Edited version of private advice

Authorisation Number: 1051935480708

Date of advice: 20 January 2022

Ruling

Subject: Residency

Question 1

Were you a resident of Australia for taxation purposes on and from the date you arrived in Australia?

Answer

Yes.

Question 2

Will you be taxed at the 15% working holiday maker tax rate on and from the date you arrived in Australia?

Answer

No.

This ruling applies for the following periods

Income year ending 30 June 20XX.

Income year ending 30 June 20XX.

The scheme commences on

21 November 20XX.

Relevant facts and circumstances

You were born overseas in Country X, of which you are a citizen.

Prior to coming to Australia, you had:

•         travelled to another overseas country for several months, and had a short vacation period in a different overseas country, returning to County X on both occasions

•         resided in Country Y for several years, travelling to Country X on one occasion for a visit for a short visit, returning to Country Y, and

•         backpacking in several overseas countries over several months prior to coming to Australia.

You met your partner in Country Y and decided that you both wanted to come and stay in Australia prior to your coming to Australia, with the intention of settling close to your partner's relatives and wanting to start your own family in Australia because you liked the lifestyle and weather.

Prior to leaving Country Y, you and your partner made plans to stay with your partner's relatives after you arrived in Australia until you found a house to rent in the area.

While working in Country Y you had applied for a Subclass 417 Working Holiday visa (417 visa) which was granted.

You arrived in Australia several months after the 417 visa was granted you arrived in Australia (being Date Z).

You hold a Country X passport and stated that you were a resident of Country X on your incoming passenger card.

Your partner came to Australia on a special category visa for Country Y citizens to enter Australia and visit, work and study for as long as they remain a Country Y citizen in Australia. They have not applied for any additional visa/s to enable them to stay in Australia. However, it is their intention to remain permanently Australia near where their family is located.

You considered obtaining a 189 Skilled Independent visa (189 visa) to stay in Australia permanently, but due to the costs involved decided not to defer applying for this visa until you had saved enough to cover the related costs. You completed an International English Language Testing System English test after you came to Australia for extra points.

You applied for a visa that may be available due to your partner's Country Y citizenship (being Visa X), which you are still waiting to be processed. You are seeking this visa to extend your stay in Australia while you apply for permanent residency. Visa X permits you to stay in Australia for a specified number of years. If this visa is not granted you anticipate applying for a 189 visa.

A Bridging A visa was granted on Date A while your Visa X application is being processed which included conditions that you could not travel outside of Australia and imposed employer work limitation condition.

During the following year you were issued with a second Bridging A visa which is for an indefinite period while you are waiting for your Visa X application to be processed. This Bridging visa has no conditions attached.

The Bridging A visa will end if a Visa X becomes active. Alternatively, it will end if your Visa X application is invalid, refused or withdrawn, or if you leave Australia.

You applied for Medicare in Australia which was issued during the following month.

Prior to leaving Country Y you transitioned your relevant occupation related licence to a licence in the Australian state you and your partner intended going to.

You wanted to commence employment on your arrival but could not find employment until several months after your arrival. To assist you in obtaining employment you obtained a Unique Student Identifier in the month after your arrival and completed courses to further your career, completing a course in that month, and several courses being during the following year.

You were employed on a full-time basis from several months after your arrival until the end of the ruling period.

You applied for permission to be allowed to be employed with your employer beyond the specified period restriction in your Bridging visa, which was granted by the Department of Home Affairs for an additional period of several months.

Several months after your arrival in Australia you and your partner entered into a residential lease jointly for a specified period. The lease is a rolling lease as you and your partner were looking to purchase a property and were not sure of how long you would need to continue the lease.

Prior to entering into the lease, you and your partner had stayed in short-term accommodation for a few nights and then with your partner's relatives until you had obtained the leased property.

Your immediate family are in Country X, and you do not have any other ties to Country X. You do not have any dependants.

You do not own any property in Country X and have one Country X bank account that is used occasionally, such as money deposited into it on special occasions.

You did not have any of the following during the ruling period:

•         access to any other accommodation outside of Australia during the ruling period

•         any employment position/job being held for you in any overseas country during the ruling period; or

•         any professional, social or sporting connections in Country X during the ruling period.

You obtained membership with several organisations after arriving in Australia:

You travelled around the Australian state in which you are living for short periods on several occasions during the year after your arrival.

You and your partner have the following in Australia:

•         drivers' licences

•         joint and separate bank accounts

•         superannuation accounts

•         household items

•         a car with potential to purchase another car

•         health insurance and general practitioner

•         phone contracts

•         membership with a car club; and

•         mortgage approval in anticipation of purchasing a property either during the ruling period or in the following income year, for which you commenced looking for several months prior to the end of the ruling period..

Neither you nor your partner are Commonwealth of Australia employees.

You anticipate travelling to Country X for short periods post COVID-19 to visit your family, and to travel around the Australian state in which you are located during your vacation periods.

You are not a resident of any foreign country for taxation purposes and did not lodge any foreign income tax returns during the ruling period.

You have not lodged a tax return in Australia for any income year during the ruling period.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Rates Act 1986 Section 3A

Income Tax Rates Act 1986 Subsection 3A(1)

Income Tax Rates Act 1986 Part I of Schedule 7

Income Tax Rates Act 1986 Part III of Schedule 7

Reasons for decision

Question 1: Were you a resident of Australia for taxation purposes on and from the date you arrived in Australia?

Summary

You are a resident of Australia for taxation purposes.

Detailed reasoning

Resident of Australia for taxation purposes

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.

We have considered the above tests in relation to your situation as follows:

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 Commissioner of Taxation v Miller (1946) 73 CLR 93 at CLR 99 per Latham CJ. Citing Viscount Cave LC in Levene v Commissioners of Inland Revenue [1928] AC 217 at 222, and in Stockton v Federal Commissioner of Taxation [2019] FCA 1679 per Logan J).

The observations contained in the case of Hafza v Director-General of Social Security (1985) 6 FCR 444 at 449 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

•         behaviour while in Australia

•         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 Taxation Ruling IT 2650 Income tax: residency - permanent place of abode 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.

Because the ordinary concepts test is whether an individual resides in Australia, the factors focus on the individual's connection to Australia. Any connection with another country does not diminish a connection to Australia; that is, the test is not about dominance or exclusivity.

Application to your situation

We have taken the following into consideration when determining whether you met the resides test:

•         Physical presence - You have been physically present in Australia since the date of your arrival, being Date Z.

•         Intention or purpose - You state that you intended to remain in Australia and used the 417 visa as a way to get to Australia to gain a more permanent visa type. You have actively obtained visas to enable you to stay in Australia during the ruling period while your application for a visa that would enable you to stay in Australia permanently is being processed.

•         Behaviour - Your behaviour since being in Australia shows that you have settled near where your partner's relatives are located and reflects a degree of continuity, routine or habit that is consistent with residing in Australia.

•         Family and business/employment ties - You have established full-time employment commencing several months after your arrival.

•         Maintenance and location of assets - You have purchased assets in Australia, opened bank accounts and entered into a long-term rental lease. You have also got preapproval from a bank to purchase a property which you intend to do in the income year after the end of the ruling period.

•         Social and living arrangements - You have obtained memberships with several organisations since being in Australia which demonstrates a routine and habit associated with living in Australia.

You did not have any strong ties remaining in Country X or overseas and you have established your life in Australia after your arrival until the present time. Since your arrival you have displayed behaviour consistent with someone residing in Australia.

Therefore, from the date you arrived in Australia until the end of the ruling period you are viewed as being a resident of Australia for taxation purposes.

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 physically 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.

Application to your situation

In your case, your domicile of origin is Country X and you are also a citizen of Country X. You do not have a permanent right to reside in Australia as you are neither a citizen of Australia nor the holder of a permanent resident visa during the ruling period. Consequently, there is insufficient evidence to demonstrate that you have acquired a domicile of choice in Australia.

Therefore, your domicile is still Country X and you are not a resident of Australia under the domicile test.

183-day test

Where a person is present in Australia for 183 days or more 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.

Application to your situation

You have been in Australia for 183 days or more during the income years in the ruling period, so you are a resident under the 183-day test unless the Commissioner is satisfied that your usual place of abode was outside Australia, and you do not have an intention to take up residence in Australia.

Your usual place of abode is the place you usually live. Based on the facts as set out in the ruling, it is clear your usual place of abode has become Australia, where you have rented a home pursuant to a long term lease with your partner Jocelyn shortly after arrival. Your settled lifestyle in Australia, coupled with your time away from Country X prior to coming to Australia demonstrates you do not have a usual place of abode overseas.

Furthermore, it is noted that your intention is to take up residence in Australia.

Therefore, you are viewed as being a resident of Australia under this test for the ruling period. This is because you have been here for more than 183 days in the respective income years and the Commissioner has not reached the relevant state of satisfaction.

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.

This test will not apply if the individual is a member of the Public Sector Superannuation Accumulation Plan (PSSAP) and the test will only apply to members of the PSS and CSS which are now closed to new members.

Application to your situation

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

As outlined above, for the ruling period the Commissioner accepts that you are a resident of Australia for taxation purposes under the resides test and the 183-day test. Under the resides test, the Commissioner regards you as residing in Australia according to ordinary concepts. Under the 183-day test the Commissioner is not satisfied that you have a usual place of abode outside Australia and that you do not intend to reside in Australia.

You are a resident of Australia on and from the date of your arrival on Date Z up to and including the ruling period end date.

Question 2: Will you be taxed at the 15% working holiday maker tax rate on and from the date of your arrival in Australia?

Summary

You will be taxed on the same basis as a resident Australian citizen on and from the date of your arrival and not at the working holiday maker tax rate. This is because:

•         you are a resident of Australia for tax purposes

•         you held a 417 visa when you came to Australia; and

•         you are from Country X and this country has a non-discrimination article in its tax treaty.

Detailed reasoning

Tax rates

Ordinary tax rates for Australian residents for taxation purposes

The tax rates for resident taxpayers are contained in Part I of Schedule 7 of the Income Tax Rates Act 1986 (ITRA 1986).

Residents are taxed on all of their worldwide income, which means all of the income they earn in Australia and outside Australia is included in their income tax return. Residents are entitled to the benefit of a tax-free threshold under which the first $18,200 of taxable income earned is tax-free.

Taxable income in excess of the tax-free threshold amount will be taxed at progressive rates in accordance with the taxable income earned during each income year. This starts at 19% for taxable income from $18,201 up to $37,000 for the 2019-20 year and from $18,201 up to $45,000 for the 2020-21 year.

Tax rates for working holiday makers

Working holiday maker (WHM) has the meaning given by subsection 3A(1) of the ITRA 1986 as an individual who holds a Working Holiday visa (subclass 417) or Work and Holiday visa (subclass 462) or a bridging visa in relation to an application for such a visa.

The taxation of WHMs is administered under Part III of Schedule 7 of the ITRA 1986, sometimes referred to as the 'backpacker tax', and has effect for the period you are considered to be a WHM.

Income earned in Australia from Australian sources is included in a WHM's taxable income while they are a WHM.

From January 2017 WHMs are taxed at a special rate of 15% on their taxable income earned in Australia up to $45,000 in the 2020-21 and later income years and up to $37,000 in previous years, with ordinary tax rates applying to taxable income exceeding those amounts. The 15% rate usually applies regardless of whether the WHM is a resident or non-resident.

However, as a result of the High Court decision in Addy v Commissioner of Taxation [2021] HCA 34 (Addy case) some WHMs may be taxed on the same basis as a resident Australian national, rather than the WHM rates that usually apply.

This applies where an individual satisfies all of the following:

•         are the holder of a visa subclass 417 Working Holiday or 462 Work and Holiday

•         a resident of Australia for tax purposes for the whole or part of the income year (refer to web page 'QC 65132' on our web site ato.gov.au for further information)

•         from one of the following countries which has a non-discrimination article in its tax treaty with Australia:

­    Chile

­    Finland

­    Germany (for 2017-18 and later income years)

­    Israel (for 2020-21 and later income years)

­    Japan

­    Norway

­    Turkey; and

­    United Kingdom.

Application to your situation

For the period on and from the date of your arrival, Date Z, up to and including the day prior to the issuing of your first Bridging A visa:

•         You are a citizen of Country X who came to Australia as a working holiday maker on a 417 working holiday visa.

•         Country X is a country which has a non-discrimination article in its tax treaty with Australia and,

•         as outlined above you are a resident of Australia for taxation purposes from the date you arrived in Australia.

Therefore, you will be taxed the same as a resident Australian national for the above period and not subject to the 15% working holiday maker tax rate.

This means you will be eligible for the tax-free threshold. Any excess income over the tax-free threshold will be taxed at the marginal tax rate for residents.

For the period on and from Date A, being the date your first Bridging A visa was granted, up to and including the end date of the ruling period:

•         you were in Australia on a Bridging A visa while you waited for your application for a Visa X to be processed, and

•         you were no longer a WHM as you are no longer on a 417 or 462 visa or a bridging visa awaiting the granting of a 417 or 462 visa; and

•         you were a resident of Australia for taxation purposes.

Therefore, you will be taxed as a resident of Australia for this period.