Edited version of private advice

Authorisation Number: 1051602507254

Date of advice: 4 November 2019

Ruling

Subject: Residency

Question

Are you a resident of Australia for income tax purposes for the year ending 30 June 2019 and future years?

Answer

Yes

Question

Are you an Australian resident for the purposes of the Double Tax Agreement between Australia and Country A in accordance with Article X of the Agreement after 1 July 2018?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2019

Year ended 30 June 2020

Year ended 30 June 2021

Year ended 30 June 2022

The scheme commenced on:

1 July 2018

Relevant facts and circumstances

You are a citizen of Country A who was granted Australian citizenship. You departed Australia in 20XX to live and work in Country A.

You own a business in Country A which provides your main source of income.

Your spouse and child live in Australia in the family home and you return to Australian on several occasions per year to maintain the family links. You tend to spend between XX and YY days per year in Australia visiting your family.

Your family tend to travel to Country A a few times a year to visit you there.

Your family have remained in Australia so that your spouse may support your child whilst they are studying in Australia. You remit approximately $X per year to your family to support them.

Your intention upon departure was to live and work overseas but to live in Australia permanently when you retire.

You hold a working visa which allows you to remain working in Country A for 5 years. The visa is sponsored by your employer. You have advised that you have been determined to be a tax resident of Country A.

You have purchased an apartment in Country A and live there when you are not in Australia. This apartment is mortgaged and is only occupied by you.

You have a home, a car and bank accounts in Australia. Your personal effects have been left in this family home.

You also own an apartment, a car and a bank account in Country A. You have applied for and been granted a local driving licence.

Before leaving Australia you did not advise the Australian Electoral Office or Medicare of your departure.

You have never been employed by the Australian Commonwealth government and do not belong to any Commonwealth superannuation scheme such as CSS or PSS.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source.

The terms 'resident' and 'resident of Australia', in regard 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 whether a taxpayer is a resident of Australia for income tax purposes. These tests are:

·                     the resides 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 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.

Resides Test

When considering the resides test the following factors are normally considered:

·                     physical presence

·                     intention or purpose

·                     family or business ties

·                     maintenance and location of assets

·                     social and living arrangements

In your case, you are a citizen of Australia who departed Australia without your spouse or child in 20XX with the intention of living and working overseas but of eventually returning to live in Australia when you retire.

Based on the information provided, you have not been residing in Australia since you first left and are therefore, not a resident for tax purposes under the resides test.

The domicile test

Under the domicile test, a person is a resident of Australia if their domicile is in Australia unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

Domicile

"Domicile" is a legal concept to be determined according to the Domicile Act 1982 and common law rules. A person's domicile is in their country of origin unless they acquire a different domicile of choice or operation of law. To obtain a different domicile of choice, a person must have the intention to make their home indefinitely in another country, for example, by obtaining a migration visa.

In your case, your domicile has remained in Australia as you have not applied for permanent residency in Country A but rely upon working visas to work in Country A.

Permanent place of abode

A person's 'permanent place of abode' is a question of fact to be determined in the light of all the circumstances of each case. (Applegate v. Federal Commissioner of Taxation 78 ATC 4051; 8 ATR 372 (Applegate))

In Applegate, the court found that 'permanent' does not mean everlasting or forever but it is to be contrasted with temporary or transitory.

Taxation Ruling IT 2650 Income Tax: Residency - Permanent place of abode outside Australia (IT 2650) provides a number factors which are used by the Commissioner in reaching a satisfaction as to an individual's permanent place of abode. These factors include:

(a)          the intended and actual length of the individual's stay in the overseas country;

(b)          any intention either to return to Australia at some definite point in time or to travel to another country;

(c)          the intended and actual length of the individual's stay in the overseas country;

(d)          any intention either to return to Australia at some definite point in time or to travel to another country;

(e)          the establishment of a home outside Australia;

(f)           the abandonment of any residence or place of abode the individual may have had in Australia;

(g)          the duration and continuity of the individual's presence in the overseas country; and

(h)          the durability of association that the individual has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments, place of education of the taxpayer's children, family ties.

In relation to the weight to be given to each of the above factors, paragraph 24 of IT 2650 states:

The weight to be given to each factor will vary with the individual circumstances of each particular case and no single factor will be decisive... however... greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant.

In your case it is considered that you have not established a permanent place of abode outside of Australia because:

·         You left a furnished home in Australia, which you own, in which your family live whilst you are away and is available to you

·         You have an employer initiated visa which only allows you to be in Country A for a certain period of time

·         Your employment in Country A is a business that you own and operate and which could be wound up at any time

·         In Country A you live in an apartment which you own and which is mortgaged

·         The main reason you left for Country A was for work reasons; your family did not and will not be joining you (apart from brief visits), therefore you have not and will not set up an established home with family in Country A

·         You have visited Australia several times a year since your departure.

Although you intend on living and working in Country A for a considerable and indeterminable time and you will take some personal belongings with you will not abandon your residence in Australia. Your Australian residence is still available to you, and you have retained a durable association with Australia, in particular through your family who remain in Australia.

Consequently, the Commissioner is not satisfied that you have a permanent place of abode outside Australia, and you are therefore a resident under the domicile test of residency during the period you will work in Country A.

The 183 days test

Where a person is present in Australia for 183 days 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.

You are not a resident for tax purposes under this test.

The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person.

You are not a resident for tax purposes under this test.

Residency status

As you satisfy one of the four tests of residency, you are a resident of Australia for income tax purposes after 1 July 2018 and future years.

Residency under the DTA between Country A and Australia

Where a taxpayer is deemed to be resident of both countries, the 'tie-breaker' rules under the DTA between Australia and Country A would determine the country of which the Taxpayer is deemed to be a sole resident for the purpose of applying the DTA.

As you are considered to be a resident for taxation purposes of both Country A and Australia it is necessary to apply the tie-breaker test as set out in Paragraph Y of Article X of the DTA as follows:

Y. Where by reason of the preceding provisions of this Article a person, being an individual, is a resident of both Contracting States, then the status of the person shall be determined in accordance with the following rules:

(a) the person shall be deemed to be a resident solely of the Contracting State in which a permanent home is available to the person;

(b) if a permanent home is available to the person in both Contracting States, or in neither of them, the person shall be deemed to be a resident solely of the Contracting State with which the person's economic and personal relations are the closer.

The first issue is to determine whether you have a permanent home available to you in either country. Under this test, 'permanent home' is given its 'international' meaning rather than any established meaning that it might carry under domestic law. The individual must have arranged and retained a dwelling for his permanent use and arranged to have the dwelling available to them continuously at all times, and not occasionally for the purpose of a stay.

As you own a home in Australia and an apartment in Country A it could be argued that you maintain a permanent home in both countries. Because this test is inconclusive it is then necessary to consider to which country your personal and economic ties are closer.

In determining where a taxpayer's interests lie, paragraph 15 of the OECD commentary on this issue states the following:

"If the individual has a permanent home in both Contracting States, it is necessary to look at the facts in order to ascertain with which of the two States his personal and economic relations are closer. Thus, regard will be had to his family and social relations, his occupations, his political, cultural or other activities, his place of business, the place from which he administers his property, etc. The circumstances must be examined as a whole, but it is nevertheless obvious that considerations based on the personal acts of the individual must receive special attention. If a person who has a home in one State sets up a second in the other State while retaining the first, the fact that he retains the first in the environment where he has always lived, where he has worked, and where he has his family and possessions, can, together with other elements, go to demonstrate that he has retained his centre of vital interests in the first State".

Based on the information provided, your economic and personal ties such as family and social relations, financial investment and property are closer to Australia. Accordingly, you are a resident of Australia for the purpose of the tie break test under paragraph Y(b) of the DTA between Country A and Australia.

Conclusion

You are resident of Australia for taxation purposes. As you are treated as a resident of both Australia and the Country A under the respective domestic laws, the 'tie-breaker' rules under the DTA between Country A and Australia may be considered.

In this case paragraph Y(b) of Article X of the DTA applies to treat you as a resident of Australia for the purposes of the DTA in respect of the period spent in Country A as your personal and economic relations are closer with Australia than with Country A.