Edited version of private advice

Authorisation Number: 1051838256931

Date of advice: 12 May 2021

Ruling

Subject: Residency for income tax purposes

Question

Is the taxpayer a non-resident of Australia for the purposes of subsection 6(1) of the Income Tax Assessment Act 1936, for the income years ending 30 June XX and 30 June YY?

Answer

The Taxpayer is not a resident of Australia for income tax purposes for the XX income year.

The Taxpayer would not be considered a resident of Australia for the YY income year on the basis that they genuinely intend to return to Country A to live as soon as there is a resumption in the ability to travel between Country A and Australia without quarantine requirements or impromptu lockouts/lockdowns or state or international border closures in Australia or Country A.

This ruling applies for the following periods:

Income year ended 30 June XX

Income year ending 30 June YY

Relevant facts and circumstances

The Taxpayer was born in Australia

The Taxpayer is single.

The Taxpayer resided in Australia until XX.

The Taxpayer is a resident of Country A for Country A income tax purposes.

The Taxpayer is an Australian citizen with an Australian passport.

The Taxpayer relocated to Country A in XX. The Taxpayer restructured their living, social and business arrangements to facilitate the move to Country A - amongst other things, the Taxpayer:

•                     entered into a contract to sell their original Australian home;

•                     purchased a home in Country A (Country A house);

•                     relocated their personal effects to Country A, including motor vehicles;

•                     obtained a Country A driver's licence;

•                     enrolled on the Country A electoral roll and has remained on the roll;

•                     obtained private health insurance in Country A;

•                     enrolled in clubs in Country A;

•                     established a Country A based banking relationship, opened local bank accounts and obtained a Country A credit card;

•                     closed the majority of their Australian bank accounts - retaining a couple of accounts;

•                     cancelled their Australian health insurance policy;

•                     applied to be removed from the Australian electoral roll and was removed from the Australian electoral roll;

•                     does not intend to make, and has not made, any further contributions to their Australian self-managed superannuation fund;

•                     reduced their involvement with several Australian companies; and

•                     cancelled, not renewed, or resigned from Australian social/memberships, and changed one to an overseas membership.

The Taxpayer transferred Country A house to a trust. The Taxpayer is the sole director and shareholder of the trustee company. It is their intention that the trust maintain ownership of the property and make it available to them as their home in Country A for the foreseeable future (as it has done so since then). The trustee has maintained, and continues to maintain, the property solely for the Taxpayer's personal use during their absences from Country A.

The Taxpayer has in interest in other real property in Country A.

In addition to the Taxpayer's Country A property assets, the Taxpayer's personal wealth comprises:

•                    shares in ASX listed companies;

•                    cash (in Australian and foreign bank accounts);

•                    Australian real property;

•                    a vested benefit in an Australian self-managed superannuation fund; and

•                    shares in an Australian private companies.

The Taxpayer had bank accounts in Country C

The Commissioner had previously accepted that the Taxpayer would not be a resident of Australia for income tax purposes for the income years VV to XX - relevantly, the Commissioner considered the Taxpayer would not be a resident according to ordinary concepts and their domicile of choice and their permanent place of abode is Country A (the Taxpayer also estimated that they would be in Australia for no more than 100 days of the income year - and as such would not be in Australia continuously or intermittently for more than one-half of an income year for the purposes of the 183 day test):

The Taxpayer purchased an a property in Australia in VV to stay in while they visiting and attending to business matters in Australia (Australian house). The Australian house is not rented out when not being used by the Taxpayer.

The Taxpayer states they are not registered in Australia with a medical practice. The Taxpayer engages the services of a cleaner one day per week and a gardener as required for the Australian house. The Taxpayer does not own a car in Australia. The Taxpayer retained an overseas membership with an Australian club. The Taxpayer leaves personal effects, including those that are special/sentimental etc. in Country A when they travel to Australia.

The Taxpayer has retained their Country A driver's license, banking arrangements, electoral registration, local sporting club memberships, tax file registration, insurances including private health insurance, local XXXX registration, typical household services, fulltime housekeeper and the majority of their personal effects are located at the Country A.

The Taxpayer present in Australia for more than 183 days of the XX income year. The pattern prior to and subsequent to the exceptional circumstances (i.e. renovating the Country A house and the impact of COVID):

•                    For UU - the Taxpayer was present in Australia for 120 days

•                    For VV - the Taxpayer was present in Australia for 120 days.

•                    For XX - the Taxpayer was present in Australia for 260.

•                    For YY - the Taxpayer was present in Australia for all of those days but they intend to return to Country A as soon as practical once there is a resumption in 'normal' (i.e. no quarantine requirements etc.) travel between Australia and Country A (and to resume their usual pattern of travel between Australia and Country A ( i.e. pre- renovations and pre-COVID).

The Taxpayer ticked the "Australian Resident Departing Permanently" box on their Australian Outgoing Passenger Card, when they departed Australia for Country A. On subsequent departures from Australia the Taxpayer has ticked the "Visitor or Temporary Entrant Departing" box. The Taxpayer has answered No to the "Do you intend to live in Australia for the next 12 months" question on the Australian Incoming Passenger Card when entering Australia.

The Taxpayer renovated their Country A house in VV. The Taxpayer returned to the residence on several occasions to monitor progress and to provide instructions to the builders. The Taxpayer did not bring back their personal effects etc. to Australia. When the renovations were completed in 20XX, the Taxpayer returned to Country A. The Taxpayer had only arrived in Australia immediately prior to the travel and border restrictions being imposed.

During the renovation period the Taxpayer spent time in Australia and other countries to undertake holiday pursuits and attend to business matters. The Taxpayer returned to their Country A house upon the completion of the renovations. Prior to remaining in Australia from the time the time of COVID travel restrictions, there were various trips to and from Country A during this period, predominantly to Australia for holiday pursuits, to attend to family matters and for business.

Whilst the renovations were being undertaken, the Taxpayer chose to stay at their Australian house.

The renovations and building works that were undertaken with respect to the Country A house were extensive. The vast majority of the Taxpayer's sentimental collectibles are housed there.

The Taxpayer states that their business interests practically require the Taxpayer's physical presence in Australia.

The World Health Organisation declared COVID-19 a pandemic on 11 March 2020. Shortly after the date of that declaration, both the Australian and Country A governments imposed strict travel restrictions on persons entering their borders which impeded the Taxpayer's access to and movement between each country. The travel restrictions which were imposed by both Country A and Australia required self-isolation when arriving in Country A and when arriving in Australia. On this basis, if the Taxpayer were to travel from Australia to Country A, they would need to self-isolate for 14 days when arriving in Country A and then if they returned to Australia (if that were possible), they would be required to self-isolate for at least 14 days.

In addition, COVID-19 restrictions imposed by a State Government of Australia restricted travel, and would have excluded the taxpayer had they sought to enter after the restrictions were imposed.

Therefore, if the Taxpayer were to leave Australia, they would be unable to re-enter for an extended period of time (if at all).

Country A also imposed restrictions to travel within and without of Contry A.

The Taxpayer's intention was and continues to be to return to Country A. However, the option of returning to Country A was not available to the Taxpayer as they had only arrived in Australia immediately prior to the travel and border restrictions being imposed. Such restrictions were imposed with minimal notice. The position has and continues to be regularly reviewed in terms of any changes to the relevant legislation, border closures and travel restrictions.

The Taxpayer's parents are elderly. The Taxpayer states that they wished to be accessible and close to them during this period, - while the Taxpayer felt very confident in the protection of their own health and wellbeing at their home in Country A, they were concerned that that travel restrictions and quarantining requirements may have prevented them from being accessible by and close to their parents (i.e. the possibility of being unable to re-enter Australia should they return to Country A).

The Taxpayer considers that the significant risk of snap lock downs/lock outs etc. mean there is insufficient certainty to allow return to Australia for holiday pursuits, to attend to family matters and for business purposes.

The Taxpayer intends for the Country A house to remain their main residence - the Taxpayer's intention is to reside in the property as their main residence for the foreseeable future (as soon as it is practicable to return to Country A given the current COVID situation).

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Reasons for decision

Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia sets out the Commissioner's approach to determining residency for income tax purposes.

'Australian resident', is defined in section 995-1 of the ITAA 1997 to mean a person who is a resident of Australia for the purposes of ITAA 1936 - subsection 6(1) of the ITAA 1936 defines 'resident' or 'resident of Australia'.

Relevantly, the term 'resident' or 'resident of Australia' is defined in subsection 6(1) of the ITAA 1936 to mean:

(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 their 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 their usual place of abode is outside Australia and that he does not intend to take up residence in Australia; or

...

The components of the definition give rise to three tests for determining whether an individual is a resident for tax purposes:

1)            residence according to ordinary concepts;

2)            the domicile and permanent place of abode test; and

3)            the 183 day test.

In broad terms:

a)            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' (see FC of T v. Applegate 79 ATC 4307).

b)            If an individual resides in Australia according to the ordinary meaning of the word, the other tests in the definition do not require consideration (see Applegate). Where an individual does not reside in Australia, the other tests must be considered in determining the individual's residency status. These other tests extend the meaning of 'resident' to individuals who may not reside in Australia (see Applegate).

Residence according to ordinary concepts test

The ordinary meaning of the word 'reside' connotes 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 The Shorter Oxford English Dictionary).

In FC of T v. Miller (1946) 73 CLR 93; (1946) 8 ATD 146, Latham CJ observed that 'I should have thought that there was no doubt that a man resided where he lived...'

In Reid v. The Commissioners of Inland Revenue (1926) 10 TC 673, the Court noted that quality of presence and time are to be considered when determining whether individuals reside in a place where they spend part of their lives.

In FC of T v Addy 2020 ATC 20-756, Derrington J distils the factors that are relevant to the concept of residency from their comprehensive survey of the seminal cases on residency:

73. The meaning of the term " reside " is not legislatively defined for the purposes of Australian taxation law. In Harding, the plurality of the Full Court (Davies and Steward JJ) opined that the " primary " or first test of residence - the " ordinary concepts " test - is largely directed at the identification of where physically a person ordinarily lives, regardless of citizenship or domicile. Their Honours observed at 335 [57], with reference to the decision of the primary judge in that case, that the ordinary meaning of the word is that identified by Latham CJ in Commissioner of Taxation v Miller (1946) 73 CLR 93 ( Miller ) at 99 - 101, namely a person " resides " where they " lived " or where they keep house and do business. As Viscount Cave LC said in Levene v Inland Revenue Commissioners [1928] AC 217 at 222 (cited with approval in Gregory v Deputy Federal Commissioner of Taxation (1937) 57 CLR 774 ( Gregory ), 777 - 778 per Dixon J; Miller, 99 - 100 per Latham CJ; and Harding, 335 [57]):

[T]he word ' reside ' is a familiar English word and is defined in the Oxford English Dictionary as meaning ' to dwell permanently or for a considerable time, to have one's settled or usual abode, to live in or at a particular place. ' No doubt this definition must for present purposes be taken subject to any modification which may result from the terms of the Income Tax Act and Schedules; but, subject to that observation, it may be accepted as an accurate indication of the meaning of the word ' reside. '

74. Intention is also of elemental importance in identifying where a person " resides ". As much was emphasised by Wilcox J in Hafza v Director-General of Social Security (1985) 6 FCR 444 ( Hafza ) where his Honour accepted that the concept of residency has two elements: physical presence in a particular place, and the intention to treat that place as home (at least for the time being). As his Honour observed at 449:

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.

75. It follows that the nature, duration and quality of the person's physical presence in a particular place, as well as their intention, are relevant to determining whether an individual resides there. As acknowledged by the primary judge in this case (at [53]), by reference to his earlier decision in Stockton v Commissioner of Taxation [2019] FCA 1679 ( Stockton ), [19] - [30], an elaboration of the " twin features " of physical presence and intention was set out in the reasons of the primary judge in Harding at [42] to [45] (expressly approved by the plurality on appeal at [61]):

42. The question of " presence " is relatively straight-forward and that is particularly so when there is evidence of a person ' s physical presence in a particular place. However, where a person has more than one residence or the question is whether they remain resident in a particular location given that they spend significant time in other locations, different issues arise. In such situations there needs to be consideration of the connecting factors or the continuity of association between the person and the particular location. Here, the question is whether the connecting factors or the continuity of association are such that they establish that the person retains a " presence " in the community as a resident. Factors such as a home, a family unit, possessions, relationships with people and institutions and the like are all relevant to the determination of whether the person has maintained a presence in the community as a resident despite being physically absent.

43. The determination of whether or not a person has the intention to treat a particular place as their home will involve a consideration of numerous factors. Certainly, the evidence of the taxpayer as to their intention at the relevant time will be significant as would be any contemporaneous statement made by a taxpayer as the location of their residency. However, the objective manifestation of a person' s intention is often a more accurate indicator of their state of mind at a particular time in the past than is an assertion about that alleged prior intent. A person' s present belief about what their intention may have been in the past will necessarily be affected by their sub-conscious and the context in which they called upon to identify that past intention. That is especially so when, at the relevant time, the person did not then consider what their then intention may have been.

44. Even evidence of a person' s contemporaneous statement as to their intention at a particular time in the past should be approached with a degree of care. Whilst that is likely to be more accurate than their present assertion of what their previous intention was, the value of the contemporaneous evidence will be affected by the circumstances of the statement and reasons for the making of the statement.

45. That being so, the more cogent evidence of a person' s prior intention as to where they resided are the objective facts which reflect the person' s then intention. In ascertaining whether a person intended to make a particular place their residence or to terminate their residency in a place, the facts and circumstances surrounding their mode of living will be a strong indicator of their presence in or continued association with a particular place and the intention accompanying that presence.

Addy confirms, as endorsed in FC of T v Pike 2020 ATC 20-764, that the application of this test will be a question of fact and degree, having regard to all of the person's relevant circumstances, including their habits and conduct within the period and the character of the place where they are located:

A person resides where they live and dwell permanently or for a considerable period of time, being the place where they make their home.

A person 's intention to make a particular place " home " either permanently or temporarily is an elemental consideration in the identification of where they reside.

Once a person has a home in a particular place they do not necessarily cease to be a resident there merely because they are physically absent. The determinative question is whether they have retained a continuity of association with the place, together with an intention to return to that place which they consider remains their 'home'.

Determining a person's 'continuity of association' in a particular place requires a consideration of all the relevant circumstances, including whether they have retained in that locale a physical home to which they can return, a family unit, possessions and relationships with people and institutions.

The person's own evidence as to their previously held intention is admissible as are any contemporaneous statements of intention, however the objective manifestations of their state of mind at the time are usually more reliable.

The facts and circumstances surrounding a person' s mode of living will be an indicator of their presence in or continued association with a particular place and the intention accompanying that presence or continued association.

In Harding v FC of T 2018 ATC 20-660, the Court observed that, in the context of an Australian-born citizen, the maintenance of a house in Australia for a person's family is likely to lead to the conclusion that the person is a resident of Australia:

In most cases, the existence of a house in Australia maintained by a taxpayer who is working overseas and the maintenance of a family in the house will assume great significance in determining the taxpayer's residency. In all but the most exceptional circumstances, such a factor is more than likely to indicate that the taxpayer has maintained a "home" or residency in Australia because it is a place to which it could be expected they would return to live or it is a place which signifies the enduring continuity of association with Australia. Where a taxpayer maintains a home in Australia to which they regularly return to their spouse and family, it is an unusual case indeed that it can be said that they have ceased to be resident here. That would be particularly so in the case of a person who, for the first time, has ventured to live overseas.

Behaviour while present in Australia

The quality and character of behaviour means the way individuals arrange their domestic and economic affairs as part of the regular order of their lives.

All the facts and circumstances that describe an individual's behaviour in Australia are relevant. In particular, the following factors are useful in describing the quality and character of an individual's behaviour. No single factor necessarily determines residency and many factors are interrelated.

•                    Intention or purpose of presence

The individual's intention, purpose or reason for being in Australia assists in determining whether an individual resides here: (see Gregory v. DFC of T (1937) 57 CLR 774; (1937) 4 ATD 397). While individuals may have multiple reasons, there is usually a main purpose to their presence.

•                    Family and business/employment ties

A factor that may indicate individuals are residing here is the presence of their families. This does not mean that the presence of their families always results in a decision that the individuals are residing here. Also, even if families do not accompany them, the individuals may still be residing here.

In Peel v. The Commissioners of Inland Revenue (1927) 13 TC 443, the appellant was considered a resident of the United Kingdom, notwithstanding that he bought, and kept ready for occupation, a house in Scotland that he and his family occupied at various times during the year.

•                    Maintenance and location of assets

Occupation of a dwelling in Australia, that the individual owns or is purchasing, suggests establishment of a home in Australia. An individual may have a home and other assets outside Australia and still be residing here for the duration of the stay. Other assets in Australia, such as motor vehicles and bank accounts, add further weight to the individual having established behaviour consistent with residing here.

However, the Court noted in Harding that even a significant financial presence in Australia does not have the same presumptive force of yesteryear:

Financial Matters

82. In support of the argument that Mr Harding was an Australian resident according to Ordinary Concepts in the relevant financial year because he retained his intention to reside in Australia, the Commissioner referred to a number of financial matters which, so it was submitted, evidenced Mr Harding's continuity of association with Australia. They included the following:

(a) That Mr Harding maintained and supported his family at the Warana property and he did so using an Australian Bank account. In the relevant income year he transferred over $168,000 from an overseas account to a joint account held by himself and his wife at the Suncorp Bank. That money was utilised for the expenses of the family including mortgage payments, school fees, utility costs and the like.

(b) That during the relevant income year Mr Harding and his wife purchased an investment property at Birtinya, Queensland and considered other investments.

(c) That Mr Harding also maintained his own bank account in Australia with Suncorp Bank and caused his bank account statement accounts to be sent to the family home at Warana.

(d) That Mr Harding also maintained his Medicare account, Australian private health insurance with BUPA (a health insurance company) and his Queensland driver's licence. He also maintained a superannuation account in Australia.

(e) That subsequent to the relevant income year, being in 2013, Mr Harding made two substantial investments in Australia. Both investment were made with IOOF.

83. It can be accepted that, despite having departed in 2009, Mr Harding's financial affairs remained substantially located in Australia during the relevant income year. In the ordinary course those matters would weigh heavily in favour of the conclusion that Mr Harding had not abandoned his residency in Australia. They can logically be taken as evidence which reflected an intention not to leave Australia permanently and to retain a presence here as well as to continue to maintain a residence where his family were living. They tend to suggest a strong continuing association with Australia.

84. However, as has been mentioned, the circumstances of this case are most unusual. Mr Harding made a decision to leave Australia to pursue his career and resume the expatriate lifestyle which he had previously enjoyed. He did so in the expectation that his wife and youngest son would eventually join him although his departure was not conditional upon that eventuality. I have accepted that, at this point in his life, his decision was to leave Australia permanently come what may and regardless of whether his family followed him at a later date. In those circumstances, the financial arrangements which remained in place, or which were put in place subsequent to his departure, are more properly regarded as the remnants of his prior residency and the fact that he retained ongoing responsibilities to Mrs Tracy Harding and her children for whom Mr Harding provided. They should not be seen as indicators of a continuing intention to maintain residency in Australia.

85. It should be added that the factor of where a person maintains investments may, in these days, have little bearing on where a person resides. In the past quarter of a century there has been a growing internationalisation of investment markets which has increased the ability of people in one country to make investments in businesses in other countries. In this case it is, perhaps, not surprising that Mr Harding maintained significant investments in the relatively stable financial markets in Australia despite having abandoned his residency here.

•                    Social and living arrangements

Social and living arrangements are the way individuals interact with their surroundings during their stay in Australia and may indicate they are residing here. These arrangements may include joining sporting or community organisations, enrolling children in school, redirecting mail to Australia or committing to a residential lease.

In Gregory Dixon J said:

The matters on which I place most stress in deciding this question of fact are his business interests and the necessity of his presence in Darwin and the fact that in dividing his attention between two businesses he gave as much or more attention to Darwin and the kind of social and living arrangements that he made in Darwin.

Period of physical presence in Australia

Time is not necessarily determinative of residency but it is an important factor when considering whether an individual resides here.

In 14 TBRD 346 Case 35, the Tribunal stated:

'The mere length or brevity of a person's stay in a country might, I think, be such as to establish residence or non-residence, as the case might be, but in the intermediate field wherein the duration of a person's stay in a country is not decisive it might, I think, be open or proper to find, according to other circumstances, (a) that a person who lived in a country for only a week or two was a resident of that country while he was there, and (b) that a person who lived in a country for several months was not a resident of that country during that period.'

Double tax agreements

Where Australia has entered into a double tax agreement with a country, that agreement generally prevails over the domestic law in the case of any inconsistency pursuant to section 4 of the International Tax Agreements Act 1953 and can therefore operate to restrict the imposition of tax under the domestic law.

In most cases, an individual who is a resident of one of the countries for purposes of its domestic law is also a resident of that country for purposes of a double tax agreement. Where an individual is a resident of both countries under that primary test, the agreements generally contain certain 'tie-breaker' tests to establish residence solely in one of the countries for purposes of the agreement.

Where the tie-breaker tests in an agreement provide that a dual resident be treated solely as a resident of the treaty partner country for the purposes of the agreement, most foreign source income of that individual is not subject to tax in Australia and the extent to which Australia can tax the individual's Australian source income may also be affected. The terms of the relevant double tax agreement should be referred to when determining tax liability. However, Australian resident status is not lost for purposes of the general operation of the domestic law, so that the individual continues to be eligible, for example, for the tax-free threshold in respect of his or her income which remains assessable to Australian tax.

The Convention between Australia and Country A for the avoidance of double taxation with respect to taxes on income and fringe benefits and the prevention of fiscal evasion (DTA) sets out the residency tests:

Article 4

RESIDENT

1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax asa resident of that State, and also includesthat State and any political subdivision or local authority of that State. This term however, does not include any person who is liable to tax in that State in respect only of income from sources in that State.

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then their status shall be determined as follows:

a) the individual shall be deemed to be a resident only of the State in which a permanent home is available to that individual; but if a permanent home is available in both States, or in neither of them, that individual shall be deemed to be a resident only of the State with which the individual's personal and economic relations are closer (centre of vital interests);

b) if the State in which the centre of vital interests is situated cannot be determined, the individual shall be deemed to be a resident only of the State in which that individual has an habitual abode;

c) if the individual has an habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which that individual is a national.

In relation to criterion dealing with habitual abode, Pike confirms determining whether 'an individual lived habitually, in the sense of being customarily or usually present, in one of the two States but not in the other during a given period will not be satisfied by simply determining in which of the two Contracting States the individual has spent more days during that period' - 'it is possible for an individual to have an habitual abode in the two States, which would be the case if the individual was customarily or usually present in each State during the relevant period, regardless of the fact that he has spent more days in one State than in the other':

25. The principles for construing a provision of a double tax agreement are well established. The principles contained in Arts 31(1) and 32 of the Vienna Convention on the Law of Treaties, opened for signature 23 May 1969, 1155 UNTS 331 (entered into force 27 January 1980) require treaties to be "interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose" (Art 31(1)) and provide that, in that task, recourse may be had to supplementary means of interpretation in order to confirm the meaning resulting from the application of Art 31 or to determine the meaning when the interpretation according to Art 31 leaves the meaning ambiguous or obscure or leads to a result which is manifestly absurd or unreasonable (Art 32). It is well established that the OECD commentary to the Model Tax Convention is a legitimate aid to construction:

Thiel v Commissioner of Taxation [1990] HCA 37; 171 CLR 338, at 349-50 per Dawson J, at 357 per McHugh J (Mason CJ and Brennan and Gaudron JJ agreeing at 334);

Commissioner of Taxation v SNF (Australia) Pty Ltd [2011] FCAFC 74; 193 FCR 149 at 183 [107] and 184 [114];

Bywater Investments Limited v Commissioner of Taxation [2016] HCA 45; 260 CLR 169 at 228 [167] per Gordon J.

26. Article 4 of the Model Tax Convention is in substantially the same terms as Art 4(3)(c) of the Double Tax Agreement, save that the order of the cascading provisions in the tiebreaker test is different. Art 4 of the Model Tax Convention, as it was in the 2009 to 2014 years, was in the following terms:

RESIDENT

1. For the purposes of this Convention, the term resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein.

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

(a) he shall be deemed to be a resident only of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (centre of vital interests);

(b) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident only of the State in which he has an habitual abode;

(c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;

(d) if he is a national of both States or neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the State in which its place of effective management is situated.

27. There has been a subsequent change to the drafting of Art 4(3) of the Model Tax Convention but that change is not material in this context.

28. The OECD commentary includes a chapter on Art 4. The 2017 version of the commentary to which the primary judge referred was not the commentary as it was at the time that the Double Tax Agreement entered into force in Australian law. It is, however, unnecessary in this case to resolve a question as to whether a later commentary can be relied on to assist in the construction of a double tax agreement (Burton v Federal Commissioner of Taxation [2019] FCAFC 141; 271 FCR 548 at 579-80 [124] per Steward J) as [19] of the 1977 OECD commentary on Art 4, which was the commentary in place at the time the Double Tax Agreement was entered into, was not in materially different terms to the 2017 version of the OECD commentary. Critically, it did not provide that a person's habitual abode is the place in which the person spends the most time. Paragraph 19 of the 1977 version provided:

In stipulating that in the two situations which it contemplates preference is given to the Contracting State where the individual has an habitual abode, sub-paragraph b) does not specify over what length of time the comparison must be made. The comparison must cover a sufficient length of time for it to be possible to determine whether the residence in each of the two States is habitual and to determine also the intervals at which the stays take place.

29. Applying the interpretative principles that are applicable to the construction of Art 4 of the Double Tax Agreement, there is no warrant, in our opinion, for imputing that the habitual abode of a person is the place where the individual has spent more days. The primary judge in our view correctly rejected that argument at [99].

Domicile and permanent place of abode test

IT 2650 'Income tax: residency - permanent place of abode outside Australia' sets out the Commissioner's approach to determining domicile and permanent place of abode for income tax purposes.

Under this test, a person is a resident of Australia if they have an Australian domicile unless the Commissioner is satisfied that the person's permanent place of abode is outside of Australia (emphasis added).

Domicile

'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 his or her father's permanent home. This rule is subject to some exceptions. 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 domicile by operation of law (see Henderson v. Henderson [1965] 1 All E.R.179; Udny v. Udny [1869] L.R.1 Sc.& Div. 441 and Bell v. Kennedy [1868] L.R.1 Sc.& Div. 307 (H.L.)).

The common law test of domicile of choice is restated in section 10 of the Domicile Act which provides that '[t]he intention that a person must have in order to acquire a domicile of choice in a country is the intention to make his home indefinitely in that country'.

Permanent place of abode

The expression 'place of abode' refers to a person's residence, where one lives with one's family and sleeps at night (R v. Hammond (1852) 117 E.R. 1477; Levene v. I.R.C.(1928) A.C.217 and I.R.C. v. Lysaght (1928) A.C.234). In essence, a person's 'place of abode' is that person's dwelling place or the physical surroundings in which a person lives.

Applegate established that a permanent place of abode outside Australia does not require an intention to live outside Australia indefinitely without any intention of returning to live in Australia in the foreseeable future, other than at some remote, albeit specific, point of time. The Court observed that the term 'permanent' must be interpreted in the context in which it appears. The Court stated that in the context of the meaning of resident, a permanent place of abode does not have to be 'everlasting' or 'forever', that is, it means something less than a permanent place of abode in which a person intends to live for the rest of his or her life: it connotes a more enduring relationship with the particular place of abode than that of a person who is ordinarily resident there or who has there his or her usual place of abode - the intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a 'permanent place of abode' elsewhere: the taxpayer's intention regarding the duration of his stay overseas was only one relevant factor to be taken into account. Of more importance is the nature and quality of use which the taxpayer makes of a particular place of abode overseas:

...the taxpayer's fixed and habitual place of abode. It is his home, but not his permanent home. It connotes a more enduring relationship with the particular place of abode than that of a person who is ordinarily resident there or who has there his usual place of abode. Material factors for consideration will be the continuity or otherwise of the taxpayer's presence, the duration of his presence and the durability of his association with the particular place.

F.C. of T. v. Jenkins 82 ATC 4098; (1982) 12 ATR 745 reflects that the duration of an individual's stay or intended stay in a place is not in itself conclusive in determining the individual's permanent place of abode. In that case, the court held that the taxpayer had a permanent place of abode outside Australia during the period he was overseas even though he had not at any material time formed an intention to remain indefinitely in the New Hebrides in the sense in which the word "indefinitely" is used in Applegate - noting that if a stay of 10 years could not sensibly be regarded as "temporary", neither should a stay of 3 years be so regarded. The taxpayer had said that, under normal circumstances, he and his wife would have applied for an extension after the 3 years had lapsed. In addition, they had no fixed date on which to return to Australia until the taxpayer fell ill.

In Harding, the Court noted that it is not an easy or straightforward exercise, in setting out the principles that govern the application of the test:

134. It follows that on the correct construction of paragraph (a)(i) of the definition of "resident of Australia", a person is not taken to be a "resident" for tax purposes in the following circumstances:

(a) the person has remained domiciled in Australia, such that they have not been present in another country with an intention to remain there indefinitely or permanently;

(b) the person is not a resident under the Ordinary Concepts test, such that they are living outside of Australia and have no residency in Australia;

(c) the person has, during the relevant income year, a place of abode being an actual physical place of accommodation in which they live outside Australia;

(d) the person has lived in that place of accommodation with the intention that, whilst they are living or staying in that particular locality, that place will be the permanent place where they live. The relevant distinction is with persons who reside in accommodation temporarily or for transitory purposes during the period in which they are in a particular place;

(e) the person will be in the place of accommodation "permanently" whilst they are living in the locality even if their presence there is indefinite. This is consistent with the views expressed in FCT v Applegate;

(f) the person might move from one permanent place of abode to another whilst they are living in a particular locality and, indeed, in the course of a relevant taxation year, but that will not prevent them having a permanent place of abode for the purposes of the Domicile test.

The 183 day test

Under this test, a person is a resident of Australia if they have been present in Australia for 183 days or more during the relevant income year unless the Commissioner is satisfied that the person's usual place of abode is outside Australia' and they do not intend to take up residence in Australia (emphasis added).

Application to the Taxpayer's circumstances

Relevantly, the Commissioner issued a ruling previously that Taxpayer would not be considered a resident of Australia for income purposes for the 20XX income year. The Commissioner determined that the Taxpayer did not reside in Australia, Country A was the Taxpayer's domicile of choice and their permanent place of abode was in Country A.

The issue is whether the following factors would displace this finding:

a)            The Australian house.

b)            The time that the Taxpayer has chosen to spend in Australia with respect to:

•                    renovations to the Country A house; and

•                    having to, or choosing to, remain in Australia to avoid quarantining requirements should they travel between CountryA and Australia. (Remaining in Australia during this time, and avoiding the possibility of potentially being unable to visit Australia, and the possibility of losing time due to quarantine requirements was advantageous to them both from in terms of progressing business matters in Australia, and spending time with their elderly parents.

The Commissioner considers that in these circumstances:

•                    Though not free from doubt, the Taxpayer is not a resident according to ordinary concepts as contemplated for the purposes of subsection 6(1) of the ITAA 1936.

The Commissioner had accepted that the Taxpayer would not be considered a resident of Australia according to ordinary concepts for the XX income year.

The Commissioner accepts that the Country A house serves as the Taxpayer's main residence for the purposes of the residency test.

A considerable change in the duration of time spent in Australia (more) and Country A (less) than the preceding years may be evidence of the Taxpayer's intention to reside in Australia. However, the Taxpayer's initial decision to spend time in the Australian house while their home in Country A was being substantially renovated does not in itself support a conclusion that they became a resident of Australia at that time. During the course of substantial renovations to one's home it could be accepted that one may choose to travel overseas and also attend to business activities, and in the Taxpayer's case avail themselves of alternative accommodation that is already available for their use. The Taxpayer acquired the Australian house for their personal use - however, they did not bring their personal effects etc. back to Australia. The Taxpayer has stated their intention to return to the renovated property and use it as their permanent place of abode. The retention of the Taxpayer's personal effects and remodelling of the home to cater for those effects supports their stated subjective intention to retain the Country A home as their permanent place of abode.

Accordingly, although finely balanced in these circumstances, it is reasonable to accept that their choices and behaviour whilst present in Australia should not lead to the conclusion that Country A is not the country where they reside and intend to have their permanent place of abode and to which they give more attention. In support the following points are relevant:

•                    While they could have purchased or rented alternative accommodation in Country A they chose to stay at the Australian house because it was available to them and for convenience for personal and business reasons, although as set out in the facts, they returned to check on the progress of the renovations on four occasions prior to completion.

•                    Given their pattern of movements between Country A and Australia and their reasons for travelling between the two, it is reasonable to accept that but for COVID they would have returned to Country A and resumed their previous pattern of travel between Australia and Country A for personal and business reasons. While to some degree it could be argued that they chose to stay in Australia during COVID, the uncertainty as to whether they could travel between the countries and the potential quarantine arrangements of doing so meant that they had little choice but to stay in Australia for the time being in order to be available for their parents and attend to business matters in person. If they had been able to travel freely between the two countries, it is accepted that they would have primarily lived in Country A and only travelled to Australia as and when their family and business circumstances required.

•                    The subtle distinctions between their presence in Australia and Country A reflect that their stay in Australia lacks the same degree of attachment/permanence of their stay in Country A - e.g. they do not maintain vehicles in Australia, apart from one overseas membership, they do not have local club/social memberships.

•                    Though also not free from doubt, the Taxpayer is not a resident under the extended tests as contemplated for the purposes of subsection 6(1) of the ITAA 1936.

The Commissioner had accepted that the Taxpayer would not be considered a resident Australia under the extended tests for the XX income year.

The Commissioner accepts that their domicile of choice and permanent place of abode is Country A - that they chose to stay in Australia for convenience whilst their Country A home was being renovated, prefers to be present in Australia to deal with business matters in person, and chose to remain in Australia to deal with the uncertainties and inconveniences stemming from COVID (having regard to their desire to attend to their parents' well-being) should not lead to the conclusion their intention is to live in Australia: i.e. that their domicile of choice and permanent place of abode is no longer Country A.

The Taxpayer intends to return to Country A once 'normal travel' resumes between Australia and Country A. In the context and for the purposes of this ruling the Commissioner considers 'normal travel' to mean once there are no quarantine requirements, impromptu lockouts/lockdowns etc or state or international border closures which may mean they can leave Australia but not return and/or return to Country A but not be able to leave Country A if it shut its borders.

The Commissioner has considered all of the relevant facts and circumstances, including the following, in arriving at this conclusion:

•                    The Taxpayer has spent a significant amount to renovate their Country A home which contains the majority of their collectibles, including those that carry sentimental value, in a purpose-built gallery, as well as their motor vehicles. They intend to return to that place which they consider their home (per Addy and Pike).

•                    The existence of the Australian house is not determinative. A taxpayer's residency is not to be affected by resources that may or not be available to others (to fund their choices). Keeping a house ready for occupation (including exercise facilities) for the times they are present in Australia would not in and of itself affect the Taxpayer's Country A residency for income tax purposes (per Peel).

•                    Considered together, the duration of the Taxpayer's stay in Australia during the renovations to the Country A house and then to deal with COVID concerns (uncertainties surrounding travel, restrictions if/when they are able to travel and wanting to be accessible and close to their parents during this period and to not expose them to health risks from their travels etc.) is not determinative in these circumstances. The Taxpayer would have resumed their previous pattern of travel between Country A and Australia, following the completion of the renovations to the Country A house but for COVID (per Case 35 and Jenkins). It is noted that these are somewhat uncertain/unprecedented times, and that it is not unreasonable that a person with the Taxpayer's business and personal interests may wish to avoid undergoing compulsory quarantine periods (if they were able to travel between Country A and Australia) and avoid the possibility of being unable to re-enter Australia should they return to Country A. It is noted that a conclusion based on the facts may be considered finely balanced.

•                    The Taxpayer's social, business and community ties - notwithstanding their family and some friends are in Australia, the fact that they do not maintain a motor vehicle and only has one overseas social membership (in terms of in Australia from the viewpoint of a Country A resident): in contrast to their ties to Country A - where they have Country A health insurance, a number of social memberships, and although they can maintain similar houses/lifestyles wherever they choose, their motor vehicles and most of their collectibles, including those with sentimental value are in Country A house (per Reid, Gregory and Addy).

•                    The Taxpayer's financial presence is not pivotal - it is not unusual in these times or for a person with the Taxpayer's means to have a financial presence outside of their county of residence (in this case Country A) i.e. also has bank accounts and financial interests in Australia and had them in Country C (per Harding).

•                    The manner in which the Taxpayer completes in-bound/out-bound passenger cards is in accord with their stated subjective mindset/intentions - i.e. that they are not a resident of Australia (per Harding).

It is noted that even if the Taxpayer were to be considered a resident according to ordinary concepts, it is likely that under the DTA they would be considered a resident of Country A. Relevantly:

•                    he has a place of permanent abode in Country A;

•                    their habitual abode is Country A (notwithstanding that they chose to stay in Australia whilst renovating the Country A house), that they choose to attend in person to business matters in Australia and that they chose to stay in Australia because of the impact of COVID on their ability to travel freely and easily between Country A and Australia (having regard to their family and business concerns)- noting that the habitual abode of a person is not to be imputed from the place where the individual has spent more days (per Pike); and

•                    arguably their personal and economic relations are closer in Country A - having regard to the differences in the quality of their physical presence between the two places (per Pike).

Conclusion

The Taxpayer was not a resident of Australia for income tax purposes for the income year ending XX.

The Taxpayer has a genuine intention to resume their prior pattern of travel between Country A and Australia once the travel restrictions are lifted, i.e. once there are no longer any real risks of lockouts/lockdowns and quarantine requirements. Accordingly, they are not considered to be a resident of Australia for income tax purposes for the income year ending YY.