Edited version of private advice

Authorisation Number: 1052159488561

Date of advice: 19 September 2023

Ruling

Subject: Residency

Question 1

Were you a resident of Australia for taxation purposes on the date that you signed the contract to sell your home in Australia?

Answer

Yes.

Question 2

Are you a resident of Australia for taxation purposes from the relevant date?

Answer

No.

Question 3

Are you entitled to a partial main residence exemption on your Australian property?

Answer

Yes.

This ruling applies for the following period:

Year ended XX/XX/20XX

The scheme commenced on:

XX/XX/20XX

Relevant facts and circumstances

You were born in Country A.

You migrated to Australia in 19XX and became a citizen of Australia at that time.

In 19XX you purchased the Australian property.

You rented the Australian property out from 19XX to 20XX.

In 20XX you moved into the Australian property and treated it as your main residence up until it was sold on XX/XX/20XX.

From 20XX you travelled between Australia and Country B spending about XX of your time in each country.

The following are the number of days you were in Australia:

•         20XX XX days in Australia

•         20XX XX days in Australia

•         20XX XX days in Australia

•         20XX XX days in Australia

•         20XX XX days in Australia

•         20XX XX days in Australia

You left your Australian property vacant while you were in Country B.

You have children in Country B.

You purchased in home in Country B in 20XX (the Country B property).

You became a permanent resident of Country B in XX/20XX.

The Country B property is vacant on your visits to Australia.

You went to Country B in XX/20XX. At the time, the pandemic was still ongoing and you were not able to return to Australia with as much flexibility as you did in the past.

You decided to sell the Australian property in 20XX. You signed a contract of sale on XX/XX/20XX with settlement occurring on XX/XX/20XX. It was your intention at the time of entering the contract to purchase another property in Australia.

In XX/20XX, you made the decision to move to Country B permanently and not purchase another property in Australia. You arranged for the majority of your savings to be moved from your Australian bank account to your Country B bank account. You moved the majority of your personal affects to Country B. The only personal affects you have remaining in Australia are some clothing which you store at your sibling's house.

You have not arranged for your name to be removed from the Australian electoral roll.

Since you sold the Australian property, you list your Country B property as your residential address on incoming and outgoing passenger cards when you travel internationally.

You have no social or sporting connections in either Australia or Country B.

You maintain private health insurance in Australia.

You have maintained a bank account with cash in it in Australia. You have no other assets in Australia.

You will stay with your sibling or in a hotel in Sydney when you return to Australia for short visits.

You do not have a spouse.

You are not eligible to contribute to the PSS or the CSS super fund.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1936 section 995-1

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 Taxation Ruling TR 2023/1Income 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 immigrated to Australia from Country A in 19XX.

•         You are an Australian citizen and remain registered on the electoral roll.

•         You purchased the Australian property in 19XX and rented it out until 20XX. At this time, you moved into the Australian property and treated it as your main residence from 20XX until it was sold on XX/XX/20XX.

•         You have been travelling between Australia and Country B since 20XX.

•         You have two children who live in Country B.

•         You purchased the property in Country B in 20XX and have used this as your private home since this time. It has never been rented out.

•         When in Country B, you stay in Country B property.

•         You went to Country B in XX/20XX and it was during this trip that you decided to sell your property in Australia.

•         You sold the Australian property in XX/20XX and considered purchasing another property in Australia, however you changed your mind.

•         In XX/20XX, you moved to Country B permanently. You made the decision to migrate to Country B permanently due to the COVID-19 pandemic.

•         You now stay with your sibling or in a hotel on your returns to Australia.

•         You have $XX cash in a bank account in Australia and no other assets.

•         The only personal affects you have left in Australia are some clothing which you keep at your sibling's house.

•         You spent the following amounts of time in Australia:

You broke your continuity of association with Australia in XX/20XX when you formed the intention to leave Australia, and subsequently transferred the majority of your savings to Country B. Although residency is not shed merely by asserting an intention to never live in Australia again, on balance, your circumstances demonstrate that from XX/20XX, you abandoned your ties to Australia. Accordingly, you are a resident for tax purposes up until XX/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

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.

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 A and your domicile of origin is Country A. You immigrated to Australia in 19XX and became an Australian citizen at that time.

It is considered that you abandoned your domicile of origin in 19XX and acquired a domicile of choice in Australia that same year.

If you have an Australian domicile and are living outside of Australia, you will retain your Australian domicile if you intend to return to Australia on a clearly foreseen and reasonably anticipated contingency. Your intention is to travel to Australia to spend time with your sibling. You have been a permanent resident of Country B since XX/20XX.

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.

You were living in Australia prior to deciding to permanently relocate to Country B.

You would go to Country B for visits but would always return to your home in Australia.

In XX/20XX you decided to move to Country B on a permanent basis and return to Australia only for short visits.

The Commissioner is satisfied that you did not have a permanent place of abode outside Australia up until XX/20XX.

The commissioner is satisfied that from XX/20XX you have a permanent place of abode in Country B as you are now living at your Country B property.

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.

You were in Australia for more than 183 days up until you went to Country B in XX/20XX.

For the 20XX year you were in Australia for XX days and in the 20XX income year you were not in Australia at all.

Up until XX/20XX you intended on remaining a resident of Australia and your usual place of abode was in Australia.

In XX/20XX you made the decision to permanently relocate to Country B and your usual place of abode then became your Country B property.

You are a resident of Australia under this test up until XX/20XX when you left Australia and you are no longer a resident under this test from when you made the decision to live in Country B on a permanent basis.

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 are a resident of Australia for taxation purposes up until XX/20XX.

You are no longer a resident of Australia for taxation purposes from when you decided to live in Country B on a permanent basis.

You are entitled to a partial main residence exemption on your Australian property under section 118-200 of the ITAA 1997 as your Australian property was your main residence for part of your ownership period from 20XX until it was sold on XX/XX/20XX.

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