Edited version of private advice

Authorisation Number: 1051862214292

Date of advice: 26 August 2021

Ruling

Subject: Residency

Question1

Were you a non-resident for Australian income tax purposes the relevant financial year?

Answer

No. you became a resident of Australia for taxation purposes when you arrived in Australia.

Question 2

Were you a non-resident for Australian income tax purposes from mid 20XX to mid 20XY, the last day when you were employed by your current employer and performing work remotely for your position in City Z?

Answer

No. you became a resident of Australia for taxation purposes when you arrived in Australia and you therefore were a resident for the entire 20XY income year.

This ruling applies for the following period periods:

Year ended 30 June 20XX

Year ended 30 June 20XY

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were born in Australia

You are a citizen of Australia.

You are a permanent resident of City Z and this was granted in a previous year.

You went to City Z in the year residency was granted to work.

You finished with your employer the year after returning to Australia.

You arrived back in Australia for a short holiday with your family.

Your intention was to stay a month or two and see what was going to happen to the pandemic.

The pandemic meant that you could not return to City Z due to government restrictions.

You did not seek to attempt to leave Australia due to these restrictions and the health risks associated with leaving.

After several months you did not see the point in being based in City Z any longer.

You moved into a property shortly after returning to Australia and this was rented out prior to you moving in.

You moved to this property as the cost of short-term accommodation was high and it was better for your children to be in more stable accommodation.

You worked remotely for your City Z employer in Australia.

You ended your lease on your rental in City Z late in the year in which you returned to Australia.

You resigned from your employment in City Z in the middle of the following year and your last day working for the employer was within the same month.

You resigned from your employment as there was no improvement in relation to the pandemic and you saw no reason to be based in City Z anymore.

You had your belongings sent to you several weeks after resigning.

You have no assets in City Z.

You own a few properties in Australia.

You enrolled your child in school in Australia shortly after returning to Australia.

Prior to returning to Australia, you were only in Australia for a few days in that financial year.

You and your spouse are not eligible to contribute to the PSs or the CSS super funds.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 6(1)

Detailed reasoning

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, if you are a foreign resident, your assessable income includes only income derived from an Australian source (subsection 6-5(3) of the ITAA 1997).

The terms resident and resident of Australia, regarding 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. These tests are:

1. the resides test

2. the domicile tests

3. the 183-day test

4. the superannuation tests

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 a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.

The resides test

The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'. As the word 'reside' is not defined in Australian taxation law, it takes its ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936.

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3rd edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; having one's abode for a time', and according to the Compact Edition of the Oxford English Dictionary (1987), 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 considering the definition of 'reside', the High Court of Australia, in Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 at page 99-100, per Latham CJ, noted the term 'reside' should be given a wide meaning for the purposes of section 6(1) of the ITAA 1936. Similarly, in Subrahmanyam v Commissioner of Taxation 2002 ATC 2303, Deputy President Forgie said at paragraphs 43 and 44 that the widest meaning should be attributed to the word 'reside'.

The question of whether an individual 'resides' in a country is a question of fact and degree and not of law. In deciding this question, the courts have consistently referred to and considered the following factors as being relevant:

      i.         physical presence in Australia;

     ii.        nationality;

    iii.        history of residence and movements;

   iv.        habits and 'mode of life';

    v.         frequency, regularity and duration of visits to Australia;

   vi.        purpose of visits to or absences from Australia;

  vii.        family and business ties with Australia compared to the foreign country concerned; and

viii.        maintenance of a place of abode.

The weight given to each factor varies with individual circumstances and no single factor is necessarily decisive. In Shand v Federal Commissioner of Taxation 2003 ATC 2080, the Tribunal stated (at 35):

Questions of residence, domicile, permanent place of abode, have frequently been found by the courts and tribunals to be difficult to assess on a factual level and not easy to define in concrete legal terms.

You have been living and working in City Z for several years with your family.

You arrived back in Australia, initially for a short holiday.

The pandemic meant that you could not return to City Z due to government restrictions.

You initially stayed in short term accommodation.

You then moved into a property which was owned by you and used as a rental, the tenants moved out and you and your family moved in.

Your child was enrolled in school in Australia shortly after returning to Australia.

You ceased your lease on your rental property in City Z and you were working remotely for your City Z employer in Australia.

You resigned from your employment in City Z.

Based on the information provided to the Commissioner you commenced being a resident of Australia for taxation purposes on the day that you returned.

The Commissioner is of the opinion that you commenced residing in Australia according to ordinary concepts and your continuity of association with Australia is evidenced by you moving into your property rather than living in short term accommodation and by enrolling your child in school in Australia soon after returning to Australia.

You are a resident of Australia for taxation purposes under this test.

The domicile test

If a person's domicile is Australia, they will be an Australian resident unless the Commissioner is satisfied, they have a permanent place of abode outside of Australia. In order to show that a new domicile of choice in a country outside of Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country.

The concept of domicile was discussed in the Marriage of Hall (1980) 5 Fam LR 662:

A person may abandon his domicile of origin and acquire a domicile of choice but in order to establish a change of domicile there must be clear evidence of an intention to abandon the domicile of origin and to make a new permanent home in the country to which the person has removed. In my view a person cannot be said to acquire a new domicile until there has been a firm intention of establishing a permanent residence in another country and the confirmation of that intention by actual residence in that country.

Declarations as to intention are rightly regarded in determining the question of a change of domicile, but they must be examined by considering the person to whom, the purposes for which, and the circumstances in which they are made and they must further be fortified and carried into effect by conduct and action consistent with the declared expression:

The Commissioner's view on how a domicile of choice may be acquired can be found in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia, at paragraph 21:

In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country e.g., through having obtained a migration visa. A working visa, even for a substantial period such as 2 years, would not be enough evidence of an intention to acquire a new domicile of choice.

Ross v Ross [1930] AC 1 at 6-7 per Lord Buckmaster... Where the court finds that at a relevant point of time there is a conflict between the actual conduct of the party concerned and the verbal expression of his intention doubtless the court will in most cases prefer the act to the word - as an ancient proverb puts it: "what you do speaks so loudly that I cannot hear what you say."

Further, in Fremlin v Fremlin (1913) 16 CLR 212; [1913] HCA 25 (Fremlin v Fremlin) Per Barton J:

In Winans v. Attorney-General, Lord Halsbury L.C. said:-"Now the law is plain, that where a domicile of origin is proved it lies upon the person who asserts a change of domicile to establish it, and it is necessary to prove that the person who is alleged to have changed his domicile had a fixed and determined purpose to make the place of his new domicile his permanent home." In the much older case of Udny v. Udny Lord Westbury said: -"Domicile of choice is a conclusion or inference which the law derives from the fact of a man fixing voluntarily his sole or chief residence in a particular place, with an intention of continuing to reside there for an unlimited time. This is a description of the circumstances which create or constitute a domicile, and not a definition of the term. There must be a residence freely chosen, and not prescribed or dictated by any external necessity, such as the duties of office, the demands of creditors, or the relief from illness; and it must be residence fixed not for a limited period or particular purpose, but general and indefinite in its future contemplation. It is true that residence originally temporary, or intended for a limited period, may afterwards become general and unlimited, and in such a case so soon as the change of purpose, or animus manendi, can be inferred the fact of domicile is established." Lord Curriehill in the case of Donaldson v. M'Clure says: -"To abandon one domicile for another means something far more than a mere change of residence. It imports an intention not only to relinquish those peculiar rights, privileges and immunities which the law and constitution of the domicile confer on the denizens of the country in their domestic relations, in their business transactions, in their political and municipal status, and in the daily affairs of common life, but also the laws by which the succession to property is regulated after death. The abandonment or change of a domicile is therefore a proceeding of a very serious nature, and an intention to make such an abandonment requires to be proved by satisfactory evidence." Lord Halsbury, in Marchioness of Huntly v. Gaskell, expressed strong approval of Lord Curriehill's judgment, quoting this passage.

Your domicile of origin is Australia.

You had a domicile of choice in City Z as you have been a permanent resident of City Z for several years.

Since returning to Australia you have resumed your domicile of Australian domicile.

Therefore, your domicile is Australia.

Permanent place of abode

The expression 'place of abode' refers to a person's residence, where they live with their family and sleep at night. A person's place of abode is that person's dwelling place or the physical surroundings in which a person lives.

A permanent place of abode does not have to be 'everlasting' or 'forever'. It does not mean an abode in which a person intends to live for the rest of his or her life. An 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 Full Federal Court in Harding stated at 41 that it favoured the construction of the phrase 'permanent place of abode' as used at first instance in Applegate v Commissioner of Taxation [1978] 1 NSWLR 126 at 134:

"place of abode" may mean the house in which a person lives or the country, city or town in which he is for the time being to be found. I am of the view that the latter is the meaning of the expression used in s. 6(1.) of the Act.

The Full Federal Court at 40 summarised its thoughts on 'permanent place of abode' as follows:

•         the word 'place' in the context of the phrase 'outside Australia' involves a consideration of the town or country in which a person is physically residing 'permanently';

•         so long as the taxpayer has 'definitely abandoned' his or her residence in Australia, it is not necessary for the taxpayer to be permanently located at a particular house or flat in a particular town within a foreign country or for the person to live in one particular town, suburb or village within a given country;

•         the word 'place' should accordingly be read as including a reference to a country or state;

•         moving between foreign countries is not the same as being permanently in one country; and

•         the words 'permanent place' require the identification of a country in which the taxpayer is living permanently.

Consequently, it is considered that the Full Federal Court in Harding provides two key considerations in determining whether a taxpayer has their permanent place of abode outside Australia. These are:

1)    whether the taxpayer has abandoned, in a permanent way, their Australian residence, and

2)    whether the taxpayer is living permanently in a specific country, rather than moving between foreign countries.

The Commissioner is satisfied that you do not have a permanent place of abode outside Australia for the following reasons:

•         You enrolled your child in school soon after arriving in Australia

•         You moved into a property you owned

•         You worked remotely for your employer in Australia

•         You ended your lease on your City Z property.

Although you may of thought you were coming back for a short holiday the chance of staying longer must have been an option as you enrolled your child in school soon after arriving in Australia and you moved into a property you owned in Australia. You ceased your lease on your rental accommodation in City Z.

You do not have a permanent place of abode outside Australia as you were re-establishing your home in Australia.

You are not a resident under this test.

The 183-day test

Under the 183 day test, a person is a resident of Australia if they are actually physically present in Australia for more than 183 days in an income year unless the Commissioner is satisfied that their usual place of abode is outside of Australia and they have no intention of taking up residence here.

You were not in Australia for more than 183 days in the income year in which you returned.

You were in Australia for more than 183 days in the following income year.

The Commissioner is not satisfied that your usual place of abode is outside Australia and you did not intend on taking up residence in Australia as:

•         as you enrolled your child in school shortly after arriving in Australia, you moved into a property you own in Australia.

•         You ceased your lease on your City Z rental property later the same year.

•         You were working remotely for your City Z employer in Australia and you eventually ceased your work with your City Z employer by resigning.

You are a resident under this test.

The superannuation tests

This test covers Commonwealth government employees - members of the Commonwealth superannuation funds (as well as their spouses and children under 16 years of age).

A person is a resident under this test if they 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; or

•         the spouse, or a child under 16, of a person covered by either of the above.

You are not a resident under this test.

Your residency status

You are a resident of Australia for taxation purposes from the date you returned to Australia.