Edited version of private advice

Authorisation Number: 1052019376839

Date of advice: 22 August 2022

Ruling

Subject: Assessable income - ordinary concept of residence

Question 1

Are the Taxpayers residents of Australia in respect of the year ended 30 June 20XX for the purposes of subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No.

Question 2

If the answer to question 1 is 'yes', are the Taxpayers residents of Country B in respect of the year ended 30 June 20XX in accordance with the relevant Double Taxation Agreement (DTA)?

Answer

Not applicable as the answer to question 1 is 'no'.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

21 July 20XX

Relevant facts and circumstances

1.     Taxpayer 1 and Taxpayer 2 (collectively 'the Taxpayers') were both born in Australia and are citizens of Australia.

2.     The Taxpayers have three children. Two of their children live in Australia and one child lives in Country B with their spouse and their two children (the Taxpayers' grandchildren).

3.     Neither of the Taxpayers is a member of the superannuation scheme established by deed under the Superannuation Act 1990.

4.     The Taxpayers are trustees for self-managed superannuation fund A.

5.     In 19XX, the Taxpayers incorporated a number of entities in Australia (the Family Group), one of which is W Pty Ltd, which is the trustee of the Taxpayer 1 Family Trust. The Taxpayers are directors, shareholders and/or beneficiaries of the entities in the Family Group.

6.     Since 19XX the Family Group has conducted its business in Australia. The business office and headquarters of the Family Group were located in Australia until 20XX when the headquarters were relocated to Country B.

7.     In 20XX, the Taxpayers purchased a residential property in Country B (the Country B Property). Since the purchase, the Taxpayers stayed at this property when they have been in Country B.

8.     In the period from 20XX to 20XX, the Taxpayers split their time between Australia and Country B.

9.     In March 20XX, the Taxpayers travelled to Australia from Country B. Due to the strict travel restrictions from this time due to the COVID-19 pandemic, the Taxpayers stayed in Australia until April 20XX. The Taxpayers returned to Country B in April 20XX but travelled back to Australia on 16 June 20XX. The Taxpayers spent an uncharacteristic number of days in Australia during the 20XX and 20XX years due to the impact of the COVID19 pandemic.

10.  In or around May 20XX, the Family Group expanded its business investments to include a business portfolio of Country B assets of approximately AUD $X million, comprising financial assets including fixed interests, equities and cash. Employees of the Family Group would also make intermittent trips from Australia to Country B to meet with advisers managing the investment portfolio in Country B.

11.  In 20XX, the Taxpayers acquired a property in Australia (the Australia Property). This property had been nominated as their main residence for land tax purposes since its acquisition, until July 20XX.

12.  Taxpayer 1 had been a member of Golf Club A in Australia for more than XX years, and a patron of the club for X years (until their resignation in August 20XX). Since 20XX, both Taxpayer 1 and Taxpayer 2 have been members of Golf Club B in Country B. Taxpayer 1 also holds a committee seat in a body corporate of the seven houses located near the Country B Property.

13.  The following table identifies the Taxpayers' physical presence in Australia and Country B for the period 1 July 20XX to 30 June 20XX:

14.  On and since 21 July 20XX, the Taxpayers relocated to Country B to live in the Country B Property on a permanent basis, for lifestyle reasons. They also wanted to spend more time with their child who lives in Country B and their children.

15.  While in the future the Taxpayers intend to acquire a new residence in Country B, until that time the Country B Property is their primary place of residence.

16.  The Taxpayers' Australia Property has ceased to be their main residence and the relevant authorities have been informed of this (e.g. the relevant state office of state revenue in relation to land tax and the city council has been advised of the unoccupied status).

17.  The Taxpayers currently each hold a Country B resident visa. This visa allows them to live and work in Country B indefinitely, however there are travel conditions attached to such visas.

18.  The Taxpayers have engaged an immigration lawyer to apply to become Country B permanent residents. They will apply as soon as they are able to (after 2 years of being in the country).

19.  The Taxpayers have also applied for a Variation of Travel Conditions to their Country B resident visas to be exempt from Country B border restrictions for a specified period of time. This was approved by Immigration in Country B in December 20XX.

20.  The Taxpayers have not spent any days in Australia since 21 July 20XX.

21.  It is the Taxpayers' intention to spend less than 45 days in Australia for subsequent income years. They do not intend to visit Australia on more than 3 to 4 occasions per year and will only do so on an ad hoc basis. For convenience, their Australia Property will remain vacant, and they will stay there when they are in the same city.

The Family Group

22.  The Taxpayers had the following business entities in Australia and Country B as of October 20XX:

23.  In August 20XX, TM Country B Ltd was incorporated with the Taxpayers as sole shareholders and directors. Shareholding of TM Country B Ltd was subsequently transferred to SW Limited and WW Limited (as trustees for SF Trust) in August 20XX.

24.  In August 20XX, SW Limited was incorporated with the Taxpayers as shareholders and directors. This entity is the corporate trustee of SF Trust.

25.  On 18 August 20XX, WW Limited was incorporated with the General Manager of the Family Group as shareholder and director. This entity is an independent corporate trustee of SF Trust.

26.  On 24 August 20XX, the Taxpayers settled the SF Trust.

27.  On 25 August 20XX, SC Limited was incorporated with the Taxpayers as the directors. SW Limited and WW Limited (as trustees for SF Trust) are the shareholders of SC Limited.

28.  The Taxpayers have opened new bank accounts for the new Family Group entities in Country B.

29.  The Taxpayers have moved their family office headquarters to Country B and are in the process of moving their business operations to Country B, including transferring the majority of their existing business asset holdings to be held by Country B entities. They are in the process of selling down remaining liquid investments held in the Australian entities of the Family Group and expect to transfer relevant passive financial assets into their Country B holding structure.

30.  The Taxpayers intend to (and are in the process of) winding up the following entities in their Australian holding structure:

•         FG Pty Ltd;

•         NN Pty Ltd;

•         NA Pty Ltd;

•         NA Trust;

•         TI Country B Pty Ltd;

•         TI Country B Trust;

•         TE Trust; and

•         TI Pty Ltd.

31.  In August 20XX, the General Manager of the Family Group sent an email to the Economic Development Manager of the council area the Taxpayers live in when in Country B, following their call to discuss the relocation of the family office to Country B.

32.  In September 20XX, the Economic Development Manager wrote a letter in support of the visa application for the General Manager of the Family Group. The letter noted, among other things, that "The [Taxpayers] already reside in the district and intend to move the management of their significant investments and donations to the district".

33.  The General Manager of the Family Group received approval from Country B immigration to relocate to Country B and has since moved to Country B with their family. The General Manager of the Family Group is the only employee of the family office in Country B but further staff may be employed in the future.

Personal property and assets

34.  The Taxpayers own personal assets in both Australia and Country B. These assets include bank accounts, jewellery and artwork, motor vehicles and other personal and household contents.

35.  As part of their relocation to Country B, the Taxpayers:

•         intend to acquire additional assets including further investment property and cars in Country B;

•         have moved furniture and personal assets from the Australia Property to the Country B Property;

•         have transferred the vast majority of their existing personal possessions, such as jewellery, academic records and estate antiques, to Country B;[1]

•         have transferred some cash from Australian bank accounts to Country B bank accounts; and

•         intend to establish a new foundation in Country B for the purposes of their charitable giving and works.

36.  Outside of Australia and Country B, the Taxpayers only have one asset. They are the sole members of a foreign superannuation fund. This fund has obtained a private ruling from the Commissioner which determines that it is a foreign superannuation fund under section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

Other relocation steps

37.  On 21 July 20XX, upon entry into Country B, the Taxpayers answered that they intended to live in Country B permanently on their incoming passenger cards.

38.  The Taxpayers applied to the Australian Electoral Commission to be removed from the Australian electoral roll and have now been removed.

39.  In July 20XX a Mail Redirection Application was submitted for the Taxpayers' mail to be redirected from their Australia Property address to the address of the Country B Property. In the application it was noted that the Taxpayers would be leaving their Australian address permanently.

40.  In July 20XX, the Taxpayers' insurance company was notified that they have decided to move to Country B permanently effective from 21 July 2021. The insurers were advised that the Australia Property would only be used on a "very limited basis" for holidays. The insurance premium has been adjusted to reflect this use.

41.  In July 20XX, the Family Group company accountant emailed their external accountant to attend to the following actions:

•         update the Taxpayers' address on the ATO portal;

•         update the Taxpayers' address for ASIC;

•         the Taxpayers to resign as trustees of self-managed superannuation fund A; and

•         close the Taxpayer 1 and Taxpayer 2 Foundation (closed as of November 20XX).

42.  In August 20XX, the Taxpayer's residential address on the ATO portal was updated to list the Country B Property.

43.  In August 20XX, Taxpayer 1 stepped down from their role as Patron of the Australian Golf Club they patronised.

44.  In August 20XX, the Taxpayers advised Medicare of their relocation to Country B.

45.  In August 20XX, Taxpayer 2 emailed their utility company to inform them that they were now residing in Country B and that going forward their child (who lives in Australia) was to be the authorised person dealing with the account.

46.  In November 20XX, the Taxpayers took up health insurance in Country B and in December 20XX, the Taxpayers suspended their Australian private health insurance.

47.  The Taxpayers have completed their registration with the relevant health organisation in Country B.

48.  The Taxpayers have advised various banking institutions of their relocation to Country B.

49.  In January 20XX, the Taxpayers purchased via SF Trust a Country B investment property as a long-term Country B investment.

Australian and Country B tax returns

50.  Up until the year ended 30 June 20XX, the Taxpayers were considered Australian and Country B tax residents under each country's domestic law.

51.  Under the DTA between Australia and Country B, the Taxpayers have been considered to be solely Australian tax residents for the purposes of the DTA up until the year ended 30 June 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 995-1

Domicile Act 1982

Double Taxation Agreement between Australia and Country B

Superannuation Act 1990

Superannuation Act 1976

Reasons for decision

Section 995-1 of theITAA 1997 defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of theITAA 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, 2020 rev. 8^th edition, Macquarie Dictionary Publishers Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; having one's abode for a time'. This, among other dictionary definitions, has been highlighted in cases as being definitive observations of the meaning of resides (see Logan J in Stockton v Federal Commissioner of Taxation [2019] FCA 1679 and Viscount LC in Levene v Commissioners of Inland Revenue [1928] AC 217).

Case law decisions have considered the following factors in relation to whether a 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.

Residence was discussed in Joachim v. FCT 2002 ATC 2088. In that case it was highlighted that the test is 'whether the person has retained a continuity of association with the place together with an intention to return to that place and an attitude that the place remains home'.

Application to the Taxpayers' circumstances

The Commissioner accepts the circumstances of the Taxpayers are not consistent with residing in Australia. This is because:

•         The Taxpayers have not spent any days in Australia from 21 July 20XX to 30 June 20XX.

•         The Taxpayers' physical presence in Australia will be minimal (less than 45 days in an income year) for subsequent income years.

•         The Taxpayers will only visit Australia on an ad-hoc basis for holidays and to visit family.

•         The Taxpayers have established ties and demonstrated and intention to reside permanently in Country B, including transitioning their business operations to Country B, and do not intend to return to Australia on a permanent basis.

•         The Taxpayers have transferred personal assets out of Australia and otherwise severed their ties with Australia in numerous ways. While the Taxpayers will maintain their Australia Property, they have no financial need to rent it out and only intend to use it on a minimal basis when they visit Australia.

Although the Taxpayers have a degree of continuity of association with Australia through their Australian business entities, family ties and Australia Property, they do not demonstrate an intention to permanently return to Australia or to continue to treat Australia as home.

The domicile test

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.

Both the Taxpayers are Australian citizens, and their domicile of origin is Australia. As the Taxpayers have not yet applied for citizenship in Country B, it is considered that the Taxpayers have not abandoned their domicile of origin and acquired a domicile of choice in Country B.

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.

Application to the Taxpayers' circumstances

The Commissioner is satisfied that the Taxpayers have a permanent place of abode outside Australia. This is because:

•         The Taxpayers live in a house that they own in Country B. Their presence in Country B is not of a temporary or transitory nature, as they intend to reside in their Country B home permanently.

•         Before 21 July 20XX, the Taxpayers had lived in Country B intermittently for several years.

•         The Taxpayers have informed government departments and other services of their permanent move to Country B.

•         The Taxpayers only intend to return to Australia for holidays, are not obligated to return to Australia on a scheduled basis, and do not intend to spend more than 45 days of an income year in Australia.

•         The Taxpayers maintain a house in Australia which they have not rented out, but they have no financial need to rent out the property, have moved the vast majority of their personal effects with them to Country B and have updated many bodies and services to acknowledge the house's vacant status.

The Taxpayers are therefore not residents 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.

In the income year ended 30 June 20XX, the Taxpayers were not present in Australia for 183 days. The Taxpayers are not residents 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, an eligible employee for the purposes of the Superannuation Act 1976, or the spouse or child (under 16) of such a person.

The Taxpayers do not satisfy any of these categories and are not residents under this test.

Conclusion

The Taxpayers are not residents of Australia for the purposes of subsection 6(1) of the ITAA 1936 for the income year ended 30 June 20XX.

[1] A limited amount of personal assets (in the form of jewellery) remains in Australia in a safety deposit box which requires the Taxpayers to present themselves in person to withdraw items. The Taxpayers will move this jewellery to Country B once they visit Australia and physically present themselves at the safety deposit box.