Edited version of private advice

Authorisation Number: 1052034012238

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: 19 September 2022

Ruling

Subject: Residency

Question 1

Are you an Australian resident for tax purposes from when you first arrived?

Answer

Yes.

Question 2

Are you a resident of Australia for tax purposes under the Double Tax Agreement between Australia and Country B from when you first arrived?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20YY

The scheme commences on:

1 July 20TT

Relevant facts and circumstances

You are a citizen and tax resident of Country B.

You live and work permanently in Country B and do not travel to Australia for work related purposes.

You have three children; one child is a dependant, and two children are non-dependants. You do not have a spouse.

You first became a permanent resident of Australia through your family back in the 19EEs.

You came to Australia to study in the 19FFs and returned to Country B.

You have continued to renew your Australian permanent residency visa annually.

You have the following ties to Country B:

•         main residence

•         insurances including private health insurance

•         motor vehicle, driver's licence

•         bank account, term deposits, shares, investments.

You acquired, years before the relevant period, Australian real property as a sole owner:

1.    Property A in 20CC

2.    Property B in 20DD

You have not treated either of these dwellings as your main residence.

You have travelled to Australia many times. Your trips to Australia over a number of years, were once a year as a holiday staying for the most part for a few weeks.

One of your children (non-dependant) has been accepted into an Australian University and initially commenced their studying online from Country B because of COVID-19. Your child has now commenced their face-to-face learning at the university.

You arrived in Australia on DDMMYYYY on a permanent resident return visa, with two of your children. One child was already in Australia.

You came to Australia to support your child transition into university, and only intended to stay for a few months.

You left your home in Country B vacant; did not put your possessions into storage; sell or bring any with you.

Property A does not produce rental income, it remains vacant. You have an Australian caretaker who attends to the needs of this property.

When you come to Australia you stay in property B.

You have the following ties to Australia:

•         bank account, term deposits and investments

•         driver's licence and motor vehicle

•         family

•         insurances.

You and your dependant child went to depart Australia after staying a few months, but the borders were closed and did not re-open until 20XX.

During this time, you and your family resided in property B.

You extended your annual leave and only worked remotely when your employer required you to do so.

You and your youngest dependant left Australia and returned to Country B in 20YY.

Your children who attend Australian universities continue to reside in property B.

You will visit Australia in the future on an average one or two times per year to see your children, and will stay for one or two months each visit.

When you left Australia, you advised your bank and accountant.

You are not a member of the Public Sector Superannuation Scheme (PSS).

You are not eligible employee in respect of the Commonwealth Superannuation Scheme (CSS).

You are not the spouse or a child under 16 of a person, who is member of the PSS or an eligible employee in respect of the CSS.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 995-1

International Tax Agreements Act 1953

Domicile Act 1982

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', regarding an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (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

Your previous trips to Australia over a number of years period, consisted of you visiting Australia for one or two months, once a year.

Your intention upon arrival in 20XX was to stay a few months to help your child transition into university, which would have been less than 183 days. Generally if your visit to Australia is less than six months, it points to you not being a resident here, as it is likely that you would not have established a sufficient connection with Australia in this time.

Two of your children accompanied you to Australia. Your eldest child was already living in Australia.

Your two eldest children now attend a university in Australia.

You own Australian real property. When you came to Australia you stay at property B. You and your children lived in property B during your time here in Australia for the relevant periods. Even though you may have had some restrictions to social events due to COVID-19, you would have established regular habits and routines consistent with residing here in Australia.

You were not able to depart Australia after a few months of your arrival. You were prevented from leaving due to COVID-19 border lockdowns. The borders did not re-open until 20YY.

You and your youngest child left Australia in 20YY.

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

•         you were physically present in Australia for 12 months

•         your stated purpose to coming to Australia was to assist your child transition into university

•         you lived in property B that you acquired in 20DD, with your children from the time you arrived in Australia to when you departed. You did not move around from place to place

•         your family (children) were present with you (regardless of dependency)

•         two of your children are enrolled in an Australian university.

•         you hold and maintain a number of assets as well as Australian drivers licence.

You are a resident of Australia under the resides test from when you first arrived to when you departed in 20YY.

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

You may still be an Australian resident if you meet the conditions of one of the other tests (the domicile test, 183-day test and Commonwealth superannuation fund test).

Domicile test

Under the domicile test, a person is a resident of Australia if their domicile is in Australia unless the Commissioner is satisfied, they have a permanent place of abode outside of 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

You were born in Country B, and this is your domicile.

You have a permanent resident return Visa, which allows you to:

•         travel in and out as many times as you like until the validity expires

•         have a travel facility for up to five years; and

•         this visa allows you to return as a permanent resident.

Your travel records over a number of years period, shows you came to Australia once a year, staying a maximum of no more than two months.

In your case, you were born in Country B and your domicile of origin is Country B. You have not immigrated to Australia, and you have not become an Australian citizen.

It is considered you did not abandon your domicile of origin.

Therefore, your domicile is Country B, and you are not 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 been in Australia for 183 days or more in the relevant periods. Therefore, you will be a resident under this test unless the Commissioner is satisfied that your usual place of abode was outside Australia, and you do not have an intention to take up residence in Australia.

Usual place of abode

In the context of the 183-day test, a person's usual place of abode is the place they usually live, and can include a dwelling or a country. A person can have only one usual place of abode under the 183-day test. However, it is also possible that a person does not have a usual place of abode. This is the case for a person who merely travels through various countries without developing any strong connections.

If a person has places of abode both inside and outside Australia, then a comparison may need to be made to determine which is their usual place of abode. When comparing two places of abode of a particular person, we will examine the nature and quality of the use which the person makes of each particular place of abode. It may then be possible to determine which is the usual one, as distinct from the other or others which, while they may be places of abode, are not properly characterised as the person's usual place of abode: Emmett J at [78] in Federal Commissioner of Taxation v Executors of the Estate of Subrahmanyam [2001] FCA 1836.

Application to your situation

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

•         whilst your country of origin is Country B, and you contend that your family, social, employment ties and financial interests connect you to Country B, your living arrangements for the relevant periods was Australia

•         you have a residence available to you in Australia and Country B

•         your purpose in coming to Australia was to support your child transition into university

•         your three children lived with you in property B in Australia

•         you did not work in Australia, as your employment was kept available to you when you returned back to Country B (however, you did some work remotely)

•         while you may not have attended social activities due to COVID-19 you stay in the same accommodation each time you travel to Australia and would be familiar with your local surroundings and environment, and remained in a household with your family in Australia

•         you will continue to visit Australia in the future as your two eldest children are in Australian universities.

Based on your circumstances, the Commissioner is not satisfied that your usual place of abode was outside Australia for the relevant periods.

Intention to take up residency

To determine whether you intend to take up residence in Australia, we look at evidence of relevant objective facts. 'Intend to take up residency' does not merely mean intend to stay for a long time. It means intending to live here in such a manner that you would reside here.

Application to your situation

We have taken the following into consideration when deciding whether you intend to take up residence in Australia:

•         you have not applied for citizenship

•         you regularly renew your permanent return residency visa

•         you did normal daily routine activities in a manner that you were residing here, while remaining in a household with your family.

Based on your circumstances, the Commissioner is satisfied that you did intend to take up residence in Australia for the relevant periods.

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 PSS or the 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 test from the date of your arrival, and the 183 days test of residency for the 20YY income year. Therefore, you so are a resident of Australia for income tax purposes from the date of your arrival until your departure in the year ended 30 June 20YY.

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 agreements. 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.

We accept you have told us you are a resident of Country B for tax purposes, as your family, your home, your employment, and social ties are in Country B.

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 4 of the Republic of Country B 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

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 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.

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.

Application to your situation

We have concluded you have a permanent home in both contracting states based on the following considerations:

•         you have accommodation that is available to you in each country

•         the accommodation in Australia is available for you to use any time as your children also reside in this accommodation

•         the accommodation in Country B during your absence is left vacant and is not made available for rent.

You had a permanent home in both Australia and Country B during the relevant periods.

Habitual abode

The OECD commentary provides that determining a taxpayer's habitual abode 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 (Davies, White and Steward JJ 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 a habitual abode in two states where the individual was customarily or usually present in each State during the relevant period.

Application to your situation

We have concluded that your habitual place of abode for the relevant periods was both in Australia and Country B based on the following considerations:

•         you frequent Australia at least once a year

•         even though your previous visits may have been one or two months each time, you stay and occupy property B, and you do not move around from place to place

•         you constitute having a regular routine and habits when you come to Australia consistent with having a habitual abode in Australia

•         you were in Australia for just over 12 months, and ordinarily live and reside in Country B and intend to continue to do so.

Personal and economic ties (centre of vital interests)

The OECD commentary states that 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.

Application to your situation

We have concluded that on balance, your personal and economic ties were closer to Australia for the relevant period based on the following considerations:

•         you remained a citizen of Country B during the relevant periods

•         you maintained a dwelling in Country B where you and your child resided when in Country B, however during this period, you resided with the rest of your family in property B you own in Australia

•         your employment was in Country B, however there were times when your employment was exercised from Australia

•         you were paid by your Country B employer into your Country B bank account

•         you maintained a number of Australian assets and connections whilst in Australia, including:

o        bank account, term deposits and investments

o        property where you resided with your children

o        driver's licence and motor vehicle

o        insurances

•         you continued to maintain your Country B assets from Australia.

Conclusion

We have concluded that the tiebreaker tests in Article 4 of the Republic of Country B Agreement apply so that you are deemed to be a resident only of Australia for treaty purposes. The provisions of the Republic of Country B Agreement will therefore apply on the basis that you are a resident of Australia for tax purposes and not of Country B for the relevant periods.