Edited version of private advice

Authorisation Number: 1051954750469

Date of advice: 4 March 2022

Ruling

Subject: Residency for taxation purposes

Question 1

Are you a resident of Australia for taxation purposes for the relevant period?

Answer

Yes.

Question 2

Are you a resident of Australia under the Double Tax Agreement between Australia and Country Z for the relevant period?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were born in Australia.

You are a citizen of Australia.

You lived and worked overseas for over XX years.

You arrived in Australia a couple of years age to escape Covid in Country Z.

You have some freedom with your employer, and you were able to work remotely for them in Australia.

You were locked out of Country Z due to travel restrictions.

You have been monitoring the Covid situation overseas and you will return to live overseas once you are able to.

You do not wish to return to Country Z.

When you are able to leave Australia, it is your intention to go to Country Y to live and work.

Your spouse is living in Country Y in a property they own in Country Y.

You have applied for Country Y permanent residency.

You left the majority of your personal items in the property you were renting in Country Z when you left to come to Australia.

It was your intention at this point to return to Country Z.

In the middle of last year when your rental agreement on the Country Z property expired, a friend arranged for your property to be placed into a suitcase and left at your office. Other items were sold or given away.

You were not able to access your rental property in Country Z during the relevant period due to being locked out of Country Z.

You were not able to renew your lease on the property or your visa due to the pandemic.

The property in Australia which was previously rented out remained vacant when the tenant vacated. This allowed you to move into the property when you returned to Australia to escape Covid.

You have been in Australia for 100% of the time since arriving as you have not been able to leave to return to Country Z or Country Y.

You have the following assets overseas:

•         rental property

•         bank account

•         Country Z bank account

•         Investments.

You have the following assets in Australia:

•         several Australian properties.

•         Australian bank accounts

•         Motor vehicle.

You have no social or sporting connections in Australia.

You have made various friendships throughout the years whilst overseas.

You were removed from the Australian Electoral roll over a decade ago.

For the relevant period you were a resident of Country Z for taxation purposes.

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

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 995-1

International Tax Agreements Act 1953

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. 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 Taxation Ruling IT 2650 Residency - Permanent place of abode outside Australia (IT 2650) and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia (TR 98/17).

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.

TR 98/17 explains that an individual may be considered a resident under the resides test if their behaviour while they are here is such that they exhibit a degree of continuity, routine or habit that is consistent with a person residing in Australia according to the ordinary meaning of the word 'reside'.

As a broad principle, where a person has a settled routine for six months or more (for example, the person has stayed in one place or has been with one employer for six months at the same location) they may satisfy the resides test. The period of time of the settled routine need not be confined to one financial year. As long as the pattern of behaviour is exhibited the individual may be regarded as being a resident from the time of their arrival.

We consider that your circumstances were consistent with you residing in Australia for the relevant period. This is because:

•         You came to Australia to escape Covid

•         You were living in a property you owned here

•         You spent more than six months in Australia living and working from the one location in Australia.

•         Your movements and habits were consistent with having a settled routine in Australia.

You are a resident under this test for the relevant period.

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 Australia and are a citizen of Australia.

Consequently, the Commissioner is not satisfied that you have taken sufficient steps to change your domicile of origin to a domicile of choice to another country.

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 was outside Australia for the relevant period. This takes into account that:

•         You worked remotely in Australia for your employer

•         You were living in a property in Australia owned by you

•         You were not able to return to your rental property in Country Z due to border restrictions

•         You were not able to renew your visa to enter Country Z.

During the relevant period, you had not definitely abandoned, in a permanent way, living in Australia because you were living and working in Australia in a house you owned for the entire period. Therefore, the Commissioner is not satisfied that your permanent place of abode was outside Australia for this period.

You are a resident under this test.

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 were not in Australia for more than 183 days in the first relevant income year.

You were not a resident under this test for the that income year.

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

The Commissioner is not satisfied that your usual place of abode was outside Australia during that income year as you were not able to return to your residence in Country Z due to border restrictions.

You are a resident under this test for that income year.

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 and your spouse 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.

You are not a resident under this test.

Conclusion

You were a resident of Australia for taxation purposes for the relevant period.

Double Tax Agreement between Australia and Country Z

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 Income Tax Assessment Act 1997 (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.

Article 4 of the Agreement considers the circumstances where a person is a resident of both Australia and Country Z for domestic tax purposes.

3. Where by reason of the preceding provisions of this Article a person, being an individual, is a resident of both Contracting States, then the status of the person shall be determined in accordance with the following rules:

(a) the person shall be deemed to be a resident solely of the Contracting State in which a permanent home is available to the person;

(b) if a permanent home is available to the person in both Contracting States, or in neither of them, the person shall be deemed to be a resident solely of the Contracting State in which the person has an habitual abode;

(c) if the person has an habitual abode in both Contracting States or in neither of them, the person shall be deemed to be a resident solely of the Contracting State with which the person's economic and personal relations are closer.

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 had a permanent home available to you in both Australia and Country Z during the relevant period.

Habitual abode

The OECD commentary provides that in determining a taxpayer's habitual abode, it requires a determination of whether the individual lived habitually, in the sense of being customarily or usually present, in one of the two States but not in the other during a given period.

The test will not be satisfied simply by determining in which of the two Contracting States the individual has spent more days during the period (JJ Davies, White and Steward in Pike v Commissioner of Taxation [2020] FCAFC 158 at [29]).

The notion of habitual abode refers to the frequency, duration and regularity of stays that are part of the settled routine of an individual's life and are therefore more than transient. It is possible for an individual to have an habitual abode in two states where the individual was customarily or usually present in each State during the relevant period.

You had a habitual abode in Australia during the relevant period.

This is because during the relevant period you were not able to return to Country Z due to the pandemic and the border closures. Your regular life and mode of habit during the relevant period was in Australia.

Therefore, you are a resident solely of Australia under the Country Z Agreement.

Personal and economic ties (centre of vital interests)

For completeness, we will also consider where your personal and economic relations were closer to during the relevant period.

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.

Your personal and economic relations were closer to Australia. Although your employment income may have been paid from Country Z, you did not have any significant economic ties to Country Z.

You spent the entire relevant period in Australia, lived in Australia in a property you own, owned three income generating rental properties in Australia and carried out the work activities that generated your employment income in Australia.

Conclusion

You were a resident of Australia for the purposes of the Country Z Agreement during the relevant period.