australia with a friend.

You travelled to Australia to see your family for X days from MM-to-MM 20YY, and X days in MM 20YY in order to sell the contents of your Australian home and finalise local matters.

Your spouse will depart Australia for Country B on DD MM 20YY and does not intend to return here to live.

Your child (Person 1) will remain in Australia however they live with your former spouse.

You do not have any other dependants living in Australia.

Your spouse will sell your family car before they depart Australia.

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.

Relevant legislative provisions

Income Tax Assessment Act 1936subsection 6(1)

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Summary

It is considered from DD MM 20YY to DD MM 20YY you maintained a durability of association with Australia and had not yet definitely abandoned, in a permanent way, living in Australia.

However, the Commissioner is satisfied that from DD MM 20YY you and your spouse established a permanent place of abode outside of Australia in Country B, so you ceased to be an Australian resident for tax purposes from that date.

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

Detailed reasoning

Overview of the law

Section995-1 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 Taxation Ruling TR 2023/1 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:

•                     In MM 20YY you moved to Australia.

•                     In Australia you were employed by your Australian employer until DD MM 20YY.

•                     You then departed Australia and moved to Country B.

•                     You moved overseas to improve your long-term financial position.

•                     You do not intend on returning to Australia to live.

•                     Your entry visa into Country B is a temporary residence permit.

•                     Your Country B employer sponsors your work visa which expires on DD MM 20YY.

•                     You lease long term apartment accommodation in Country B.

•                     You are a tax resident of Country B, and you lodge and pay tax in Country B.

•                     You operate a bank account in Australia and in Country B.

•                     You advised Medicare to have your name removed from their records.

•                     You advised the Australian Electoral Commission to have your name removed from the electoral roll.

•                     Your family home in Australia is currently leased to tenants.

•                     Your recent trips to Australia were to visit family so you could sell the contents of your former Australian home and finalise local matters.

•                     Your spouse will depart Australia for Country B on DD MM 20YY and does not intend to return here to live.

•                     You do not have any dependants living in Australia.

•                     Your spouse will sell your family car before departing Australia.

You are not a resident of Australia under the resides test for the periods DD MM 20YY to DD MM 20YY.

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 Country A and your domicile of origin was Country A. You immigrated to Australia in MM 20YY and became an Australian citizen. When you moved to Australia you acquired a domicile of choice because you were lawfully present here since 20YY and held the positive intention to make Australia your home indefinitely by applying for Australian citizenship. Therefore, your domicile of choice became Australia.

When you left Australia on DD MM 20YY, it is considered that you did not yet abandon your domicile of choice (Australia) and acquire a new domicile of choice in Country B in 20YY. You were not entitled to reside in Country B indefinitely and you only held a work permit which is valid until DD MM 20YY.

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 DD MM 20YY to DD MM 20YY, 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:

•                     You are an Australian citizen.

•                     Your spouse was still residing in Australia.

•                     You have a mortgage on your Australian property and continue to contribute to the loan to supplement the rent received from the tenants.

•                     From MM 20YY until MM 20YY, you financially supported your spouse in Australia in terms of general living expenses. Your spouse is not employed and does not receive income from any other sources.

•                     You visited Australia for X days from MM-to-MM 20YY, and X days in MM 20YY in order to sell the contents of your Australian home and finalise local matters.

Consequently, it is considered that the above factors together demonstrate that from DD MM 20YY to DD MM 20YY you maintained a durability of association with Australia and had not yet 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

DD MM 20YY to DD MM 20YY.

You were still a resident of Australia for tax purposes under the domicile test from DD MM 20YY to DD MM 20YY.

However, the Commissioner is satisfied that your permanent place of abode is outside of Australia from DD 20YY when you took further significant steps to fully cut ties to living in Australia in a permanent way when your spouse left Australia to live with you in Country B. The Commissioner be satisfied that your permanent place of abode is outside of Australia from that date.

Therefore, you are not a resident of Australia for tax purposes under the domicile test from DD MM 20YY.

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 30 June 20YY 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.

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.

You advised us that you are a tax resident in Country B, and you lodge and pay tax in Country B.

Taxation Ruling TR 2001/13 Income tax: Interpreting Australia's Double Tax Agreements discusses the Commissioner's views about interpreting double tax agreements. Paragraph 104 of TR 2001/13 provides that the OECD Model Tax Convention and Commentary will often need to be considered in interpreting double tax agreements.

Article X of the Country B 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.

Article X

Resident

1.    For the purpose of this Agreement, the term "resident", in relation to a Contracting State, means a person who is fully liable to tax therein by reason of being a resident of that State under the tax law of that State.

2.    A person is not a resident of a Contracting State for the purposes of this Agreement if the person is liable to tax in that State in respect only of income from sources in that State.

3.    Whereby reason of the preceding provisions of this Article a person, being an individual, is a resident of both Contracting States, then the status of the person shall be determined in accordance with the following rules:

(a)          the person shall be deemed to be a resident solely of the Contracting State in which a permanent home is available to the person;

(b)          if a permanent home is available to the person in both Contracting States, or in neither of them, the person shall be deemed to be a resident solely of the Contracting State with which the person's economic and personal relations are the closer.

4.    Whereby reason of the provisions of paragraph (1) a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident solely of the Contracting State in which its place of effective management or head office is situated. However, where such a person has its place of effective management in a Contracting State and its head office in the other Contracting State, the person shall be deemed to be a resident solely of that other State.

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 considered, 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 Country B based on the following considerations:

•                     You have a X-month lease on apartment accommodation in Country B. Your lease commenced on DD MM 20YY.

•                     Your family home in Australia is currently leased to tenants since MM 20YY. Your spouse has been living elsewhere in Australia with a friend.

Habitual abode

The OECD commentary provides that determining a taxpayer's habitual abode 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 (Davies, White and Steward JJ 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 a habitual abode in two states where the individual was customarily or usually present in each State during the relevant period.

We have concluded that your habitual place of abode was Country B based on the following considerations:

•                     You ceased living and working in Australia in MM 20YY and moved to Country B.

•                     You do not intend on returning to Australia to live.

•                     Since MM 20YY your family home in Australia is currently leased to tenants. Your spouse has been living elsewhere in Australia with a friend.

•                     Your recent trips to Australia were to visit family so you could sell the contents of your former Australian home and finalise local matters.

•                     You have a X-month lease on apartment accommodation in Country B. Your lease commenced on DD MM 20YY.

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 were closer to a country, based on the following considerations:

•                     You ceased living and working in Australia in MM 20YY and moved to Country B.

•                     You moved overseas to improve your long-term financial position.

•                     You do not intend on returning to Australia to live.

•                     You operate a bank account in Australia and in Country B.

•                     Your recent trips to Australia were to visit family so you could sell the contents of your former Australian home and finalise local matters.

•                     On DD MM 20YY your spouse departed Australia for Country B and does not intend on returning here to live.

•                     You do not have any dependants living in Australia. Your child will remain in Australia to complete their schooling however they live with your former spouse.

We have concluded that the provisions of the Country B Agreement will therefore apply on the basis that you are a resident of Country B for tax purposes and not of Australia.

Conclusion

You did not cease to be a resident of Australia for tax purposes from DD MM 20YY due to your domicile of choice being Australia. The Commissioner is not satisfied that your permanent place of abode was outside Australia before DD MM 20YY. You were still deemed to be a resident of Australia for tax purposes.

However, the Commissioner is satisfied that from DD MM 20YY you and your spouse established a permanent place of abode outside of Australia in Country B, so you ceased to be an Australian resident for tax purposes from that date.

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

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