Edited version of private advice

Authorisation Number: 1051910683356

Date of advice: 22 October 2021

Ruling

Subject: International - residency

Question 1

Are you an Australian resident for income tax purposes for the period from X July 20XX until your return to Australia on approximately X April 20XX?

Answer

No.

Question 2

Will any foreign sourced income derived by you during the period from X July 20XX to X April 20XX or until such time that you become an Australian resident for tax purposes (inclusive) be assessable income in Australia?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

6 April 20XX

Relevant facts and circumstances

A and B (you) were born outside of Australia to foreign parents. You are citizens of X and continue to hold foreign passports.

Your domicile of origin was and continues to be X.

In or about 20XX, you purchased a family home in the capital of X. You later sold the property and purchased another home in the capital of X.

You travelled to Australia for your honeymoon. You decided to apply for permanent residency in Australia during this time.

You sold the family home and purchased a new home in another city in X.

You were granted permanent residency in Australia.

After being granted Australian residency you relocated to Australia.

For the period 20XX to 20XX you worked in Australia and lodged income tax returns as residents of Australia for tax purposes.

You also lodged tax returns up to 20XX, reporting rental and interest income sourced in X.

After relocating to Australia you purchased an Australian property (Investment Property One). It has been rented out to third party tenants.

Your child was born in Australia and holds both Australian and X passports.

You purchased a second Australian property (Australian Main Residence). Prior to this purchase you rented your accommodation.

While in Australia you maintained various other assets including:

•         Bank accounts

•         A motor vehicle

•         Equipment for business interests

•         Shares which were (and continue to be) held through a Family Trust.

You obtained citizenship and applied for Australian passports as it was believed at the time that this would provide flexibility and opportunity for you and your child in the future.

You did not intend to permanently reside in Australia at the time you obtained citizenship and applied for Australian passports, particularly as your elderly parents still lived in X.

You always intended to retain your domicile in X.

B continuously paid the social security contributions in X during the stay in Australia.

In or about December 20XX, B was approached by AAA, a company based in Y.

B commenced employment with AAA, initially from Australia.

Throughout their period of residency in Australia from July 20XX to April 20XX, B maintained the extensive business network in X.

You relocated to Y in April 20XX.

Prior to leaving Australia you:

•         Shipped your possessions to your new home in Y. The possessions were stored in the capital of X until you had access to your new family home in Y in September 20XX.

•         Sold your major assets, including their motor vehicle. You also held a yard sale to dispose of all major assets just before your departure.

•         Sold the Australian main residence.

•         Cancelled your Australian Drivers Licences.

You informed Medicare and the Australian Electoral Commission that you would be leaving Australia for an indefinite period of time.

You cancelled your private Health Fund.

When you lodged your tax returns in Australia for the year ended 30 June 20XX, you elected to disregard any capital gain or loss.

Tax returns lodged by you since departing Australia have been lodged as foreign residents and you have included your Australian sourced income.

Since April 20XX you have lodged tax returns in Y and paid tax on your Y based income since the start of the income year in which you arrived, and paid tax on your non-Y based income from the date of your arrival in Y.

In July 20XX you looked to purchase a property in Y to live in as your main residence. This did not transpire because the exchange rate was too unfavourable at the time. Instead, on the 30 July 20XX, you signed a contract to rent a property - (Y Property).

Since 1 September 20XX, you have regarded the Y Property as your main residence. All rates and utility bills have been paid in your names.

The Y Property was unfurnished and you had to wait until your container of possessions arrived from Australia to furnish the Y Property.

A established a business in Y as sole shareholder, A was later granted a business licence and the business is self-funded and has two other directors who are locally based Y businessman. A is the main shareholder. There are four other shareholders who are located in either Y or X.

Since April 20XX you have been registered on the electoral role at your address in Y. You are entitled to vote in Y.

You receive your mail at the Y Property.

You have purchased a number of assets in Y including:

•         A number of motor vehicles

•         Various household possessions

•         Your family pet.

All your possessions are maintained at the Y Property.

You have also obtained drivers licences in Y.

B has a pension in Y.

You stated your intention was to remain in Y until the completion of your child's primary education (being July 20XX, approximately X years from your date of arrival). You were never certain whether you would stay in Y or relocate to X or Australia.

Since relocating to Y, you have regularly travelled back to X to visit family and friends.

You have returned Australia twice to visit friends. Each of these visits were approximately X weeks in length during Christmas or school holidays. You stayed with friends and/or rented accommodation.

Your child has attended school in Y and will continue to do so until the end of April 20XX.

A is active in the Y community, coaching various sports.

A has raised money for Y based charities.

B has taken part in a number of business events related to the work in XXX.

Your child belongs to various social clubs in Y over the last few years.

Aside from one sports membership (which A did not use since leaving Australia in April 2015) A did not hold any memberships in Australia or X.

You have maintained some assets in Australia whilst residing in Y including:

•         A property purchased off-plan, as an investment (Investment Property Two). Rental income has been reported in their Australian tax returns.

•         Bank accounts in order to pay local bills.

•         Two home loans for Investment Property One and Investment Property Two, and an offset account is held for Investment Property One only.

•         A child savings account that has about $X.

•         An additional account that has a balance of about $X.

•         Superannuation policies. No contributions have been made to these funds from any source in or outside of Australia. The policies cover life insurance and critical illness cover.

•         An account in the name of A to pay for premiums and regular debits for insurance, as well as other various items when travelling to Australia on holiday.

•         Shares owned through the family trust. Dividends have been received and declared in your Australian tax returns.

You have maintained some assets in X whilst residing in Y including:

•         A savings account with a balance of approximately $X.

•         A child savings account with a balance of approximately $X.

•         Pensions.

•         B's continued social security contributions in X.

You are considering whether to relocate to Australia on a permanent basis due to the issues associated with COVID-19 in the Northern Hemisphere and the potential market for A's business.

B took a redundancy from AAA and finished on 30 June 20XX. During B's period of residency in Y, B has continued to maintain the extensive business network in X and Y.

You are making preliminary steps for the impending relocation which include the following:

•         You have booked a one-way airline ticket to Australia.

•         You will arrange for your pets and all major assets to be separately relocated to Australia.

Your child has been enrolled in school in Australia. You have already paid enrolment fees in order to secure their place for April 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(1)

Income Tax Assessment Act 1936 Subsection 6(1)

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

Reasons for decision

Summary

Having considered your circumstances as a whole and the residency tests, it is accepted that you are not a resident of Australia for income tax purposes for the period from 1 July 20XX until your return to Australia on approximately 2 April 20XX.

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 ITAA 1936.

The terms resident and resident of Australia, as applied to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (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 not consistent with residing in Australia.

You relocated to Australia in July 20XX. You lived here for a number of years, during which time you purchased properties, your child was born and you obtained Australian citizenship. However, in April 20XX you and your family left Australia, moved to Y and have lived there ever since.

Prior to leaving Australia you sold some of your major assets including your motor vehicle and the Australian Main Residence. You cancelled your Australian Drivers Licences, cancelled your Private Health Fund and notified Medicare and the AEC that you would be leaving Australia for an indefinite period of time.

When you lodged your tax returns in Australia for the year ended 30 June 20XX, you elected to disregard any capital gain or loss.

The Australian tax returns that have been lodged while you have been living in Y have been lodged as foreign residents of Australia.

You have returned to Australia twice to visit friends, but each of these visits were approximately three weeks in length during Christmas or school holidays. You have stayed with friends and/or rented accommodation.

You have lived and worked in Y with no definite timeframe in mind. It was not clear when or even if you would return to Australia.

You rented a property in Y and since September 20XX you have lived there with your family as your main residence. You have both worked for Y based companies, after which time A was self-employed. In addition to this, your child has attended school, and you have all become a part of the local community, getting involved in sporting and recreational activities, and fundraising.

On around April 20XX, you have gained 'Entitled for work' status in your own right because you have been permanent residents in Y for more than five years.

Based on these factors it is accepted that you are not residing in Australia according to the ordinary meaning of the word. Although you retained ownership of property in Australia and purchased another investment property in Australia during your absence, overall, the facts show that you have not retained a continuity of association with Australia.

You are not 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, B was born overseas and the domicile of origin is X. A was born overseas and the domicile of origin X. You left Australia in April 20XX and have since only returned for two short holidays.

It is considered that you did not abandon your domicile of origin in X and acquire a domicile of choice in Australia.

You are not 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 not been present in Australia for 183 days or more in any income year since your departure from Australia in April 20XX. You do not intend on being here for 183 days during the 20XX income year. Therefore, you are not residents of Australia 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.

Based on the information provided you are not residents 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 the period from X July 20XX until your return to Australia on approximately X April 20XX or until such time that you become an Australian resident for tax purposes.

Question 2

Detailed reasoning

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

As you were not an Australian resident for taxation purposes during the period from X July 20XX to X April 20XX, any foreign sourced income you earned during this time will not be assessable in Australia.