Edited version of private advice

Authorisation Number: 1052320628577

Date of advice: 21 October 2024

Ruling

Subject: Residency

Question

Are you a resident of Australia for tax purposes for the 20XX, 20XX and 20XX income years?

Answer

Yes.

Question

Are you a resident of Australia under Article X of the double tax agreement (DTA) between Australia and Country X?

Answer

Yes.

Question

Is the income you received from your property in Country X assessable income in Australia under Article X of the DTA?

Answer

Yes.

Question

Are you entitled to a foreign income tax offset (FITO) for the tax paid in Country X on the income you received from your rental property?

Answer

Yes.

This 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 Country X and are a citizen of Country X.

On XX/XX/20XX, you relocated to Australia.

Prior to relocating to Australia, you were living and working in Country Y for a period.

On XX/XX/20XX, you were granted a visa.

Your visa expires on XX/XX/20XX.

You have a spouse and dependent children who accompanied you to Australia.

You are renting a property in Australia.

You own a rental property in Country X that was first leased in 20XX. The property is managed by your parent and is currently leased.

You have bank accounts in Country X.

You have an Australian bank account.

You took your personal and household effects with you to Australia.

You receive your mail in Australia.

You have Medicare.

You are employed in Australia on an ongoing basis.

When completing incoming and outgoing passenger cards, you state that you are a resident of Australia.

You are considering applying for permanent residency.

In the future, you intend to remain in Australia and take occasional business travel overseas several times per year for several days at a time.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 subsection 995-1(1)

International Tax Agreements Act 1953

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.

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:

•                     Your spouse and your dependent children accompanied you to Australia.

•                     You are renting a property in Australia.

•                     You are employed by an Australian company and undertake your work in Australia.

•                     You have an Australian bank account.

•                     You took your household and personal effects with you to Australia.

•                     You have Medicare.

•                     You receive your mail in Australia.

•                     You intend to remain in Australia.

You are a resident of Australia under the resides test for the 20XX, 20XX, and 20XX income years.

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

Domicile test

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 X and your domicile of origin is Country X

It is considered that you did not abandon your domicile of origin in Country X and acquire a domicile of choice in Australia. You are not entitled to reside in Australia indefinitely and while living in Australia, you only hold a visa that is valid until XX/XX/20XX.

Therefore, your domicile is Country X.

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 not been present in Australia for 183 days or more during the 20XX income year. Therefore, you will not be a resident under this test for the relevant income year.

You have been in Australia for 183 days or more during the 20XX, and 20XX income years. Therefore, you will be a resident under this test unless the Commissioner is satisfied that your usual place of abode was outside of 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 in the following:

•                     Your spouse and your dependent children accompanied you to Australia.

•                     You are renting a property in Australia.

•                     You are employed by an Australian company and undertake your work in Australia.

•                     You have an Australian bank account.

•                     You took your household and personal effects with you to Australia.

•                     You have Medicare.

•                     You receive your mail in Australia.

•                     You intend to remain 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 spouse and your dependent children accompanied you to Australia.

•                     You are renting a property in Australia.

•                     You are employed by an Australian company and undertake your work in Australia.

•                     You have an Australian bank account.

•                     You took your household and personal effects with you to Australia.

•                     You have Medicare.

•                     You receive your mail in Australia.

•                     You intend to remain 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 will satisfy the resides and 183 day tests of residency and so are a resident of Australia for income tax purposes for the years ended 30 June 20XX, 20XX, and 20XX.

Question 2

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.

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.

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 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 had a permanent home in Australia based on the following considerations:

•                     You are renting a property in Australia and live there with your spouse and your dependent children.

•                     You do not have a residence available to you in Country X.

Conclusion

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

Question 3

Article X of the Country X Agreement deals with income from real property.

Relatively, Article X provides that income derived by a resident of a contracting State from real property may be taxed in the contracting state in which the real property is situated.

Based on Article X of the Country X Agreement, Australia, and Country X both have the taxing right on the rental income you receive from your rental property in Country X. Therefore, you are required to declare the income in relation to Country X in your Australian income tax return.

Question 4

Article X of the Country X Agreement deals with the elimination of double taxation.

Article X of the Country X Agreement provides that subject to the provisions of the laws of Australia from time to time in force which relate to the allowance of a credit against Australian tax of tax paid in a country outside of Australia which shall not affect the general principle of this article, Country X tax paid under the laws of Country X and in accordance of this Agreement, whether directly or by deduction, in respect of income derived by a person who is a resident of Australia from sources in Country X shall be allowed as a credit against Australian tax payable in respect of that income.

Article X of the Country X Agreement states that where you are an Australian resident for tax purposes and you pay tax in Country X, amounts paid shall be allowed as a credit against Australian tax you pay on that income.

As you are required to pay income tax in Country X on the income you receive from your rental property, you can apply for a foreign income tax offset (FITO) in Australia.

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