Edited version of private advice

Authorisation Number: 1051592146187

Date of advice: 8 October 2019

Ruling

Subject: Individual residency

Question 1

Were you a resident of Australia for the purposes of subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) for the period 1 July 2018 to 31 December 2018?

Answer

Yes.

Question 2

Were you a resident of Australia for the purposes of subsection 6(1) of the ITAA 1936 for the period 1 January 2019 to 30 June 2019?

Answer

No.

Question 3

Will you be a resident of Australia for the purposes of subsection 6(1) of the ITAA 1936 for the period from 1 July 2019 to 30 June 2021?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2019

Year ending 30 June 2020

Year ending 30 June 2021

The scheme commences on:

1 July 2018

Relevant facts and circumstances

You are an Australian citizen who lived and worked in Australia until your retirement.

On 1 January 2019, you and your spouse moved to a residential property in Country 2.

You and your spouse are citizens of Country 2. The majority of your family lives outside Australia. The majority of your social connections are now in Country 2.

You may travel to other countries, including Australia, but you will spend the majority of your time in Country 2. You will not spend more than 183 days in Australia in any of the relevant years.

You have retained assets and investments that are located within or connected with Australia, but you have moved your personal assets outside Australia.

You will not now commence any business and/or professional activities based in Australia that involve your active participation.

You have withdrawn from the Australian electoral roll and enrolled to vote in Country 2. You have notified financial institutions and other relevant entities that you now reside in Country 2.

You do not intend to apply for citizenship in any other jurisdictions.

Neither you nor your spouse are 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.

Relevant legislative provisions

Income Tax Assessment Act 1936 - section 6

Reasons for decision

Question 1

The statutory definition of resident is set out in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) and, in respect of individuals, states that:

resident or resident of Australia means:

(a) a person, other than a company, who resides in Australia and includes a person:

(i) whose domicile is in Australia, unless the Commissioner is satisfied that the person's permanent place of abode is outside Australia;

(ii) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and that the person does not intend to take up residence in Australia; or

(iii) who is:

(A) a member of the superannuation scheme established by deed under the Superannuation Act 1990; or

(B) an eligible employee for the purposes of the Superannuation Act 1976; or

(C) the spouse, or a child under 16, of a person covered by sub-subparagraph (A) or (B) ...

The above definition provides four tests for determining whether an individual is a resident for income tax purposes. These are:

·        residence according to ordinary concepts;

·        the domicile and permanent place of abode test;

·        the 183 day test; and

·        the Commonwealth superannuation fund test.

The tests that are relevant to your circumstances are tests (a) to (c). You do not satisfy test (d), as you do not have a relevant interest in a Commonwealth superannuation fund.

Where a person resides in Australia under ordinary concepts, Australian residency is established and the other tests need not be considered: FCT v Applegate 79 ATC 4307; (1979) 9 ATR 899 (Applegate); paragraph 12 of Taxation Ruling TR 98/17 Income Tax: residency status of individuals entering Australia (TR 98/17).

Whether a person is a resident of Australia is a question of fact and degree to be determined having regard to the circumstances of the particular case.

As there is no definition of the word 'reside' in Australian income tax law, the ordinary meaning of the word must be considered. The Macquarie Dictionary defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time', and the Shorter Oxford English Dictionary defines it 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'.

Paragraph 18 of TR 98/17 states that the period of an individual's physical presence in Australia is not, by itself, decisive. Instead, an individual's behaviour over the time spent in Australia should be examined to see if it reflects a degree of continuity, routine or habit that is consistent with residing in Australia.

Paragraphs 20 to 21 of TR 98/17 state that all the facts and circumstances that describe an individual's behaviour in Australia are relevant, and no individual factor is necessarily decisive, but that the following factors will be particularly useful: intention or purpose of presence; family and business/employment ties; maintenance and location of assets; and social and living arrangements.

Based on the facts provided, your connection with Australia is such that you were a resident of Australia within the ordinary meaning of 'resides' for the period from 1 July 2018 to 31 December 2018.

Subparagraph (a)(i) of the definition of 'resident of Australia' includes a person whose domicile is in Australia, unless the Commissioner is satisfied that the person's permanent place of abode is outside Australia.

Taxation Ruling IT 2650 Income tax: residency - permanent place of abode outside Australia (IT 2650) sets out the Commissioner's view on the application of this test.

Paragraph 8 of IT 2650 states that 'domicile' is a legal concept to be determined according to the Domicile Act 1982 and to the common law rules which the courts have developed in the field of private international law. The primary common law rule is that a person acquires at birth a domicile of origin, being the country of their father's permanent home. A person will retain their domicile of origin unless and until they acquire another domicile, for example, a domicile of choice. A person can only have one domicile at a time.

Section 10 of the Domicile Act 1982 provides that in order to acquire a domicile of choice in a country, a person must have the intention to make their home indefinitely in that country.

Paragraph 23 of IT 2650 sets out the following factors that the Commissioner considers to be relevant in determining whether a taxpayer has a permanent place of abode 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; and

·        the durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts 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.

Being an Australian citizen who lived and worked in Australia until your retirement, you had an Australian domicile. As you did not have a permanent place of abode outside Australia, you were a resident of Australia under the domicile and permanent place of abode test for the period from 1 July 2018 to 31 December 2018.

The 183 day test will deem a person to be a resident of Australia where that person has been in Australia during more than one-half of the year of income, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and that the person does not intend to take up residence in Australia. In the year ended 30 June 2019, you spent fewer than 183 days in Australia.

You were a resident of Australia for the period from 1 July 2018 to 31 December 2018 under the ordinarily resides test and the domicile and permanent place of abode test.

Question 2

As discussed above in Question 1, whether a person is a resident of Australia is a question of fact and degree to be determined having regard to the circumstances of the particular case.

Paragraph 18 of TR 98/17 provides that an individual's behaviour over the time spent in Australia should be examined to see if it reflects a degree of continuity, routine or habit that is consistent with residing in Australia.

Paragraphs 20 to 21 of TR 98/17 state that, although no individual factor is necessarily decisive, the following factors will be particularly useful in determining residence: intention or purpose of presence; family and business/employment ties; maintenance and location of assets; and social and living arrangements.

In Hafza v Director-General of Social Security (1985) 6 FCR 444 (Hafza) at 449-450, Wilcox J discussed the concept of residency in relation to legislation which had incorporated the 'residency' definition from the ITAA 1936:

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] VR 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 236. It is important to observe firstly, that a person may simultaneously be a resident in more than one place - see the facts of Lysaght (supra) and the reference by Williams J to "a home or homes" - and, secondly, that the application of the general concept of residence to any particular case must depend upon the wording, and underlying purposes, of the particular statute in relation to which the question arises. But, where 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.

In Hafza, Wilcox J stated that a lack of physical presence in a particular place does not necessarily lead to a conclusion that a person has ceased to be resident there. Rather, His Honour stated that the relevant test is whether the person has retained a 'continuity of association', an intention to return, and an attitude that the place remains 'home'.

In Harding v FCT [2018] FCA 837 (Harding), Derrington J discussed the use of a 'checklist' of relevant factors that had been developed in the AAT through analysis of various residency decisions, such as in Re Iyengar v FCT (2011) 85 ATR 924 and Re Sneddon v FCT (2012) 89 ATR 739, and stated at [46] that:

Those decisions identified a number of topics relevant to the ascertaining of a person's residence in Australia such as the person's physical presence in Australia, their nationality, the history of their past residence and movements, their mode of life and habits, the frequency, regularity and duration of visits to Australia, their purpose for visiting or leaving Australia, the remaining family and business ties with Australia in comparison to any other foreign country and the maintenance of the place of abode.

His Honour noted at [46] that:

However, these factors do not constitute some kind of rigid formula for the determination of whether a person is a resident. They do not each invariably apply in all cases. They are merely the constitutive indicators or objective facts which are frequently relevant to the determination of the nature and quality of a person's presence in or association with a particular location. A consideration of those objective matters will also reflect the actual state of mind of the person in question concerning their intention to treat a place as their home. [Emphasis added.]

Although the decision in Harding was the subject of a successful appeal in Harding v FCT [2019] FCAFC 29 (Harding Full Court), the majority of the Full Federal Court accepted Derrington J's conclusion in respect of the 'ordinarily resides' test.

In assessing the question of residence, it is therefore useful to consider the factors that have been identified as relevant by the courts and Tribunal, and which have been set out by the Commissioner in paragraphs 20 to 21 of TR 98/17.

Although you have maintained some continuity of association with Australia, there are also a number of factors that indicate that you have made a change in your mode of living, such that you may no longer retain the level of continuity of association with Australia that would make you a resident under the ordinary meaning of the term.

On balance, your actions and mode of life since 1 January 2019 have reflected a change in your mode of living, such that your continuity of association with Australia has been affected. You are therefore not considered to be a resident of Australia for the purposes of the ordinarily resides test.

As discussed in Question 1, paragraph 23 of IT 2650 sets certain factors that the Commissioner considers to be relevant in the determination of whether a taxpayer has a permanent place of abode 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; and

·        the durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts 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.

For the period from 1 January 2019 to 30 June 2019, the Commissioner considers that you had a permanent place of abode outside Australia. It is therefore unnecessary to consider if your domicile remained Australia.

In the year ended 30 June 2019, you spent fewer than 183 days in Australia and are therefore not considered to be a resident of Australia under the 183 day test.

Neither you nor your spouse are members of a relevant Commonwealth superannuation fund, nor are either of you under the age of 16, therefore this test will not apply to you.

Question 3

Your mode and manner of living will continue in substantially the same manner as during the period from 1 January 2019 to 30 June 2019. The same conclusions will therefore be reached in respect of your residency. You will therefore not be considered a resident of Australia for the purposes of subsection 6(1) of the ITAA 1936 for the period from 1 July 2019 to 30 June 2021.