Edited version of private advice

Authorisation Number: 1051995912047

Date of advice: 17 June 2022

Ruling

Subject: Residency for tax purposes

Question 1

Are you a resident of Australia for tax purposes?

Answer

Yes.

Question 2

Are you a resident solely of Australia for the purposes of the double tax agreement between Australia and Country A?

Answer

Yes.

Question 3

Is your employment income and rental income still included in your Australian assessable income?

Answer

Yes.

Question 4

Does Country A have the right to tax your employment income under Article XX of the double tax agreement?

Answer

Yes.

Question 5

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

Answer

Yes.

This ruling applies for the following periods:

30 June 20XX

30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

X is an Australia citizen.

Their partner, Y is a dual citizen of Australia and Country A.

They have two children who are dual citizens of Australia and Country A.

X and Y have been Australian tax residents for many years.

Y was born in Country A and has parents and extended family in Country A.

X, Y and their two children started living in Country A on XX October 20XX.

The family relocated to Country A to provide Y's parents with temporary assistance with their daily living and medical care. This support was required as Y's father had been injured in an assault and their mother has a disability and ongoing illness.

X entered Country A on a Long Stay Visa. Their visa has been extended and will expire on X October 2023.

Since moving to Country A, the family has spent time living in both short-term rental accommodation and fully furnished rental properties.

Since moving to Country A, X has been working remotely for his Australian employer.

X has maintained their Australian registrations and professional memberships related to their employment.

Y was employed by an Australian company. They continued working for their Australian employer remotely in 20XX but took time off work from January 20XX and resigned in July 20XX.

X and Y have opened a bank account for non-residents in country A.

X and Y two children attend school in Country A as mandated by Country A's law.

Neither X nor Y have any professional or sporting connections in Country A. The family are maintaining their Australian private health insurance whilst in Country A.

The family did not inform Medicare or the Australian Electoral Commission of their departure from Australia.

X and Y registered as overseas voters in order to vote in the federal election.

Prior to moving to Country A, the family lived in a property they own in Australia.

Since XX September 20XX, this property has been rented, semi-furnished, under normal commercial lease arrangements.

X and Y continue to pay their mortgage for this property as well as council rates and water utility bills.

X and Y still use this Australian address on documents.

X and Y do not receive any income from sources outside of Australia.

X and Y do not hold any assets outside of Australia.

Assets X and Y hold in Australia include:

•         Their main residence.

•         An investment property.

•         Furniture.

•         Superannuation funds.

X and Y did not advise any Australian financial institutions that they are foreign residents.

X and Y have been advised by a tax accountant in Country A that they are residents for Country A's taxation purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 991-5

Income Tax Assessment Act 1936 subsection 6(1)

International Tax Agreements Act 1953

Reasons for decision

Question 1

Residency for tax purposes

Overview of the law

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 (also referred to as the ordinary concepts test)

•         the domicile test

•         the 183-day test, and

•         the Commonwealth superannuation fund 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' has been expressed as 'to dwell permanently or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place': See Commissioner of Taxation v Miller (1946) 73 CLR 93 at 99 per Latham CJ, citing Viscount Cave LC in Levene v Inland Revenue Commissioners [1928] AC 217 at 222, citing the Oxford English Dictionary. Likewise, the Macquarie Dictionary defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

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:

•         period of physical presence in Australia

•         intention or purpose of presence

•         behaviour while in Australia

•         family and business/employment ties

•         maintenance and location of assets

•         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.

Application to your situation

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

•         Physical presence - You have not been physically present in Australia during the 20XX financial year, and you were only physically present in Australia for around X months of the 20XX financial year.

•         Intention or purpose - Your intention is to reside in Country A temporarily to provide support to Aurelie's parents.

•         Employment ties - You continue to work for your Australian employer.

•         Maintenance of assets - You have assets in Australia.

•         Social and living arrangements - Whilst in Country A you have been living in furnished rental properties; you have an Australian mailing address; you have maintained your Australian driver's licenses and private health insurance; and you have voted in the federal election as overseas voters.

You have been away from Australia temporarily and have not cut any ties to Australia.

You are a resident of Australia under the resides test for the period of the 20XX and 20XX financial years.

Although the law only requires you to be considered a resident under one test, for completeness the other tests are 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 in 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 a domicile of dependence or have acquired a domicile of choice elsewhere. To acquire a domicile of choice of a particular country you must be lawfully present there and 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

X was born in Australia and their domicile of origin is Australia. They have not acquired a domicile of choice in Country A as they intend to live there temporarily. They are not entitled to live in Country A indefinitely and while living in Country A they hold a visa which is valid until XX October 20XX.

Y was born in Country A and their domicile of origin is Country A. They acquired a domicile of choice in Australia on or about the time they became an Australian citizen. They have not reverted to their domicile of origin as they are living in Country A temporarily.

Therefore, your domicile is 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 phrase 'permanent place of abode' calls for a consideration of the physical surroundings in which you live, extending to a town or country. 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 their permanent place of abode outside Australia are:

•         whether the taxpayer has definitely abandoned, in a permanent way, living in Australia

•         whether the taxpayer is living in a town, city, region or country in a permanent way.

The Commissioner considers the following factors relevant to whether a taxpayer's permanent place of abode is outside Australia:

(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.

Application to your situation

We have taken the following into consideration when deciding whether your permanent place of abode is outside Australia:

•         You own a property in Australia which was your main residence until you moved to Country A.

•         You continue to pay your mortgage as well as council rates and water utility bills for this address.

•         This property is currently being rented out to tenants partly furnished.

•         You still use this address on documents.

The commissioner is not satisfied that your permanent place of abode is outside Australia.

Therefore, you are 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 both:

•         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 not been present in Australia for 183 days or more during the 20XX and 20XX financial years.

Therefore, 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.

Application to your situation

You are not a member on behalf of whom contributions are being made to 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 years ended 30 June 20XX and 30 June 20XX.

Question 2

Double Taxation Agreement

It is possible to be a resident for tax purposes of more than one country at the same time in respect of an income year or part of an income year. If this is the case, in determining your liability to pay tax in Australia it is necessary to consider any applicable double tax agreement. Sections 4 and 5 of the International Tax Agreements Act 1953 (Agreements Act) incorporate that Act with the ITAA 1936 and the ITAA 1997 and provide that the provisions of a double tax agreement have the force of law.

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.

Article XX 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.

3. Whereby reason of the preceding provisions of this Article a person, being an individual, is a resident of both Contracting States, the person's status shall be determined as follows:

a) the individual shall be deemed to be a resident only of the State in which a permanent home is available to that individual; but if a permanent home is available in both States, or in neither of them, that individual shall be deemed to be a resident only of the State with which the individual's personal and economic relations are closer (centre of vital interests);

b) if the State in which the centre of vital interests is situated cannot be determined, the individual shall be deemed to be a resident only of the State of which that individual is a national or citizen.

Permanent Home

We have concluded that you do not have a permanent home in either Country A or Australia based on the following considerations.

•         Your property in Australia is being rented to tenants and is not available for your use.

•         Your accommodation in Country A has been a mixture of short-stay Air BNB accommodation and longer-term accommodation. The use of shorter-term transitory accommodation for part of the time you have spent in Country A does not qualify as being considered a permanent home.

Personal and Economic Ties (Centre of Vital Interests)

We have considered that your personal and economic ties are closer to Australia based on the following considerations.

•         X continues to work for, and receives income from, an Australian employer.

•         You own two properties in Australia.

•         You derive rental income from the Australian properties

•         You each have an Australian superannuation fund.

•         X has maintained his Australian registrations and professional memberships related to their employment.

•         You have continued to pay for your Australian private health insurance.

•         You voted in the federal election as overseas voters.

•         You do not have any assets in Country A.

•         You do not derive any income from sources in Country A.

•         You do not have any professional, or sporting commitments in Country A.

Conclusion

We have concluded that the tiebreaker tests in Article X of the Country A Agreement apply so that you are deemed to be a resident only of Australia for treaty purposes. The provisions of the Country A Agreement will therefore apply on the basis that you are a resident of Australia and not Country A.

Questions 3 and 4

Employment income and rental income

Article 14 of the Country A Agreement deals with employment income and states, in part:

Remuneration derived by an individual who is a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in that other State.

In your case, you are residents of Australia who are, or were, exercising your employment in Country A, so both Australia and Country A have the right to tax your employment income.

Article XX of the Country A Agreement deals with income derived from real property and states that income from real property may be taxed in the Contracting State in which that property is situated.

Therefore, Australia still has the right to tax the income you derive from your Australian rental properties.

Question 5

Foreign income tax offset

Section 770-10 of the ITAA 1997 provides that you can claim a foreign income tax offset for foreign income tax you pay in respect of an amount that is included in your assessable income.

Foreign income tax is a tax imposed by a law other than an Australian law, on income, profits or gains (section 770-15 of the ITAA 1997). You must have paid the foreign income tax before an offset is available.

In considering your entitlement to a foreign income tax offset for tax paid in Country A, it is necessary to also consider the provisions of the Country A agreement.

Article XX of the double tax agreement provides that income, such as employment income, derived by a resident of Australia (for the purposes of the double tax agreement) that may be taxed in Country A shall be deemed to be from sources in Country A.

Article XX of the double tax agreement states that tax paid in Country A under the law of Country A and in accordance with this Convention, whether directly or by deduction, in respect of income derived by a person who is a resident of Australia from sources in Country A shall be allowed as a credit against Australian tax payable in respect of that income.

Therefore, you are allowed to claim a foreign income tax offset for tax paid in Country A on your employment income.