Edited version of private advice

Authorisation number: 1052240379728

Date of advice: 13 May 2024

Ruling

Subject: Australian residency for tax purposes

Question

Are you a resident of Australia for tax purposes as defined by subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

This private ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were born in Australia and have always been an Australian citizen.

In 19XX, you moved to country A and became a citizen of country A around 19XX or 19XX after you married a country A citizen.

On XX June 20XX, you returned to Australia with one of your dependent children and you intended to permanently reside in Australia from that point in time.

You remained in Australia for the 20XX and 20XX income years. During this period:

•         You lodged tax returns in Australia as an Australian resident.

•         You lodged tax returns in the country A as a country A non-resident.

From May 20XX, you have been travelling back to the country A for extended periods to manage the operations of your company which you are a major shareholder and director. During this period:

•         You lodged tax returns in Australia as an Australian resident.

•         You lodged tax returns in country A as a Country A resident.

You lodged your 20XX country A tax return (noting the country A has a year end of April) on the basis that the Double Tax Agreement (DTA) allocated primary residency to Australia because:

•         You had a permanent home available to you in both countries.

•         Your personal and economic relations were closer to the country A than to Australia because:

o   you were a director and shareholder of a country A company; and

o   had children in both country A and Australia

You prepared your 20XX Australian income tax return on the basis that under the DTA you were deemed to be primarily taxed in Australia and hence were taxed on country A sourced dividends received from company and your country A pension.

Your days spent in Australia for each income year are detailed below:

•         20XX - 330 days

•         20XX - 186 days

•         20XX - 212 days

•         20XX - 186 days (intended period of stay)

In 20XX and the years following, from MM to MM (6 months) and from mid-MM to mid-MM (4 weeks) you intend to return to country A to work for your company. Based on county A end of year being MM, you are likely to satisfy the country A 183-day residency test.

Family

•         You are divorced and have no spouse.

•         You have 3 adult children, 2 live in Australia and 1 lives in country A.

•         In 20XX, your child A, relocated to Australia with you, resided with you, and was financially dependent on you until they relocated to another state in January 20XX.

•         You maintained your children's bedrooms and spare room at your City unit for their use as needed and when they visit on holidays.

•         Your child B is due to finish a degree in country A in June 20XX.

•         Since October 20XX, your child B has resided in university accommodation in the country A.

•         You are currently providing financial support while they finish their degree.

•         On completion of their degree, they will do a work placement in Australia for a short time (less than 6 months) before returning to country A to work. They will lease a 2-bedroom unit in country A. From December 20XX, you intend to stay at your child B's apartment while you are in country A. You will contribute to a share of the costs in connection with your stay. Since January 20XX, you have had no children residing permanently with you in Australia.

Assets

•         You have an Australian bank account with a monthly balance of approximately $XX,XXX to cover your living expenses.

•         All your personal possessions are in Australia at the unit you rent and live at in Australia.

•         You own a car in Australia, which was purchased in September 20XX.

•         You also owned a car in the country A which you sold in September 20XX.

Accommodation in Australia

•         Upon returning Australia in June 20XX, you and child A resided in your ex-spouse's home. You subsequently leased the Australian unit, a 3 bedroom plus study unit which you continue to reside in. The lease is for 12 months at a time and is solely in your name.

•         You work from the study of your unit in Australia to undertake your duties as Managing Director of your company whilst you are physically in Australia.

•         You work 6 days a week at a time to align with the country A workday.

Other connections to Australia

•         You are not part of any social club or memberships in Australia.

•         You have a Medicare card.

•         You have been registered to vote in Australian elections since June 20XX

•         You note on your customs entry card back into Australia that you are a resident returning to Australia.

•         You have a car and drivers' licence (copy provided) in Australia.

•         All your belongings are held in your Australian unit, and you only take what is needed for your business trips to the country A and bring them back with you to Australia.

•         You have maintained your private health Insurance cover for yourself and child A who is able to remain on your policy (due to new regulations).

•         Your personal mail is sent to your Australian unit.

•         Your business mail is sent to your company address in the country A.

Connections to the country A

•         Your child B, is currently living in the country A and is finishing university in the country A

•         You have no other direct family in the country A.

Assets

•         You have a bank account in country A with a monthly balance of approximately XX to XX for living expenses.

•         Your monthly drawings/dividends from your company are deposited into your country A bank account and then transferred to your Australian bank account as needed.

•         You have no personal possessions in the country A:

o   When you travel to the country A you take all the personal affects you need with you and return them back to Australia on your return.

o   Any country A mail you have is sent to the business premises of your company.

•         You act as the Managing Director of your company and actively work in the company when in the country A and Australia.

•         You are one of 3 directors, the other 2 being your ex-spouse (who now resides in Australia and is retired) and another person who resides in the country A.

•         Part of your return to country A is to attend to your duties as a director by holding board meetings etc. In this respect the company year end is XX which is why you remain in the company A until XX each year to attend to year end matters and annual audits.

•         You are also one of the major owners of the company, and this investment represents your main asset.

•         An accountant's valuation of your company was done in June 20XX for divorce purposes which valued your company at approximately XX.

•         You do not derive a salary from your company but receive dividends.

•         For the company A year ended XX 20XX, the dividends received were XXXXX.

•         The dividends are roughly the same amount year to year.

•         You intend to work for another 10 years.

•         You do not own any shares or other investments in country A.

•         You received pensions in country A which commenced in 20XX but most of the balances were withdrawn before you relocated to Australia.

•         For country A year ended April 20XX, the pensions totalled X,XXX.

•         This is a consistent amount on a year-to-year basis.

•         You and your ex-spouse each own 50% of the ordinary shares in your company.

•         All shares are voting, dividend entitled, and capital entitled.

Accommodation in the country A

•         You do not currently have a property available to you in the country A.

•         Your family residence in country A was sold in 20XX following your matrimonial separation.

•         You subsequently leased accommodation up to October 20XX.

•         You were the sole lessee on the contract.

•         During this period your child B, resided with you in the unit.

•         For your return trip to the country A in February 20XX you stayed in short term rental accommodation.

•         For your return trip to country A in May 20XX you intend to lease a unit in country A for 6 months.

•         You will also lease a car for 6 months for your work requirements.

•         From December 20XX onwards, your child B, will be leasing a 2-bedroom unit in country A. When you visit country A, your pattern of living is as follows:

o   On Monday morning you drive from an address in town A to the business premises of your company in town B where you work for 4 days at the office from approx. 7am to 6pm. The travel time to the business premises is approximately 4 to 5 hours per trip.

o   During this time, you stay for 3 nights in the hotel accommodation which is paid for by your company. This is temporary hotel accommodation, and the room you stay in changes each week.

o   On Thursday evening you drive back to the residential accommodation in town A. You work Friday from the premises in town A

•         For the period of MM 20XX to MM 20XX, you will reside in rented accommodation leased by you for 6 months (MM to MM 20XX).

•         For the period from mid-MM 20XX onwards you will stay in the spare bedroom at your child B's unit. You are not on the lease of your child B's unit.

•         There are no residential premises that are owned or leased by your company where you can stay.

•         On your retirement from working (expected in 10 years) you have indicated that you intend to retire in Australia.

Other connections to country A

•         You are not part of any social clubs or memberships in country A.

Country A tax residency

•         For country A tax purposes, you have self-assessed your tax residency status has been as follows:

o   Up to 20XX country A tax resident

o   20XX country A non-resident

o   20XX country A non-resident

o   20XX country A tax resident but dual resident with Australia

•         Your dividend income from your company is taxed differently depending on whether the Applicant is a resident or not of the country A. That is:

o   If country A non-resident - no dividend WHT

o   If country A tax resident (but dual resident with Australia primacy) - XX% WHT

o   If country A tax resident (but dual resident with country A primacy) taxed in country A as an individual

•         In your country A tax return for 20XX, you self-assessed as a dual resident of the country A and Australia, with an indication that Australia has the primary taxing rights despite the indication that your centre of vital interests was closer to country A. This was undertaken before a detailed assessment of your connections to Australia and country A were undertaken.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 995-1

Domicile Act 1982

International Tax Agreements Act 1953

Article X of the Country A Agreement

Reasons for decision

Are you a resident of Australia for tax purposes as defined by subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Summary

You satisfy the resides, domicile and 183 days tests of residency and so are a resident of Australia for income tax purposes for the years ended 30 June 20XX, 20XX, and 20XX.

Detailed reasoning

Overview of the law

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the 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... 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 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 Australia. The ordinary meaning of reside does not require an individual to have a principle or usual place of residence in Australia.

Application to your situation

You are a resident of Australia under the resides test for the 20XX, 20XX and 20XX income years based on the following:

•         Physical presence

o   You have been physically present in Australia since June 20XX.

o   You were physically present in Australia for 330, 186, 212 days in the 20XX, 20XX and 20XX income years respectively and intend to be in Australia for 186 days in the 20XX income year.

o   In 20XX and the years following, from MM to MM (6 months) and from mid-MM to mid-MM (4 weeks) you intend to return to country A to work for your company based on the country A end of year being XX, you are likely to satisfy the country A 183 day residency test.

•         Intention or purpose

o   Your stated purpose to live in Australia is evidenced by your long-term (12 month) lease on your Australian unit.

o   You note on your customs return entry card that you are a resident returning to Australia.

o   You intend to retire in Australia in 10 years.

•         Behaviour while in Australia

o   You work from the study of your Australian unit to undertake your duties as Managing Director of your company. You work 6 days a week at a time to align with the country A workday.

•         Family ties - you have 3 adult children, 2 live in Australia and 1 lives in country A. Some of your children stay with you at your Australian unit when visiting on holidays.

•         Maintenance and location of assets

o   You have an Australian bank account.

o   All your personal possessions are in Australia at your unit.

o   You own a car in Australia, which was purchased in September 20XX.

•         Social and living arrangements.

o   You are not part of any social clubs or memberships in Australia or country A

o   Your residential and postal address is your Australian unit which you rent under a 12-month lease that you renew each year. You have renewed your lease up to March 20XX.

o   You stay in short-term accommodation while in the country A

o   You have remained on the Australian electoral roll since June 20XX and remain on the electoral roll to date.

o   You maintained your private health insurance cover and it also includes your child A who is a student residing in Australia.

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 Australia and your domicile of origin is Australia. You have always been an Australian citizen.

It is considered that you did not abandon your domicile of origin in Australia and acquire a domicile of choice in the country A. You were entitled to reside in the country A, due to marrying a country A citizen, indefinitely and while living in country A you had work rights due to your dual citizenship. However, since 20XX you have been living permanently in Australia.

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:

•         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.

•         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

The Commissioner is not satisfied that your permanent place of abode is outside Australia because:

•         You have established a permanent home in Australia.

•         Your time spent in country A is less than 6 months each occasion and you stay in temporary accommodation.

•         You return to your Australian unit after your temporary visits to country A

•         You have 3 adult children, 2 live in Australia and one lives in country A.

•         You have remained on the electoral roll to vote in Australia.

•         You have an Australian bank account.

•         You have an Australian driver licence.

•         You have private health insurance that you have maintained since 20XX.

Therefore, you are a resident of Australia under the domicile test.

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 have been in Australia for 183 days or more in the 20XX and 20XX income years and you intend to be in Australia for more than 183 days in the 20XX income year. 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 20XX to 20XX based in the following:

•         You renew a 12-month lease each year on your Australia unit where you spend the majority of the year.

•         You only travel to country A for business trips.

•         All your personal belongings are kept in Australia.

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 your Australian unit is your permanent home and you do not intend to take up residence in country A.

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, domicile and 183 days tests of residency and so are a resident of Australia for income tax purposes for the years ended 30 June 20XX, 20XX, and 20XX.

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 country B 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.

In your case, for country A tax purposes you have self-assessed your tax residency status has been as follows:

•         Up to 30 April 20XX country A tax resident

•         30 April 20XX country A non-resident

•         30 April 20XX country A non-resident

•         30 April 20XX country A tax resident but dual resident with Australia

In your country A tax return for 20XX, you self-assessed as a dual resident of country A and Australia, with an indication that Australia has the primary taxing rights despite the indication that your centre of vital interests was closer to country A. This was undertaken before a detailed assessment of your connections to country A and Australia was conducted.

Taxation Ruling TR 2001/13 discusses the Commissioner's views about interpreting double tax agreements. Paragraph 104 provides that the OECD Model Tax Convention and Commentary will often need to be considered in interpreting double tax agreements.[1]

Article X of the country A 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.

The tiebreaker tests apply as follows:

Subsection 3(a) of Article 4 provides you shall be deemed to be a resident only of the Contracting State in which a permanent home is available to you; but if a permanent home is available in both States, or in neither of them, you shall be deemed to be a resident only of the State with which your personal and economic relations are closer (centre of vital interests).

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':

•         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.

•         Any form of home may be taken into account, including a house or apartment belonging to or rented by the individual and a rented furnished room.

We have concluded that you have a permanent home in Australia and not in country A based on the following considerations:

•         You have a long-term (12-month) lease on your Australian unit that you have renewed until March 20XX and intend to renew.

•         You stay in short-term accommodation when you travel to country A for business.

Therefore, the tiebreaker test is resolved, and we do not need to consider your centre of vital interests.

Conclusion

We have concluded that the tiebreaker tests in Article 4 of the country A Agreement apply so that you are deemed to be a resident only of Australia for treaty purposes. The provisions of the country A Agreement will therefore apply on the basis that you are a resident of Australia for tax purpose and not of country A.

[1] See also ATO ID 2003/1195

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