Edited version of private advice

Authorisation Number: 1051899373204

Date of advice: 02 November 2021

Ruling

Subject: Residency of Australia for taxation purposes

Question 1

Are you a resident of Australia for taxation purposes for the 2021 income year?

Answer

Yes.

Question 2

Are you a resident of Australia for taxation purposes under the Double Tax Agreement between Australian and Country Z for the 20XX income year?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were born in Country Y.

You are a citizen of Australia.

You were made redundant from your employer in Australia a couple of years ago.

You were able to secure work in Country Z.

You went to Country Z to work later the same year.

Your intention was to move permanently to Country Z.

You have a work visa to enter Country Z.

This visa only allows you to be in Country Z for the period you are working in Country Z.

Your employer has sponsored this visa.

If you cease working in Country Z within a specified time frame of commencing employment you are required to refund all company costs.

This visa expires within a few years and you intend to apply for citizenship after this time.

You were employed as a local hire and your employer paid for a one way ticket for you and your spouse along with excess luggage costs.

You are a resident of Country Z for taxation purposes.

You have been renting accommodation in Country Z which you pay for yourself.

You have a lease on this property in Country Z.

Your employer paid for the first month's accommodation in Country Z.

The lease commenced on this property within a few months of your arrival in Country Z.

You took personal affects clothing and jewellery to Country Z with you.

You purchased furniture for the rented accommodation in Country Z.

Your intention was to eventually purchase a property in Country Z.

Your spouse accompanied you to Country Z.

You have a number of assets in Country Z.

You have social and sporting connections in Country Z. You also have social connections with work colleagues.

You have family and social and sporting connections in Australia along with various memberships associated with work, school and university.

Your family home in Australia was being used by your children while you were in Country Z.

You returned to Australia for a holiday at the end of the year and returned to Country Z a few weeks later.

You returned to the family home when you returned to Australia.

You returned to Australia for a short holiday in the early part of the following year.

You had a return air ticket booked for later in the same month.

The Australian government went into lock down which meant you could not return to Country Z.

You were not able to go back to Country Z as it was not safe to do so at the end of the weeks holiday in Australia.

You have been working remotely for your Country Z employer in Australia.

Your terms and conditions of employment agreement with your employer did not change.

You continued to be paid, taxed, had deductions for medical/pension in Country Z by your employer.

The nature of your roles and responsibility with your employer did not change.

Your work responsibility was with the overseas employer, no work was performed for any Australian entity.

The economic impact of this Australian lockdown was the continuation of monthly rent and utilities as a permanent Country Z resident given the intention was to return as soon as able.

The economic employer XXXX remains in Country Z and is a subsidiary of the Country Y parent.

You do not perform work for Australian clients you have a managerial role with no Australian client facing.

The performance of work is entirely not dependent on you being located in Australia.

The intention towards Australia has not changed and you returned to Country Z in Season 20XX as soon as was able and safe to return with the office Country Z office physically opening from late Season 20XX.

Your agreement with your Country Z employer was to return as soon as safely you could and ideally when the office was safe to open in late Season.

You have been living in your family home in Australia during the period you have been in Australia due to the pandemic.

You have been maintaining the lease on the property in Country Z while in Australia.

Your ability to return to Country Z was a combination of factors outside of your control limited by Australian Border exemption approval, carrier ability, vaccination status and safety to leave Australia and enter Country Z.

You are not a critical worker (by Goverment definition) and exemption outside of required discretionary Home affairs approval, as an example approval was sought for by you in Month 20XX and was denied by the DHA.

Your age and non-critical work status and vaccine deployment by the State government meant that the earliest that you could receive your first jab of vaccine and completion of second dose was Month 20XX.

You are a lifetime gold member of XXXX and current platinum member based on annual travel history. XXXX your preferred carrier indicated no International flights until 20XX.

You contacted non-XXXX carriers multiple times for return flights during 20XX-XX period - airline did not respond to requests subsequently you chose another carrier than one booked/travelled in Month 20XX and forfeited your return flight cost.

You made the decision given the combination of Border approval, vaccination status, State lock-down status, and safety in Country Z to return to Country Z in Season 20XX.

You were able to leave Australia on XX Month 20XX and return to Country Z.

Neither you nor your spouse have ever been Commonwealth government employees.

Relevant legislative provisions

International Tax Agreements Act 1953

Income tax Assessment Act 1936 subsection 6(1)

Income tax Assessment Act 1997 section 995-1

Superannuation Act 1976

Superannuation Act 1990

Domicile Act 1982

Reasons for decision

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. 3^rd 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.

We consider that your circumstances are consistent with you residing in Australia.

This is because:

•                    While you left Australia in Season 20XX you were only in Country Z for a short period due to you returning for Christmas then for a short holiday in Season 20XX.

•                    You were not able to return to Country Z in Season 20XX due to the pandemic.

•                    You were in Australia up until recently when you were able to return to Country Z.

•                    While in Australia you were living in your family home which your children have been living in while you were in Country Z for several months.

•                    You have been working remotely for your Australian employer in Australia.

Your habits and movements are consistent with someone who is residing in Australia. You still have a continuity of association with Australia.

You are a resident of Australia under the resides test.

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.

In your case, you were born in Country Y and your domicile of origin is Country Y.

You are a citizen of Australia and this is your domicile of choice.

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.

The Commissioner is not satisfied that your permanent place of abode is outside Australia. This takes into account that:

•                    You have not abandoned your family home in Australia

•                    You returned to the family home for a visit and the short holiday a few months later which then resulted in you remaining in Australia for a long period of time

•                    Your visa only allows you to remain in Country Z if you are working

•                    You have family in 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

Where a person is present in Australia for 183 days during the year of income the person will be a resident, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

You have been in Australia for 183 days or more during the financial year.

We now need to consider whether we are satisfied that, during the 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 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 have only lived and worked in Country Z for several months before you came back to Australia and remained here due to the pandemic.

•                    Your visa only allows you to be in Country Z if you are working so you are not able to remain permanently in Country Z.

You were in Australia from late in the previous financial year and the whole of the following financial year, living in your family home.

You are a resident under this test.

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.

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, or a child under 16 of such a person. Therefore, you are not a resident under this test.

Conclusion

You satisfy the resides, domicile and the 183 day tests of residency and so are a resident of Australia for income tax purposes for the income year.

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country Z Agreement is listed in section 5 of the Agreements Act.

In your case, you are a resident of both Australia and Country Z for tax purposes, according to each country's domestic law.

Paragraph 3 of Article 4 of the Double Tax Agreement sets out the factors to be considered when determining a person's residence for the purpose of the agreement, where the person is a resident of both Australia and Country Z under domestic law.

The status of an individual who, by reason of the preceding provisions of this Article is a resident of both Contracting States, shall be determined as follows:

(a)          that individual shall be deemed to be a resident only of the Contracting 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 Contracting 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 of which that individual is a national;

(c)          if the individual is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall endeavour to resolve the question by mutual agreement.

Permanent home

Taxation Ruling TR 2001/13 discusses the Commissioner's views about interpreting double tax agreements. Paragraph 104 provides that the OECD Model Tax Convention and Commentary will often need to be considered in interpreting double tax agreements (see also ATO ID 2003/1195).

Permanent home is not defined in the Double Tax Agreement. Therefore recourse can be made to supplementary materials in order to aid construction. The OECD commentary to the Model Tax Convention is taken to be a legitimate aid to construction (Thiel v Commissioner of Taxation [1990] HCA 37: 171 CLR 338).

The OECD Commentary provides that in relation to a 'permanent home':

(a)          for a home to be permanent, an individual must have arranged and retained it for his or her permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be of short duration. The dwelling has to be available at all times continuously and not occasionally for the purposes of a stay, which owing to the reasons for it is necessarily of short duration (e.g. travel for pleasure, business travel, attending a course etc) For instance, a house owned by an individual cannot be considered to be available to that individual during a period when the house has been rented out and effectively handed over to an unrelated party so that the individual no longer has possession of the house and the possibility to stay there.

(b)          any form of home may be taken into account, including a house or apartment belonging to or rented by the individual and a rented furnished room.

You have a permanent home available to you in both Australia and Country Z.

Your adult children live in the home in Australia and this means you have access to the home and this is where you stayed for the whole of the 20XX income year.

You have a permanent home in Country Z and you maintained this home while you were in Australia and for the whole of the 20XX income year.

Personal and economic ties (centre of vital interests)

The OECD commentary states regard should be had to the taxpayer's family and social relations, their political, cultural or other activities, their place of business, the place from which they administer their property etc. As noted in Pike v Commissioner of Taxation [2020] FCAFC 158 at [39], the clause does not place greater weight on personal factors over economic factors. In each case it will be a matter of fact and degree as to whether a taxpayer's personal and economic relations, viewed as a whole, support ties closer to one contracting state over the other contracting state.

Important factors that indicate that your personal and economic ties are closer to Australia:

•                    You are a citizen of Australia.

•                    Your adult children remain in Australia living in the family home.

•                    You returned to this family home to stay while in Australia.

•                    You have assets along with social connections in Australia.

•                    Most of your family are living in Australia.

Therefore you will be a resident of Australia for the purposes of applying the double taxation agreement.

Guidance

Article 14 of the Double Tax Agreement (DTA) deals with employment income and states:

1 Subject to the provisions of Articles 17 and 18 of this Convention, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in that other State.

2 Notwithstanding the provisions of paragraph 1 of this Article, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

(a)          the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year or year of income of that other State; and

(b)          the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and

(c)          the remuneration is not deductible in determining taxable profits of a permanent establishment which the employer has in the other State.

Where a taxpayer is in Australia for 183 days or more their income will be taxed in Australia.

The income will be taxed in Australia whether the taxpayer is a resident of Australia for taxation purposes or a non-resident of Australia.

If they are a resident of Australia for taxation purposes they will be taxed at resident rates and if the taxpayer is a non-resident they will be taxed at non-resident rates. If the amount is also taxed in the Country Z, then the taxpayer can claim a foreign income tax offset.