Edited version of your written advice

Authorisation Number: 1012826545600

Date of advice: 23 June 20ZZ

Ruling

Subject: Residency status

Question 1

Is the taxpayer considered to be a 'resident of Australia' for the purposes of the definition in subsection 6(1) of the Income Tax Assessment Act 1936 with respect to the years ended 30 June 20WW, 30 June 20XX, 30 June 20YY and 30 June 20ZZ?

Answer

No.

Question 2

If the answer to Question 1 is yes, is the taxpayer considered to be a resident of Australia for the purposes of the international tax agreement between Australia and Country A with respect to the years ended 30 June 20WW, 30 June 20XX, 30 June 20YY and 30 June 20ZZ?

Answer

As the taxpayer is not a 'resident of Australia' for the purposes of the definition in subsection 6(1) of the Income Tax Assessment Act 1936 with respect to the years ended 30 June 20WW, 30 June 20XX, 30 June 20YY and 30 June 20ZZ, an answer to this question is not required.

This ruling applies for the following periods:

The year ended 30 June 20WW ('the 20WW income year')

The year ended 30 June 20XX ('the 20XX income year')

The year ended 30 June 20YY ('the 20YY income year')

The year ended 30 June 20ZZ ('the 20ZZ income year')

Relevant facts and circumstances

The taxpayer was born in Australia and maintained their Australian citizenship.

The taxpayer worked in Australia during the 1980s.

The taxpayer left Australia for Country B in the early 1990s, where they stayed for a few years.

The taxpayer then moved to Country A, and started their business in Country A.

The taxpayer was granted permanent residency in Country A in the mid-1990s, though they had been accepted as living in Country A on a permanent basis a year after their arrival in the early 1990s.

Family ties

The taxpayer lived with their spouse and children in Country A. Their father was from Country A, so the taxpayer also had extended family in Country A.

Members of the taxpayer's family lived in Australia.

The taxpayer also had another child from a previous relationship who was an Australian citizen, but who lived in Country B during the 20WW to 20ZZ income years.

Visits to Australia

For many years, the taxpayer visited Australia at least once a year, over the December to January period for a holiday, accompanied by their spouse and children.

In the 20WW to 20ZZ income years, the taxpayer was physically present in Australia for approximately four to six weeks each year. In the 20WW to 20YY income years, the taxpayer visited once each year, while they visited on a couple of separate occasions in the 20ZZ income year.

The taxpayer stated that the reason for the visits to Australia in the 20WW to 20ZZ income years was for the purpose of a holiday and to visit their relatives in Australia.

In the 20ZZ income year, the taxpayer also visited Australia on their own to visit an ill family member.

Connections to Australia

The taxpayer purchased several properties located in Australia in their own name, over several years. Some of these purchases were made to take advantage of a booming real estate market. The taxpayer saw these as effective opportunities from a capital growth perspective. However, they never actively pursued plans to develop them. None of the properties derived rental income, as they were vacant plots of land or not in a liveable state.

Specifically, the taxpayer owned a property in Australia, where the taxpayer kept basic necessities, for the family holidays and visits. This property remained vacant when the taxpayer and their family were absent and was not rented out.

The taxpayer was a 100% shareholder in an Australian company, which derived passive investment income.

During the 20WW to 20ZZ income years:

• The taxpayer and their family lived in their Australian property when they visited Australia.

• The taxpayer held a few bank accounts in Australia. One of these was a transaction account, the funds of which they used primarily for the maintenance of the Australian properties. The taxpayer also used the funds in these accounts for loans to their Australian family members for medical bills.

• The taxpayer was covered for emergency services while travelling in Australia.

• The taxpayer had no regular general practitioner in Australia.

• The taxpayer maintained an Australian driver's licence, originally issued in the early 1980s.

Recently, the taxpayer began establishing a number of investment entities in Australia, in preparation for their proposed move to Australia. The taxpayer also began transferring funds to Australia, in anticipation of the family's move to Australia.

Connections to Country A

The taxpayer had a number of real estate investments in Country A through their wholly-owned investment company in Country A. The company derived rental income from a number of the properties, while others were vacant plots of land.

In the mid-1990s, the taxpayer acquired a property in Country A, purchased by the Country A company. The taxpayer stated this was because they were unable to directly purchase property in Country A as they were not a national of Country A.

The taxpayer was a controlling shareholder of their business, up until recently when they sold their interest in the business. However they remained in a supervisory role to assist in the transition.

The taxpayer was a member of a number of organisations based in Country A while they were living there.

The taxpayer had involvement with a number of charities based in Country A.

During the 20WW to 20ZZ income years:

• The taxpayer and their family lived primarily in the property in Country A throughout the 20WW to 20ZZ income years.

• All of the taxpayer's personal and family belongings were located in Country A.

• The taxpayer's children attended school in Country A.

• The taxpayer held a few bank accounts in Country A.

• The taxpayer had public health insurance in Country A.

• The taxpayer attended for regular medical check-ups at a private medical centre in Country A.

The taxpayer did not possess a driver's licence in Country A.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Superannuation Act 1976

Reasons for decision

Question 1

Summary

The taxpayer was not a resident of Australia for income tax purposes for the 20WW, 20XX, 20YY and 20ZZ income years as they did not satisfy any of the tests for residency outlined in the definition in subsection 6(1) of the ITAA 1936.

Detailed reasoning

The terms 'resident' and 'resident of Australia', in regards to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 ('ITAA 1936').

The definition provides four tests to ascertain if a taxpayer is a resident of Australia for income tax purposes. These tests are:

1. The resides test (residence according to ordinary concepts)

2. The domicile test

3. The 183 day test

4. The superannuation test

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides. However, where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.

Residency status is a question of fact and is determined on a year by year basis.

For the years ended 30 June 20WW, 30 June 20XX, 30 June 20YY and 30 June 20ZZ, the taxpayer was not present in Australia for more than 183 days, and so the 183 day test in subparagraph (a)(ii) of the definition in subsection 6(1) of the ITAA 1936 does not need to be considered.

Neither the taxpayer nor their spouse were members of a relevant superannuation scheme and also were not eligible employees for the purposes of the Superannuation Act 1976, the superannuation test in subparagraph (a)(iii) of the definition in subsection 6(1) of the ITAA 1936 is not relevant.

1. Residence according to ordinary concepts test

The term 'resides' is not defined in the Australian income tax legislation and takes its ordinary meaning.

Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia provides the Commissioner's interpretation of the ordinary meaning of the word 'resides' within the definition of 'resident' in subsection 6(1) of the ITAA 1936.

TR 98/17 at paragraph 14 references the Macquarie Dictionary definition of 'reside', which is 'to dwell permanently or for a considerable time; have one's abode for a time'; and the Shorter Oxford English Dictionary definition, which is 'to dwell permanently or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place'.

In Subrahmanyam and Commissioner of Taxation [2002] AATA 1298; 2002 ATC 2303; (2002) 51 ATR 1173, in considering the word 'resides', Deputy President Forgie said at paragraph 48:

In its broadest sense, 'resides' carries with it the notion of having a home in a particular place. It carries with it the notion of some physical presence with the notion of an intention to treat the place as home, at least for the time although not necessarily forever. It may be expressed in terms of dwelling in a place.

Furthermore, in Joachim and Commissioner of Taxation [2002] AATA 610; 2002 ATC 2088; (2002) 50 ATR 1072 ('Joachim'), Senior Member Allen, at 2090; 1074, referred to the judgement by Williams J in Koitaki Para Rubber Estates Limited v Commissioner of Taxation, Commonwealth (1941) 64 CLR 241; [1941] HCA 13, which stated:

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, a person does not necessarily cease to be a resident there because he or she is physically absent. The test is, whether the person has retained a continuity of association with the place, together with an intention to return to that place and an attitude that the place remains home.

The ordinary meaning of the word 'resides' was also considered in Iyengar and Commissioner of Taxation [2011] AATA 856; 2011 ATC 10-222; (2011) 85 ATR 924 ('Iyengar'), where Senior Member Walsh outlined a non-exhaustive list of factors that the Courts have referred to and taken in to account when considering whether a person ordinarily resides in Australia:

• Physical presence in Australia;

• Nationality;

• History of residence and movements;

• Habits and 'mode of life'

• Frequency, regularity and duration of visits to Australia;

• Purpose of visits to or absences from Australia;

• Family and business ties with Australia compare to the foreign country concerned; and

• Maintenance of a place of abode.

No single factor is necessarily decisive and all the facts and circumstances that describe an individual's behaviour are relevant when determining their residency status.

Senior Member Walsh in Iyengar also stated at paragraph 68:

Both past and subsequent history of a person's residence may be relevant in determining whether that person is ordinarily resident in a country in a particular income year: see AFITR at [29-035].

In the taxpayer's circumstances

The factors outlined in Iyengar are considered below in relation to the factual circumstances of the taxpayer to determine whether the taxpayer ordinarily resided in Australia in the income years ended 30 June 20WW, 30 June 20XX, 30 June 20YY and 30 June 20ZZ income years:

• Physical presence in Australia

In the 20WW to 20ZZ income years, the taxpayer was physically present in Australia generally for four to six weeks. In the 20WW to 20YY income years, the taxpayer visited once each year, while they visited on a couple of separate occasions in the 20ZZ income year.

• Nationality

The taxpayer was born in Australia and was an Australian citizen throughout the 20WW to 20ZZ income years.

However, the taxpayer was granted permanent residency in Country A in the mid-1990s, though they had been accepted as living in Country A on a permanent basis a year after their arrival in the early 1990s.

• History of residence and movements

The taxpayer left Australia for Country B in the early 1990s, where they stayed for a few years, before relocating to Country A.

In the 20WW to 20ZZ income years, the taxpayer returned to Australia at least once a year, staying for a minimum of 30 days.

• Habits and 'mode of life'

During the 20WW to 20ZZ income years, when the taxpayer was in Australia, they stayed with their spouse and children in a property owned by the taxpayer. However, for most of each year, they and their family stayed in Country A in a property owned by the spouse's company.

The taxpayer's children attended school in Country A throughout the 20WW to 20ZZ income years.

The taxpayer had involvement with a number of charities based in Country A.

The taxpayer had public health insurance in Country A, while they were only covered for emergency services while travelling in Australia.

The taxpayer attended at a private medical centre in Country A for regular medical check-ups. However, they had no regular general practitioner in Australia.

The taxpayer held an Australian driver's licence, originally issued in the early 1980s. The taxpayer did not possess a driver's licence in Country A.

The taxpayer held a few bank accounts in Australia during the 20WW to 20ZZ income years. One of these was a transaction account, the funds of which they used primarily for the maintenance of the Australian properties. The taxpayer also used the funds in these accounts for loans to their Australian family members for medical bills.

During the 20WW to 20ZZ income years, the taxpayer also held a few bank accounts in Country A.

During the 20ZZ income year, the taxpayer began transferring funds to Australia, in anticipation of the family's move to Australia.

• Frequency, regularity and duration of visits to Australia

For at least the last fifteen years, the taxpayer visited Australia at least once a year. Each visit was usually over the December to January period, when they stayed for at least one month.

This routine was maintained in the 20WW to 20ZZ income years.

• Purpose of visits to or absences from Australia

The taxpayer stated that the reason for the visits to Australia in the 20WW to 20ZZ income years was for the purpose of a holiday and to visit their relatives in Australia.

In the 20ZZ income year, the taxpayer also visited Australia on their own to visit an ill family member.

• Family and business ties with Australia compared to Country A

A) Family ties

During the 20WW to 20ZZ income years, the taxpayer lived with their spouse and children in the Country A, while other members of their family lived in Australia. The taxpayer also had extended family in Country A.

The taxpayer also had another child from a previous relationship who was an Australian citizen, but who lived in Country B during the 20WW to 20ZZ income years.

B) Business ties

The taxpayer worked in Australia during the 1980s.

However, the taxpayer moved to country A in the early 1990s, and started their business there.

The taxpayer was a controlling shareholder of their business, up until recently when they sold their interest in the business. However they remained in a supervisory role to assist in the transition.

The taxpayer was a member of a number of organisations based in Country A while they were living there.

The taxpayer had a number of real estate investments in Country A through their wholly-owned investment company in Country A. The company derived rental income from a number of the properties, while others were vacant plots of land.

The taxpayer also purchased several properties located in Australia in their own name, over several years. Some of these purchases were made to take advantage of a booming real estate market. The taxpayer saw these as effective opportunities from a capital growth perspective. However, they never actively pursued plans to develop them. None of the properties derived rental income, as they were vacant plots of land or not in a liveable state.

The taxpayer was a 100% shareholder in an Australian company, which derived passive investment income.

In the 20ZZ income year, the taxpayer began establishing a number of investment entities in Australia, in preparation for their proposed move to Australia.

• Maintenance of a place of abode

In the mid-1990s, the taxpayer acquired a property in Country A, purchased by the Country A company. The taxpayer stated this was because they were unable to directly purchase property in Country A as they were not a national of Country A. The taxpayer and their family established a home at this property and they lived primarily in this home throughout the 20WW to 20ZZ income years. All of the taxpayer's personal and family belongings were located in Country A

The taxpayer also owned a property in Australia. The taxpayer and their family lived there when they visited Australia. They kept basic necessities at this property, for the family holidays and visits. This property remained vacant when the taxpayer and their family were absent and was not rented out.

Conclusion on ordinary residence

Based on the taxpayer's circumstances in the 20WW to 20ZZ income years, we consider that the taxpayer did not maintain a continuity of association with Australia. They left Australia in the early 1990s and began living in Country A shortly after leaving Australia, where they began and developed their business and investment interests. During this time, the taxpayer also met their spouse and started a family.

While the taxpayer had a property available in Australia, the taxpayer maintained an attitude that Country A, and not Australia, was their home. This is evidenced by the taxpayer's immediate family's presence in Country A and the location of their personal and family belongings in Country A. For at least the last 15 years, the taxpayer returned to Australia usually once a year for a family holiday. However, during the 20WW to 20ZZ income years, the taxpayer and their family were predominantly present in Country A. The taxpayer had an established pattern and habits of life in Country A. As they came to Australia merely for holiday purposes, these habits did not continue when the taxpayer visited.

In the 20ZZ income year, the taxpayer began transferring funds in preparation for the family's move to Australia, and they also established a number of investment entities in Australia. However, we consider that the taxpayer did not yet have the intention to treat Australia as their home. Rather, we consider that, due to their place of abode and physical presence in Country A, as well as the factors previously mentioned; the taxpayer continued to ordinarily reside in Country A in the 20ZZ income year and did not ordinarily reside in Australia.

Consequently, we consider that the taxpayer was not an Australian resident for income tax purposes under ordinary concepts for the 20WW, 20XX, 20YY and 20ZZ income years.

2. Domicile test

Taxation Ruling IT 2650 Income tax: Residency - permanent place of abode outside Australia provides guidelines to determine whether individuals who leave Australia to live overseas are residents of Australia for income tax purposes.

Paragraph 20 of IT 2650 states that, even though a person is not considered to reside in Australia under ordinary concepts, a taxpayer could still be a 'resident' within subparagraph (a)(i) of the extended definition of 'resident' in subsection 6(1) of the ITAA 1936.

Subparagraph (a)(i) of the definition of 'resident' in subsection 6(1) of the ITAA 1936 states that if a person is considered to have their domicile in Australia, they will be considered an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

Domicile

Paragraph 8 of IT 2650 defines 'domicile' as a legal concept and states:

a person acquires at birth a domicile of origin, being the country of his or her father's permanent home… A person retains the domicile of origin unless and until he or she acquires a domicile of choice in another country, or until he or she acquires another domiciles by operation of law.

Paragraph 10 of IT 2650 states:

In determining a person's domicile for the purposes of the definition of "resident" in subsection 6(1), it is necessary to consider the person's intention as to the country in which he or she is to make his or her home indefinitely. Thus, a person with an Australian domicile but living outside Australia will retain that domicile if he or she intends to return to Australia on a clearly foreseen and reasonably anticipated contingency… On the other hand, if that person has in mind only a vague possibility of returning to Australia… such a state of mind is consistent with the intention required by law to acquire a domicile of choice in the foreign country.

IT 2650 states, at paragraph 21, that a working visa, even for a substantial period of time such as two years, would not be sufficient evidence of an intention to acquire a new domicile of choice. However, obtaining a migration visa may prove that an individual had the intention to make their home in that country and adopt a new domicile of choice.

The Tribunal in Iyengar stated at paragraph 97:

Whether a person has abandoned a domicile of choice with the "intention" of remaining permanently or indefinitely in the country of new domicile is a question of fact dependant on the particular circumstances of each case: Bell v Kennedy; Udny v Udny; Terrassin v Terrassin (1968) 3 NSWLR 600 and In the Estate of Fuld (No 3), quoted with approval in Buswell v IR Commrs (1974) 2 All ER 520). The acquisition of a "domicile of choice" is complete as soon as the intention is formed: Udny v Udny. The determination must be to settle in a particular country but not necessarily at a particular place: Bell v Kennedy. A move to another country without intending the move to be permanent is of no effect (Jopp v Wood (1865) 4 De GJ & S 616), while a mere intention to move permanently to another country without actually doing so is equally ineffective (Munro v Munro (1940) 7 C1 & F 842): see AFITR at [29-085]. [emphasis added.]

In the taxpayer's circumstances

The taxpayer was born in Australia and was a citizen of Australia. As a result, the taxpayer's domicile of origin was Australia.

However, the taxpayer also had permanent residency status in Country A from at least the mid-1990s. This shows that the taxpayer had an intention to make their home in Country A indefinitely. We consider that by obtaining permanent residency in Country A, as well as their continued physical presence and their association with Country A, the taxpayer acquired a new domicile of choice in Country A, and abandoned their domicile of origin in Australia.

In the 20ZZ income year, the taxpayer formed the intention to return to Australia with their family, evidenced by the transfer of funds to Australia, as well as the establishment of several investment entities in Australia. The taxpayer also disposed of their interests in their business in Country A during the middle of the 20ZZ income year. However, despite this intention to return to Australia, the taxpayer continued to reside in Country A for the 20ZZ income year.

Based on these facts, we are satisfied that the taxpayer abandoned their Australian domicile of origin for a domicile of choice in Country A. This domicile of choice was maintained throughout the 20WW to 20YY income years. The domicile of choice was also maintained in the 20ZZ income year, despite the taxpayer's intention to return to Australia, as they had not yet actually moved but remained in Country A, and so there was no change to their domicile of choice.

Accordingly, we consider that the taxpayer was not a resident of Australia for income tax purposes under the domicile test in subparagraph (a)(i) of the definition of 'resident' in subsection 6(1) of the ITAA 1936 for the 20WW, 20XX, 20YY and 20ZZ income years, as their domicile was not in Australia, but in Country A.

Conclusion

As we have concluded that the taxpayer was not a resident of Australia for income tax purposes under the ordinary concepts test or the domicile test, and as neither the 183 day test nor the superannuation test are relevant in these circumstances, the taxpayer has not satisfied any of the tests for residency outlined in subsection 6(1) of the ITAA 1936.

As a result, the taxpayer was not an Australian resident for income tax purposes for the 20WW, 20XX, 20YY and 20ZZ income years.

Question 2

As the taxpayer was not a 'resident of Australia' for the purposes of the definition in subsection 6(1) of the ITAA 1936 with respect to the 20WW to 20ZZ income years, an answer to the second question is not required.