Edited version of private advice

Authorisation Number: 1052220174263

Date of advice: 20 March 2024

Ruling

Subject: Residency

Question 1

Were you a resident of Australia for tax purposes as defined in subsection 6(1) of the Income Tax Assessment Act 1936 from the date of your arrival on XX/MM/YYCC?

Answer

Yes.

Question 2

Were you a temporary resident of Australia for tax purposes as defined in section 995-1 of the ITAA 1997 from that date of your arrival on XX/MM/YYCC until you were granted a permanent resident visa on XX/MM/YYCC?

Answer

Yes.

Question 3

When rolling over your foreign superannuation fund to your QROPS Superannuation fund in Australia, under sub-paragraph 305-75(3)(a)(1) of the Income Tax Assessment Act 1997, do you calculate the applicable fund earnings from the date you first became an Australian resident for taxation purposes?

Answer

Yes.

This private ruling applies for the following periods:

Financial year ending 30 June 20YY

Financial year ending 30 June 20YY

Financial year ending 30 June 20YY

Financial year ending 30 June 20YY

Financial year ending 30 June 20YY

Financial year ending 30 June 20YY

Financial year ending 30 June 20YY

Financial year ending 30 June 20YY

The scheme commenced on:

XX/MM/CCYY

Relevant facts and circumstances

You and your two children were born in Country A and are Country A citizens.

You both arrived in Australia on XX/MM/YYCC with your children on a Tourist Visa which applied until XX/MM/CCYY.

Your intention on arrival was to reside in Australia permanently and start a business.

You sold everything in Country A and shipped two pallets of personal belongings to Australia.

Upon arrival in Australia, you stayed in temporary accommodation for a few weeks and then began to rent dwellings in Australia.

You were issued a Temporary Work (Skilled) visa on XX/MM/CCYY.

You purchased a family home in Australia in MM/YYCC.

You return to Country A each year for up to 60 days to visit family and friends and review your Country A assets. You stay with family and friends during the visits.

Person 1 is a director of Company in Country A. They receive income from this business and properties in Country A. They work remotely from Australia.

You complete Country A tax returns each year.

You have completed Australian tax returns as a resident since 20YY.

You also have an Australian business.

You joined an Australian club in 20YY and remained members.

You have Country A and Australian driver's licences as well as Australian bank accounts.

You were issued a permanent visa (subclass 187) on XX/MM/CCYY.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 305-70

Income Tax Assessment Act 1997 section 305-75

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Question 1

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 2023/1 Income tax: residency tests for individuals (TR 2023/1).

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 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 resides test is about 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. The ordinary meaning of reside does not require an individual to have a principle or usual place of residence in Australia.

We note that paragraph 98 of TR 2023/1 explains that the residency tests set out in subsection 6(1) of the ITAA 1936 apply in the same way to temporary workers and working holiday makers. That is, residency turns on each individual's circumstances.

In respect to someone arriving in Australia, TR 2023/1 explains that a resident will usually have an intention to treat Australia, or a place within Australia, as a home at least for the time being, though not necessarily forever.

Thus, a settled purpose, such as pre-arranged long-term employment or a course of education, may support an intention to reside in Australia, particularly when coupled with other connections to Australia that are consistent with residing here.

Your behaviour relevantly includes the way you live as part of the regular order of your life. If the way you live reflects a degree of continuity, routine or habit, coupled with other factors such as intention, it may be consistent with residing in Australia. For example, if you enter Australia and take up long-term accommodation, employment, enrol children in school and take part in regular extracurricular activities, this would demonstrate behaviour consistent with residing here, particularly when coupled with other factors such as an intention to make your home here.

Paragraph 45 of TR 2023/1 specifically mentions that 'when behaviour consistent with residing in Australia is demonstrated over a considerable time, you are regarded as a resident from the time the behaviour commences'.

Application to your situation

You are a resident of Australia under the resides test from XX/MM/CCYY based on the following:

•  Physical presence - you have been physically present in Australia for most of each income year XX/MM/CCYY.

•  Intention or purpose - your intended purpose on arrival was to reside in Australia permanently and start a business. Your intention to live in Australia permanently is evidenced by you selling your family home in Country A and selling or disposing of some possessions. Your remaining possessions were shipped to Australia.

•  Behaviour - you purchased a family home in Australia, set up a business and were hoping to stay permanently.

In your case, it is considered that the way you lived in Australia from the time you arrived reflected a degree of continuity, routine or habit which, coupled with your intention, demonstrates that you were a resident under the resides test from the date you arrived here.

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.

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.

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 on XX/MM/YYCC with the intention of living in Australia permanently

•  You were not entitled to reside in Australia indefinitely until you obtained a permanent residency visa some years later.

Consequently, up until the end date of this private ruling it is considered that you had not yet abandoned your domicile of origin and acquired a domicile of choice in Australia.

Therefore, your domicile is Country A and you are not a resident of Australia under the domicile test for the period of the private ruling.

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 in Australia for 183 days or more during the income year ended 30 June 20YY (and subsequent years). Therefore, you will be a resident under this test unless the Commissioner is satisfied that your usual place of abode was outside Australia and you do not have an intention to take up residence in Australia.

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 situation

The Commissioner is not satisfied that your usual place of abode was outside Australia for the relevant income years based on the following:

•  You sold your family home in Country A and sold or disposed of some possessions. Your remaining possessions were shipped to Australia.

•  You purchased a family home in Australia and set up a business.

•  Your intention was to stay in Australia permanently from when you arrived here on XX/MM/CCYY.

Intention to take up residency

To determine whether you intend to take up residence in Australia, we look at evidence of relevant objective facts. 'Intend to take up residency' does not merely mean intend to stay for a long time. It means intending to live here in such a manner that you would reside here.

Application to your situation

The Commissioner is satisfied that you did intend to take up residence in Australia for the relevant income years because:

•  You sold your family home in Country A and sold or disposed of some possessions. Your remaining possessions were shipped to Australia.

•  You purchased a family home in Australia and set up a business.

•  Your intention was to stay in Australia permanently from when you arrived here on XX/MM/CCYY.

You are a resident under this test from the date of your arrival in Australia.

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 and 183-day tests of residency and so are a resident of Australia for income tax purposes from your arrival on XX/MM/CCYY.

Question 2

Subdivision 768-R of the ITAA 1997 provides that where you are a resident of Australia for taxation purposes and also meet the requirements to be a temporary resident of Australia you will be subject to the following temporary resident rules:

•        Any income you earn from an overseas source will not be taxed in Australia except income earned from employment performed overseas for short periods while you are a temporary resident.

•        Any capital gain you make from a capital gains tax event that relates to an asset that is not taxable Australian property will not be taxed in Australia.

•        Special rules apply to capital gains on shares and rights acquired under employee share schemes.

Section 995-1 of the ITAA 1997 states that you are a temporary resident if:

•        you hold a temporary visa granted under the Migration Act 1958;

•        you are not an Australian resident within the meaning of the Social Security Act 1991; and

•        your spouse is not an Australian resident within the meaning of the Social Security Act 1991.

Under the Social Security Act 1991, an Australian resident is generally a person who resides in Australia and is either an Australian citizen or the holder of a permanent resident visa.

In your case, from the date of your arrival in Australia, you were not an Australian resident within the meaning of the Social Security Act 1991 as you were not an Australian citizen, the holder of a permanent visa or a protected special category visa holder.

As such, you were a temporary resident as defined in section 995-1 of the ITAA 1997 from the date of your arrival on XX/MM/CCYY until you were granted a permanent resident visa on XX/MM/CCYY. Your temporary resident status and the temporary resident rules ceased to apply to you at that time.

Question 3

When a person receives a lump sum from a foreign superannuation fund more than six months after they became an Australian resident, the growth they earned on their foreign superannuation during the period when they were a resident of Australia is included in their assessable income as 'applicable fund earnings' under section 305-70 of the ITAA 1997.

The applicable fund earnings amount is worked out under either subsection 305-75(2) or (3) of the ITAA 1997. Subsection 305-75(2) of the ITAA 1997 applies where the person was an Australian resident at all times during the period to which the lump sum relates. Subsection 305-75(3) of the ITAA 1997 applies where the person was not an Australian resident at all times during the period to which the lump sum relates.

In this case, the fund is a foreign superannuation fund. You became an Australian resident after the start of the period to which the lump sum relates. You remained an Australian resident at all times until the lump sum was paid. Therefore, the applicable fund earnings are calculated in accordance with subsection 305-75(3) of the ITAA 1997.

Subsection 305-75(3) of the ITAA 1997 states, if you become an Australian resident after the start of the period to which the lump sum relates, the amount of your applicable fund earnings is the amount (not less than zero) worked out as follows:

a) work out the total of the following amounts:

I. the amount in the fund that was vested in you just before the day (the start day) you first became an Australian resident during the period;

II. the part of the payment that is attributable to contributions to the fund made by or in respect of you during the remainder of the period;

III. the part of the payment (if any) that is attributable to amounts transferred into the fund from any other foreign superannuation fund during the period;

b) subtract that total amount from the amount in the fund that was vested in you when the lump sum was paid (before any deduction for foreign tax);

c) multiply the resulting amount by the proportion of the total days during the period when you were an Australian resident;

d) add the total of all previously exempt fund earnings (if any) covered by subsections (5) and (6).

Section b) in the above calculation for applicable fund earnings explains before any deduction for foreign tax, therefore, the tax is included in the calculation.

As such, given that you first became an Australian resident on DD MM YYCC, this date is applicable to subparagraph 305-75(3)(a)(i) of the ITAA 1997, and is therefore the date used to calculate the applicable fund earnings. The fact that you were also a temporary resident at this time up until DD MM YYCC does not alter this.

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