Edited version of private advice

Authorisation Number: 1051983852236

NOTICE

The private ruling on which this edited version is based has been overturned on objection.

This notice must not be taken to imply anything about the correctness of other edited versions.

Edited versions cannot be relied upon as precedent or used for determining how the ATO will apply the law in other cases.

Date of advice: 8 June 2022

Ruling

Subject: Residency

Question

Are you a resident of Australia for income tax purposes for the 20XX and 20XX income years?

Answer

Yes.

Question

Are you a resident of Australia for taxation purposes under Article 4 of the Double Tax Agreement between Australia and Country Y?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were born in Country X and are a citizen of Country X.

Your extended family lives in Country X.

You have lived in Country Y since 20XX.

You have previously held a visa that that allows you to live and work in Country Y.

You met your spouse in Country Y.

Your spouse is an Australian citizen.

You have children who were born in Country Y.

You are the CEO of two businesses that are based in Country Y.

You travelled to Australia to escape the Covid-19 situation in Country Y with the intention of returning once the situation had subsided.

You arrived in Australia in 20XX.

You stayed with your spouses' parents for a couple of months when you arrived in Australia.

Prior to travelling to Australia, you were leasing an apartment in Country Y.

You did not continue leasing your apartment in Country Y whilst you were in Australia due to the high cost of real estate.

You placed your personal and household effects into storage in Country Y prior to travelling to Australia.

You recently ordered a vehicle in a lease to buy arrangement for when you return to Country Y.

You lease a garage space in Country Y which you will store the vehicle in.

You are a board member for a not- for- profit organisation and are a member of a synagogue in Country Y.

Your spouse maintains connections with Country Y in the form of retreats and online courses and has online consultations with their therapist.

You have not established any professional, social or sporting connections in Australia.

Your children currently attend school in Australia, however, are still enrolled in school in Country Y.

You leased a property in Australia and your lease ended in 20XX.

This property is now leased on a month-to-month basis.

You have undertaken your work remotely whilst being in Australia.

You have spent 100% of your time in Australia and have not made any return visits to Country Y.

You obtained an Australian driver's licence as your drivers' licence in Country Y had expired.

You applied for a new visa which was granted until July 20XX.

You applied for a separate visa and this application is still pending.

You applied for this visa to make it easier for you to travel to Australia to visit your spouse's family.

You had a return flight booked to Country Y which expired.

You are waiting for confirmation for your visa renewal before you book another return flight to Country Y.

You applied for your Country Y visa renewal in 20XX and are on a waitlist for an interview at the consulate in Australia.

You have bank accounts, credit cards and phones in Country Y.

You do not have any bank accounts or other assets in Australia.

Your mail is sent to your residential address in Australia.

You also have a mailing address in Country Y.

When completing incoming passenger cards, you state that your country of residence is Country Y and that you are a visitor or temporary entrant to Australia.

You are currently looking to return to Country Y permanently.

You are looking for an apartment to purchase or to lease an apartment if you cannot purchase one in Country Y.

You do not intend to travel to Australia frequently once you have returned to Country Y.

You have international health insurance.

Your children have Australian passports.

Your children have Australian citizenship.

Neither you nor your spouse are Commonwealth of Australia Government employees for superannuation (super) purposes.

Neither you nor your spouse are members of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Subsection 995-1(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 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 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.

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:

•         You decided to leave Country Y voluntarily during Covid-19 and travel to Australia.

•         You have enrolled your children into school in Australia.

•         You rented a house in Australia for one year and are continuing to rent it on a month-by-month basis.

•         You do not currently have a return ticket booked to Country Y.

•         You do not have a residence in Country Y to return to.

•         You have an Australian driver's licence.

•         You receive some of your mail in Australia.

You are a resident of Australia under this 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 X and are a citizen of Country X. You moved to Country Y and acquired a domicile of choice in Country Y.

It is considered that you did not abandon your domicile of choice in Country Y and acquire a domicile of choice in Australia. You are not entitled to reside in Australia indefinitely and while living in Australia, you only hold a temporary visa which is only valid until July 20XX.

You are not 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.

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 present in Australia for 183 days or more during both of the relevant income years. We now need to consider whether we are satisfied that, during the 20XX and 20XX income years, your usual place of abode was outside Australia, and your intention was to take up residence in Australia.

The Commissioner is not satisfied that your usual place of abode was outside Australia during the 20XX and 20XX income years as you chose to travel to Australia to escape the Covid-19 situation in Country Y and were not actively seeking to return to the Country Y.

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.

You are not a resident under this test.

Conclusion

You satisfy the resides and the 183-day tests of residency and so are a resident of Australia for income tax purposes for the years ended 30 June 2021 and 30 June 2022.

Question 2

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 X of the Country Y 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.

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 do not have a permanent home available to you when you return to Country Y as you are no longer renting a property there. You do not have a permanent home available to you in Australia as you were initially staying with your spouses' family and have not been renting the property that you are currently renting for the entire duration of your time in Australia.

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 you chose to spend all of your time in Australia and have not returned to Country Y at any time since you arrived. You lived in a property with your spouse and children that you signed a twelve-month lease on and are continuing to rent this property on a month-by-month basis. Your regular life and mode of habit for the 20XX and 20XX income years was in Australia.

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