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Edited version of private advice
Authorisation Number: 1051869042603
Date of advice: 22 July 2021
Ruling
Subject: Australian tax residency
Question 1
For Period 1 will you be an Australian resident for taxation purposes?
Answer 1
No.
Question 2
For Period 2 will you be an Australian resident for taxation purposes?
Answer 2
No.
Question 3
For Period 3 will you be an Australian resident for taxation purposes?
Answer 3
Yes.
Question 4
Will the source of the income you earned in Period 3 be XXXX?
Answer 4
Yes.
Question 5
Will you be entitled to foreign income tax offset for the income you earned in period 3?
Answer 5
Yes
This ruling applies for the following periods:
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ended 30 June 20XX
The scheme commences on:
XX XXXX 20XX
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You and your family moved to XXXX on XX XXXX 20XX, so you could take up employment
Your intention was to live in XXXX for several years, you resigned your position in Australia.
Your house in Australia was leased to other parties.
All of your Australian memberships were cancelled, and you advised your Australian bank you were a non-resident for tax purposes.
You entered XXXX on a Visa, which was valid until XX XXXX 20XX.
You rented a property in XXXX, rental contract until XX XXXX 20XX.
On XX XXXX 20XX you bought a car and took out a loan with a bank in XXXX to purchase the vehicle.
XX XXXX 20XX, your spouse and children returned to Australia.
You remained in XXXX and planned a holiday to visit your family.
On XX XXXX 20XX you entered a lease for a small unit as you did not require a house.
XX XXXX 20XX you returned to Australia for holiday, with a return flight booked for XX XXXX 20XX, then you returned to XXXX.
In XX XXXX 20XX you obtained a new Visa.
On XX XXXX 20XX XXXX announced lockdown measures. You booked flights to Australia as you were unsure how long the lockdown in XXXX would be, you purchased return flights leaving on XX XXXX 20XX with a return date of XX XXXX 20XX.
In late XXXX 20XX your Visa was renewed until XX XXXX 20XX.
On XX XXXX 20XX, as a result of COVID restrictions you were unable to return to XXXX.
Since XX XXXX 20XX you have continued to work for your foreign employer, you are working remotely. You continue to work on XXXX time, and there has been no change to your employment.
On XX XXXX 20XX the lease on your premises in XXXX ended and you did not renew this lease.
Your personal belongings that were left in XXXX were being stored.
Relevant legislative provisions
Income Tax Assessment Act 1936 subsection 6(1)
Income Tax Assessment Act 1997 section 770-10
Income Tax Assessment Act 1997 section 995-1
Reasons for decision
Questions 1, 2 & 3
Summary
Will you be an Australian resident for tax purposes for each of the three periods in question?
Detailed reasoning
Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).
The terms resident and resident of Australia, as applied to an individual, are defined in subsection 6(1) of the ITAA 1936.
The definition offers four tests to ascertain whether each individual 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 they reside in Australia according to the ordinary meaning of the word resides.
Where an individual does not reside in Australia according to ordinary concepts, they will still be an Australian resident if they meet the conditions of one of the other tests.
The resides test
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'. These definitions have been highlighted in cases as being definitive observations of the meaning of resides (see Viscount LC in Levene v Commissioners of Inland Revenue [1928] AC 217 and Logan J in Stockton v Federal Commissioner of Taxation [2019] FCA 1679).
The observations contained in the case of Hafza v Director-General of Social Security (1985) 6 FCR 444 are also important:
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.
Case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the 'resides' test:
• Physical presence
• Intention or purpose of presence
• Family and business/employment ties
• Maintenance and location of assets, and
• Social and living arrangements
These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in IT 2650 and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.
It is important to note that not one single factor is decisive, and the weight given to each factor depends on each individual's circumstances.
Domicile test
Under the domicile test, you are a resident of Australia if your domicile is in Australia unless the Commissioner is satisfied that your permanent place of abode is outside Australia.
Domicile
Whether your domicile is Australia is determined by the Domicile Act 1982 and the common law rules on domicile.
Your domicile is your domicile of origin (usually the domicile of your father at the time of your birth) unless you have acquired a domicile of choice elsewhere. To acquire a domicile of choice of a particular country you must be lawfully present there and you must hold the positive intention to make that country your home indefinitely. Your domicile continues until you acquire a different domicile. Whether your domicile has changed depends on an objective consideration of all relevant facts.
Permanent place of abode
If you have an Australian domicile, you are an Australian resident unless the Commissioner is satisfied that your permanent place of abode is outside Australia. This is a question of fact to be determined in light of all the facts and circumstances of each case.
'Permanent' does not mean everlasting or forever, but it is to be distinguished from temporary or transitory.
The courts have held that the phrase 'permanent place of abode' calls for a consideration of the town or country where a person is located. It does not extend to more than one country, or a region of the world.
The Full Federal Court in Harding v Commissioner of Taxation [2019] FCA 29 held at paragraphs 36 and 40 that key considerations in determining whether a taxpayer has his or her permanent place of abode outside Australia are:
(a) whether the taxpayer has definitely abandoned, in a permanent way, living in Australia; and
(b) whether the taxpayer is living permanently in a specific country.
Paragraph 23 of Taxation Ruling IT 2650 Residency - Permanent place of abode outside Australia sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode:
(a) the intended and actual length of the taxpayer's stay in the overseas country;
(b) 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;
(c) 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;
(d) whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;
(e) the duration and continuity of the taxpayer's presence in the overseas country; and
(f) the durability of association that the person has with a particular place in Australia, i.e. maintaining assets 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.
As with the factors under the resides test, no one single factor is decisive, and the weight given to each factor depends on the individual circumstances.
183-day 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.
In the context of the 183- day test, a person's usual place of abode can include both a dwelling or a country where the person usually resides. A person can have only one usual place of abode under the 183- day test. However, it is also possible that a person does not have a usual place of abode. This is the person who merely travels through various countries without developing any strong connections.
If a person has places of abode both inside and outside Australia, then a comparison may need to be made to determine which is their usual place of abode. When comparing two places of abode of a particular person, it is necessary to examine the nature and quality of the use which the person makes of each particular place of abode. It may then be possible to determine which is the usual one, as distinct from the other or others which, while they may be places of abode, are not properly characterised as the person's usual place of abode (Emmett J at [78] in Federal Commissioner of Taxation v Executors of the Estate of Subrahmanyam [2001] FCA 1836).
Superannuation Test
An individual is a resident of Australia if they are either 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 they are the spouse, or the child under 16, of such a person.
Application to your circumstances
Period 1
Resides test
We consider that your circumstances are not consistent with residing in Australia.
This is because:
• For this period, you were not physically in Australia
• You were a tax resident of XXXX for this period
• Your family moved to XXXX and lived with you for this period
• You were employed in XXXX
• You advised your bank and superfund you were no longer an Australian resident, and provided them with your XXXX address
• You rented a dwelling in XXXX for you and your family to reside in
You are not a resident of Australia under the resides test.
Domicile Test
In your case, you were born in Australia and your domicile of origin is Australia. You left Australia on XX XXXX 20XX with the intention to work and reside in XXXX for an undetermined time.
It is considered that you did not abandon your domicile of origin in Australia and acquired a domicile of choice in XXXX. You were not entitled to reside in the XXXX indefinitely and while living in XXXX, you held a work permit which was valid until XX XXXX 20XX.
Permanent place of Abode
The Commissioner is satisfied that your permanent place of abode is outside Australia. This takes into account that:
• You intended to stay in XXXX indefinitely, with no timetable for your return to Australia
• You established a home with your family in XXXX
• Your family home in Australia was abandoned for this period
• You stayed in XXXX for the entirety of this period
• Your children were pulled out of school in Australia and your entire immediate family moved with you to XXXX
• You cancelled all your memberships in Australia and advised your banks and superannuation fund you were no longer an Australian resident.
Therefore, you are not a resident of Australia under this test.
183-day Test
You have not been present in Australia for 183 days or more during the income year. You are not a resident under this test.
Superannuation Test
You are not a contributing member of the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS) or a spouse of such a person. Therefore, you are not a resident under this test.
Conclusion
As you do not satisfy any of the four tests of residency, you are not a resident of Australia for income tax purposes for Period 1.
Period 2
Resides test
We consider that your circumstances are not consistent with residing in Australia.
This is because:
• For this period, you were not physically in Australia
• You were a tax resident of the XXXX for this period
• You were employed in XXXX
• You kept your residence in Australia, and your family lived in this
• You rented a dwelling in XXXX for yourself to reside in
You are not a resident of Australia under the resides test.
Domicile Test
In your case, you were born in Australia and your domicile of origin is Australia. You left Australia on XX XXXX 20XX with the intention to work and reside in XXXX for an undetermined time. You returned to Australia on XX XXXX 20XX.
It is considered that you did not abandon your domicile of origin in Australia and acquired a domicile of choice in XXXX. You were not entitled to reside in XXXX indefinitely and while living in XXXX, you only held a work permit which was valid until XX XXXX 20XX.
Permanent place of Abode
The Commissioner is satisfied that your permanent place of abode is outside Australia. This takes into account that:
• You intended to stay in XXXX indefinitely, with no timetable for your return to Australia
• You kept an established a home in XXXX
• Your family home in Australia was occupied by your immediate family for this period
• You stayed in XXXX for the entirety of this period, other than a holiday
• Your family did return to Australia for your children to finish school, however you stayed in XXXX to continue with your employment
• You supported your family with your income from your employment in XXXX
Therefore, you are not a resident of Australia under this test.
183-day Test
You have not been present in Australia for 183 days or more during the income year. You are not a resident under this test.
Superannuation Test
You are not a contributing member of the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS) or a spouse of such a person. Therefore, you are not a resident under this test.
Conclusion
As you do not satisfy any of the four tests of residency, you are not a resident of Australia for income tax purposes for Period 2.
Period 3 (XX XXX 20XX to XX XXX 20XX)
Resides test
We consider that your circumstances are consistent with you residing in Australia.
This is because:
• For this period, you lived in Australia with your family in your family home
• You were employed by a company in XXXX
• You completed your work remotely from Australia
• You did not have a dwelling in XXXX
You are a resident of Australia under the resides test.
Domicile Test
In your case, you were born in Australia and your domicile of origin is Australia. You left Australia on XX XXXX 20XX with the intention to work and reside in XXXX for an undetermined time. You returned to Australia on XX XXXX 20XX.
It is considered that you did not abandon your domicile of origin in Australia and acquired a domicile of choice in XXXX. You were not entitled to reside in XXXX indefinitely and while living in XXXX, you only held a work permit which was valid until XX XXXX 20XX.
Permanent place of Abode
The Commissioner is not satisfied that your permanent place of abode is outside Australia. This takes into account that:
• You were living in Australia with your family for this entire period
• You did not maintain a dwelling outside of Australia
You are a resident of Australia under the domicile test outlined in the definition of 'resident' in subsection 6(1) of the ITAA 1936.
183-day Test
You have been in Australia for 183 days or more in the 20XX income year. We now need to consider whether we are satisfied that, during the 20XX income year, your usual place of abode was outside Australia and your intention was to take up residence in Australia.
In the context of the 183- day test, a person's usual place of abode can include both a dwelling or a country where the person usually resides. A person can have only one usual place of abode under the 183- day test. However, it is also possible that a person does not have a usual place of abode. This is the person who merely travels through various countries without developing any strong connections.
If a person has places of abode both inside and outside Australia, then a comparison may need to be made to determine which is their usual place of abode. When comparing two places of abode of a particular person, it is necessary to examine the nature and quality of the use which the person makes of each particular place of abode. It may then be possible to determine which is the usual one, as distinct from the other or others which, while they may be places of abode, are not properly characterised as the person's usual place of abode (Emmett J at [78] in Federal Commissioner of Taxation v Executors of the Estate of Subrahmanyam [2001] FCA 1836).
To determine whether you intend to take up residence in Australia, we look at evidence of relevant objective facts.
Based on your circumstances, the Commissioner is not satisfied that your usual place of abode was outside Australia for the relevant income year and that you did not intend to reside in Australia.
In respect of the usual place of abode this takes into account that:
• You were living in Australia with your family for this entire period
• You did not maintain a dwelling outside of Australia
In respect of the intention to take up usual place of abode this takes into account that:
• You were living in a property you own with your family for the entire income year
Superannuation Test
You are not a contributing member of the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS) or a spouse of such a person. Therefore, you are not a resident under this test.
Conclusion
You satisfy the resides, domicile and 183 day tests of residency and so are a resident of Australia for income tax purposes for Period 3, XX XXX 20XX to XX XXXX 20XX.
Question 4
Summary
Will the source of the income you earned in Period 3 be XXXX?
Detailed reasoning
From XX XXXX 20XX you are an Australian resident for taxation purposes, Australia has the sole taxing right to income for services performed under Article 15(1) of the XXXX DTA. However, Article 27(1)(b) of the XXXX DTA states the income will be deemed to be income sourced from XXXX as you are taxed on this payment in XXXX.
Summary
Will you be entitled to foreign income tax offset for the income you earned in period 3?
Detailed reasoning
Under Article 22(2) of the XXXX DTA you are entitled to a credit for any tax you have paid in the XXXX in relation the income you have earned in XXXX in your Australian tax return. You will be entitled to this as a foreign income tax offset under section 770-10 of the ITAA 1997.