Edited version of private advice

Authorisation Number: 1052255355238

Date of advice: 17 June 2024

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for tax purposes?

Answer

Yes.

Question 2

Will your working holiday maker income be taxed on the same basis as a resident Australian national?

Answer

Yes.

This private ruling applies for the following period:

Income year ending XX XXXX 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

Basic facts

Your country of origin is a foreign country.

You are a citizen of the foreign country.

In XXXX of 20XX, you came to Australia on a visa A.

During the following months, you were taxed as an Australian resident at one job and received the tax-free threshold.

At the end of the year lodging your tax return you decided to remain in Australia for various reasons including meeting your partner.

To apply for a visa B, you were required to leave Australia, so you visited your family in the foreign country.

The address you lived at prior to leaving Australia to see your family was a rented property.

Upon returning in XXXX 20XX, you returned to your employment from the previous year. At this time, you moved into an apartment with your partner of X months for a one-year renewable lease. You have provided a copy of the lease agreement in you and your partner's name.

Your visa B allows you to stay in Australia until XXXX 20XX, extendable for X years.

Since your arrival in Australia you have not applied for citizenship or permanent residency. You intend to use the visa B extensions available to you whilst building a basis for a visa C and permanent residency.

You intend to reside in Australia permanently. You will make occasional visits to family in the foreign country on social basis only.

When entering and leaving Australia you state your address is in Australia.

You do not lodge any foreign income tax returns while living in Australia.

You have been in Australia for X out the X days since you first arrived.

Family and social connections

You have family in the foreign country. You will visit them occasionally for short periods.

You do not have any dependents.

You have social connections to friends in Australia, professional connections to your employment and personal connection to your partner.

You met your partner on X XXXX 20XX.

You do not maintain any professional, social or sporting connections in the foreign country.

You do not have a driver's licence in any country.

Assets

Your asset in the foreign country is a current bank account with no balance held.

Your assets in Australia are a current account and savings account. You have furniture and personal belongings located in your rented accommodation.

You owned no furniture or household items of significance in the foreign country, since the rented house you lived in was rented pre-furnished. A few personal possessions of sentimental value are stored in your family's garage, but most things that are important to you came over to Australia when you moved. The furniture that was in your family's house has mostly been sold and the room converted for another purpose.

You do not have a home in the foreign country.

The address where you lived prior to coming to Australia for the first time was in the foreign country. This was a shared house with X names on the lease including yours.

Your mailing address is in Australia.

Income and employment

You do not receive any income from sources outside of Australia.

While you have been living in Australia, you do not have an employment position or job being held for you in any overseas country.

Neither you nor your spouse is a Commonwealth of Australia Government employee for superannuation (super) purposes.

You worked at one job for X months. You returned to this job in XXXX 20XX after your visit to the foreign country.

On X XXXX 20XX, you accepted a permanent full-time salaried position in accordance with the visa limitation changes which allowed you to accept the position.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Rates Act 1986 Subsection 3A(1)

Income Tax Rates Act 1986 Part I of Schedule 7

Income Tax Rates Act 1986 Part III of Schedule 7

Reasons for decision

Issue

Residency

Question 1

Are you a resident of Australia for taxation purposes?

Summary

You are a resident of Australia for taxation purposes.

Detailed reasoning

Resident of Australia for taxation purposes

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 (ordinary concepts) test,

•         the domicile test,

•         the 183 day test, and

•         the superannuation test.

The primary test for deciding the residency status of an individual is whether they reside 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.

We have considered the above tests in relation to your situation as follows:

The resides (ordinary concepts) test

Under the ordinary concepts test, you are a resident if you reside in Australia. The term 'reside' is not defined in the Australian income tax law and has its ordinary meaning. The ordinary meaning 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'.

The ordinary concepts test is asking whether your presence in Australia is usual and settled in contrast to temporary and casual. This is informed by both the nature, duration and quality of the person's physical presence and an intention to treat Australia as home. Factors that commonly inform the relevant association with Australia are:

•         period of physical presence in Australia

•         intention or purpose of presence

•         behaviour while in Australia

•         family, and business or employment ties

•         maintenance and location of assets, and

•         social and living arrangements.

These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in Taxation Ruling TR 2023/1 Income tax: residency tests for individuals.

It is important to note that not 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. Any connection with another country does not diminish a connection to Australia; that is, the test is not about dominance or exclusivity.

Application to your situation

We have taken the following into consideration when determining whether you met the resides test:

•         Physical presence. You have been physically present in Australia since the date of your arrival in XXXX 20XX, except for X weeks before you could apply for a visa B.

•         Intention or purpose. Your stated intention to live in Australia long-term is evidenced by you establishing your home and life in Australia with your partner of X months, and actively obtaining or extending visas to enable you to stay in Australia.

•         Behaviour. Your behaviour since being in Australia shows that you have settled in Australia and reflects a degree of continuity, routine or habit that is consistent with residing in Australia. Your behaviour supports your stated intention to reside in Australia.

•         Family and business/employment ties. You worked at one job for X months. In XXXX 20XX, you accepted a new full-time job. You have no job being held for you in the foreign country. You live with your partner of X months.

•         Maintenance and location of assets. Your assets in Australia are a current account and savings account. You have furniture and personal belongings. You have entered into a long-term rental lease. You have no significant assets in the foreign country.

•         Social and living arrangements. You have social connections to friends in Australia, professional connections to your employment and personal connection to your partner of X months. You do not maintain any professional, social or sporting connections in the foreign country.

You do not have any strong ties remaining in the foreign country and you have established your life in Australia since your arrival until the present time. Since that time you have displayed behaviour consistent with someone residing in Australia.

Therefore, from the date you arrived in Australia in XXXX 20XX you are viewed as being a resident of Australia for taxation purposes.

Although the law only requires you to be considered a resident under one test, for completeness the other tests are 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.

In Australia, the concept of domicile is governed by common law as modified by the Domicile Act 1982.

Domicile considers whether there is a legal relationship between a person and Australia. There are 3 types of 'domicile:

•         A 'domicile of origin', which is attributed to each individual at birth.

•         A 'domicile of dependence', which is relevant where a person (such as a minor) lacks capacity to acquire their own domicile and their domicile is determined by reference to someone else's domicile (such as a parent).

•         A 'domicile of choice', which is the domicile a person, with the capacity to do so, acquires voluntarily.

You always have a domicile and you can only have one domicile at any point in time. Your particular domicile continues until you acquire a different one, either by choice or operation of the law. You cannot abandon a domicile of origin without replacement.

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

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

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

Application to your situation

In your case, your domicile of origin is the foreign country, and you are also a citizen of the foreign country. At this time, you do not have a permanent right to reside in Australia as you are neither a citizen of Australia nor the holder of a permanent resident visa during the ruling period. Consequently, there is insufficient evidence to demonstrate that you have acquired a domicile of choice in Australia.

Therefore, your domicile is still the foreign country and you are not 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 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 during the ruling period, so you are a resident under the 183-day 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.

Your usual place of abode is the place you usually live. Based on the facts as set out in the ruling, it is clear your usual place of abode has become Australia where, since XXXX 20XX, you and your partner have rented an apartment on a one-year renewable lease. Your settled lifestyle in Australia, coupled with your time away from the foreign country prior to coming to Australia demonstrates you do not have a usual place of abode overseas.

Furthermore, it is noted that your intention is to take up residence in Australia.

Therefore, you are viewed as being a resident of Australia under this test for the ruling period. This is because you have been here for more than 183 days in the respective income year and the Commissioner has not reached the relevant state of satisfaction that your usual place of abode is overseas.

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.

This test will not apply if the individual is a member of the Public Sector Superannuation Accumulation Plan (PSSAP) and the test will only apply to members of the PSS and CSS which are now closed to new members.

Application to your situation

You are not a contributing member of 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

As outlined above, for the ruling period the Commissioner accepts that you are a resident of Australia for taxation purposes under the resides test and the 183-day test. Under the resides test, the Commissioner regards you as residing in Australia according to ordinary concepts. Under the 183-day test the Commissioner is not satisfied that you have a usual place of abode outside Australia and that you do not intend to reside in Australia.

You are a resident of Australia for the period of the ruling.

Question 2

Will your working holiday maker income be taxed on the same basis as a resident Australian national?

Summary

You will be taxed on the same basis as a resident Australian national and not at the 15% working holiday maker tax rate. This is because:

•         you are a resident of Australia for tax purposes

•         you held a visa B; and

•         you are from the foreign country and this country has a non-discrimination article in its tax treaty.

You will be taxed as a resident of Australia.

Detailed reasoning

Tax rates

Ordinary tax rates for Australian residents for taxation purposes

The tax rates for resident taxpayers are contained in Part I of Schedule 7 of the Income Tax Rates Act 1986 (ITRA 1986).

Residents are taxed on all of their worldwide income, which means all of the income they earn in Australia and outside Australia is included in their income tax return. Residents are entitled to the benefit of a tax-free threshold under which the first $18,200 of taxable income earned is tax-free.

Taxable income in excess of the tax-free threshold amount will be taxed at progressive rates in accordance with the taxable income earned during each income year.

Tax rates for working holiday makers

Working holiday maker (WHM) has the meaning given by subsection 3A(1) of the ITRA 1986 as an individual who holds a Working Holiday visa or Work and Holiday visa or a bridging visa in relation to an application for such a visa.

The taxation of WHMs is administered under Part III of Schedule 7 of the ITRA 1986, sometimes referred to as the 'backpacker tax', and has effect for the period you are considered to be a WHM.

Income earned in Australia from Australian sources is included in a WHM's taxable income while they are a WHM.

From January 2017 WHMs are taxed at a special rate of 15% on their taxable income earned in Australia up to $45,000 in the 2020-21 and later income years, with ordinary tax rates applying to taxable income exceeding that amount. The 15% rate usually applies regardless of whether the WHM is a resident or non-resident.

However, as a result of the High Court decision in Addy v Commissioner of Taxation [2021] HCA 34 (Addy case) some WHMs may be taxed on the same basis as a resident Australian national, rather than the WHM rates that usually apply.

This applies where an individual satisfies all of the following:

•         are the holder of a Working Holiday visa or Work and Holiday visa

•         a resident of Australia for tax purposes for the whole or part of the income year

•         from one of the following countries which has a non-discrimination article in its tax treaty with Australia:

o   Chile

o   Finland

o   Germany (for 2017-18 and later income years)

o   Israel (for 2020-21 and later income years)

o   Japan

o   Norway

o   Turkey; and

o   United Kingdom.

Application to your situation

For the period of the ruling:

•         You are a citizen of the foreign country who came to Australia as a visa B.

•         The foreign country is a country which has a non-discrimination article in its tax treaty with Australia and,

•         as outlined above you are a resident of Australia for taxation purposes from the date you arrived in Australia.

Therefore, you will be taxed the same as a resident Australian national and not subject to the 15% working holiday maker tax rate.

This means you will be eligible for the tax-free threshold. Any excess income over the tax-free threshold will be taxed at the marginal tax rate for residents.

You may be eligible for the low-income tax offset and the low- and middle-income tax offset and you may have to pay the Medicare Levy. You may also need to include any foreign income you earned during the income year in your Australian tax return.

As a resident of Australia for tax purposes you must include any foreign income you earned during the income year in your Australian tax return.

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