Edited version of private advice

Authorisation Number: 1051981838641

Date of advice: 9 June 2022

Ruling

Subject: Residency

Question 1

Are you an Australian resident for taxation purposes for the financial year ended 30 June 20XX?

Answer

Yes.

Question 2

Are you a resident of Australia for the purposes of the tie breaker test in the Double Tax Agreement between Australia and Country A?

Answer

Yes.

Question 3

Are you entitled to a foreign income tax offset for income tax paid in Country A?

Answer

Yes, you can calculate and claim a tax offset for the foreign tax you have paid on income, profits or gains that are included in your Australian assessable income. You must have actually paid, or be deemed to have paid, an amount of foreign tax and the income must be included in your assessable income in Australia.

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 A

You migrated to Australia and became an Australian citizen that same year

You departed Australia to work in Country A

You were on a visa in Country A that allowed you to temporarily work there

You currently live in a rented apartment in Country A under a monthly short-term lease and have been staying at that apartment since arriving there

Your visa has expired, and you remain in Country A under a new visa which is granted to highly qualified individuals whose skills are urgently required, this visa is valid for four years with an option to renew. You intend to live in Country A for the duration of the visa.

You are currently employed by a university in Australia and your income is paid directly into your Australian bank account. The University relocated you to Country A and you are expected to stay working in Country A until the expiry of your visa

During the first part year you were in Country A, you were considered a non-resident for Country A tax purposes.

During the following income year you were considered a resident on Country A for tax purposes and you will be taxed on your income sourced there.

Your spouse and children remained in Australia and did not accompany you to Country A. You have retained your family home in Australia which your wife and children continue to reside in

You retain your household items and motor vehicle in Australia, the vehicle is currently parked in the garage of your family home.

You plan to return to Australia temporarily to visit family and will return to Country A for work shortly after

You maintain private health insurance in Australia and are currently enrolled in the Australian electoral roll

You own several investment properties in Australia and do not have any assets, properties, or investments in Country A

You have not joined any social or sporting clubs and do not participate in any social or sporting activities in Country A

You intend to come back to Australia on a regular basis once the border reopens and travel restrictions have eased in Country A

You are not a contributing member of the Public Sector Superannuation Scheme (PSSS) or the Commonwealth Superannuation Scheme (CSS) or a spouse of such person

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 6(1)

Income Tax Assessment Act 1997 Section 995-1

International Tax Agreements Act 1953

Reasons for decision

Question 1

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 resides test is the primary test for deciding the residency status of an individual. This test considers whether an individual resides 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 domicile test, 183-day test and Commonwealth superannuation fund test).

Our interpretation of the law in respect of residency is set out 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.

We have considered the statutory tests listed above 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 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.

The Commissioner considers the following factors in relation to whether a taxpayer is 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

It is important to note that no 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. Having a connection with another country, or being a resident of another country, does not diminish any connection to Australia: Logan J in Pike v Commissioner of Taxation [2019] FCA 2185 at 57 reminds us that 'it is no part of the ordinary meaning of reside in the 1936 Act that there be a "principal" or even "usual" place of residence. ... It is important that ... "resident" not be construed and applied as if there were such adjectival qualifications.' For this reason, the test is not about dominance or exclusivity.

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

This is because:

•         Your spouse and children remain in Australia and did not accompany you to Country A. You have retained your family home in Australia which your wife and children continue to reside in

•         You live in short term lease accommodation in Country A (monthly lease)

•         You are currently employed by an Australian University and your income is paid directly into your Australian bank account.

•         You are on a temporary visa in Country A

•         You have retained your household items and motor vehicle in Australia, the vehicle is currently parked in the garage of your family home.

•         You plan to return to Australia in 20XX temporarily to visit your family

•         You maintain private health insurance in Australia and are currently enrolled in the Australian electoral roll

•         You own several investment properties in Australia and maintain your Australian bank account. You do not have any assets, properties, or investments in Country A

•         You have not joined any social or sporting clubs and do not participate in any social or sporting activities in Country A

•         You intend to come back to Australia on a regular basis once the border reopens and travel restrictions have eased in Country A

You have a home in Australia and have retained a continuity of association with that place.

You are a resident of Australia under the resides test.

Although the law only requires you to be considered a resident under one test, for completeness the other tests are also considered.

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 A and your domicile of origin is Country A. You immigrated to Australia and became an Australian citizen in that same year. You departed Australia to work in Country A in 20XX. You intend to remain living in Australia on your return from Country A.

It is considered that you abandoned your domicile of origin in Country A and acquired a domicile of choice in Australia many years ago. When you departed Australia to live and work in Country A in 20XX, you were not entitled to reside there indefinitely and only hold a visa which is valid for a few years.

Therefore, your domicile is still Australia.

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 IT 2650 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 an established home in Australia which your spouse and children remain living in

•         You have maintained assets (house and bank accounts), private health insurance and your electoral enrolment in Australia

•         You intend to return to Australia to visit more regularly once the travel restrictions due to COVID-19 have eased in Country A

•         You intend to move back to Australia once you finish working in Country A

You have not definitely abandoned, in a permanent way, living in Australia.

You are a resident of Australia under the domicile 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 present in Australia for 183 days or more during the 20XX income year. You are not 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 and domicile tests of residency and so are a resident of Australia for income tax purposes for the income year ended 30 June 20XX.

Question 2

Double Taxation Agreement

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 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.

Article 4 of the Country A Agreement sets out the tiebreaker rules for residency for individuals. The tiebreaker rules ensure that the individual is only treated as a resident of one country for the purposes of working out liability to tax on their income under the double tax agreement. The tiebreaker rules do not change a taxpayer's residency status for domestic law purposes.

Article 4, paragraph 3 of the Country A DTA states:

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 with which the person's economic and personal relations are the 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':

•         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.

•         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.

In Pike v Commissioner of Taxation [2019] FCA 2185, it was found that a taxpayer who lived in more than one rented dwelling in both Australia and the foreign country during the relevant period did not have a 'permanent home' in either country for the purposes of the tiebreaker test.

However, in your case, it is considered that on balance you have a permanent home available to you in Australia and in Country A, as a short term rental property can be considered a permanent home. The lease for the residence in Country A is monthly, however you have been living there since you arrived in December 20XX and therefore it is for your permanent use.

As you have a permanent home in both contracting states, it must be determined in which country your centre of vital interest lies.

Personal and economic relations

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.

In your case, your spouse and children remain in Australia living in your family home. You are employed by an Australian University and were relocated by them to Country A to perform your role. You are paid by the University into your Australian bank account. You have continued to maintain your Australian assets (bank accounts, motor vehicle), citizenship, private health insurance. You also have several investment properties that you maintain in Australia.

Your sole connection with Country A is your employment location and your everyday residing there.

Accordingly, your personal and economic relations are closer to Australia and therefore, under the tiebreaker test in Article 4(3) of the Country A DTA you are a resident solely of Australia for the year ending 30 June 20XX.