Edited version of private advice

Authorisation Number: 1052034457100

Date of advice: 14 September 2022

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for tax purposes from the date you relocated to Country B until the income year ending 30 June 20XX?

Answer

Yes.

Question 2

Will you be a resident solely of Country B under Article X of the Agreement between Australia and Country B for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income during the relevant period?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were born in Country A and became a citizen of Australia in 20XX. You do not hold any other citizenships.

Your spouse and two adult children are also citizens of Australia.

You travelled to Country B in January 20XX to commence employment on a three-year work permit.

You relocated to Country B alone, with your family remaining in Australia.

Your spouse works in Australia and cannot relocate to Country B at this stage as she does not have a work permit. She lives in your jointly owned home in Australia.

Your children are independent adults, who are both working in Australia.

You have relocated to Country B for a three-year period but may stay longer if your contract is extended.

You have only returned to Australia for five days since you relocated to Country B and plan to travel back for a similar period over Christmas. You anticipate you will return to Australia for a similar amount of time for the remainder of the ruling period.

You currently live and work full time in Country B and you have a 12 month rental agreement for a two bedroom and two bathroom apartment in Country B. You may look for a larger home for your family to come and visit or if your spouse decides to join you full time.

You took some of your smaller personal items with you to Country B but most of your household effects remained in your home in Australia, with your spouse.

Your spouse may relocate to Country B full time next year.

Your family's intention is to travel to visit you in Country B. Your spouse currently visits you in Country B when she can, subject to her work commitments.

You have set up a bank account in Country B.

You are fully integrated in the social scenes in Country B more broadly; have established a circle of friends in Country B.

You are part of the local Yacht club and regularly attend sporting events.

You have a driver's licence in both Australia and Country B.

You contribute and support numerous charities in Country B.

You cancelled your private health insurance in Australia and you took out private health insurance in Country B.

You advised the Australian Electoral Commission of your departure.

You receive mail to both your house in Australia and your rental in Country B.

You own two investment properties in Australia.

You and your spouse have maintained your bank accounts and a share portfolio in Australia.

Neither you or your spouse are a contributing member of a superannuation fund for Commonwealth government officers.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Subsection 6-5(1)

Income Tax Assessment Act 1997 Subsection 995-1(1)

International Tax Agreements Act 1953

Reasons for decision

Question 1

Summary

You will remain a resident of Australia for taxation purposes from the day you departed for Country B, as you meet the resides and the domicile tests of residency. You also meet the 183-day test for the 20XX-XX income year.

Detailed reasoning

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 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.

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:

•         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 not 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 paragraph 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.

There are numerous cases that consider the issue of residency for taxation purposes.

It was stated by Logan J in Harding v FC of T [2019] FCAFC 29 at paragraph 8, "it is of cardinal importance not to elevate into matters of principle in a later case the particular facts found decisive in the different circumstances of an earlier case". The facts of your case will not be compared to the facts of the previous cases.

Application to your situation

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

•         You have been an Australian citizen since 20XX and your spouse and two children are Australian citizens.

•         You are in Country B on a work-permit for three years.

•         Your family has remained in Australia and your spouse lives in your jointly owned house in Australia.

•         Most of your household and personal items remain in Australia.

•         You will stay in your family home when you visit Australia. You are not estranged from your spouse.

•         You are renting accommodation in Country B.

•         You have maintained two investment properties in Australia.

•         You continue to have bank accounts and a share portfolio in Australia.

You will continue to have a strong continuity of association with Australia and are a resident of Australia under the resides test for the relevant period.

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 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 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.

Application to your situation

We have taken the following into consideration when determining which country you are domiciled to:

•         You were born in Country A and became a citizen of Australia in 20XX.

•         Your spouse and two children are citizens of Australia.

•         You are in Country B on a temporary visa which permits you to stay and work there for three years.

•         You continue to maintain your jointly owned home with your spouse in Australia, where most of your personal items remain.

Based on the facts provided, we consider Australia to have become your domicile of choice at some point in time after you established yourself here and became a citizen in 20XX. Further, at this point in time there is insufficient evidence available to support a conclusion that you have acquired a domicile of choice in Country B.

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 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 to determine whether you have a permanent place of abode outside of Australia:

• You are working in Country B on a three-year contract, which may be extended.
• You have taken some of your personal belongings and have a rental property in Country B to live in while working in Country B.
• Most of your personal and household items remain in Australia in your jointly owned house with your spouse.
• You will stay in your home when you visit Australia.
• You have maintained a bank account and share portfolio in Australia.
• You have two investment properties in Australia.
• You get mail sent to you at both your Australian and Country B addresses.
• You have both an Australian and Country B driver's licence.

Based on the facts provided, we consider you to have a place of abode in both Australia and Country B. However, we are not satisfied that you have a permanent place of abode in Country B because you have not definitely abandoned Australia due to your family and family home in 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.

For the 20XX income year you were in Australia for more than 183 days. Therefore, you will be a resident of Australia under this test unless the Commissioner is satisfied that your usual place of abode was outside 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 to determine where your usual place of abode was the for 20XX income year:

• You are working in Country B on a three-year contract, which may be extended.
• You have taken some of your personal belongings and have a rental property in Country B to live in while working in Country B.
• Most of your personal and household items remain in Australia in your jointly owned house with your spouse.
• You will stay in your home when you visit Australia.
• You have maintained a bank account and share portfolio in Australia.
• You have two investment properties in Australia.
• You get mail sent to you at both you Australian and Country B addresses.
• You have both an Australian and Country B driver's licence.

Based on your circumstances, the Commissioner is not satisfied that your usual place of abode was outside Australia for the 20XX income year.

You are a resident of Australia under this test for the 20XX income year.

For the 20XX, 20XX and 20XX income years you have advised that you will only be in Australia for short periods (approximately 10 days per year), so you will not be present in Australia for 183 days or more for these years.

You are not a resident of Australia under this test for the 20XX, 20XX and 20XX income years.

The Commonwealth Superannuation Fund 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 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 of Australia under this test.

Question 1 Conclusion

You satisfy the resides test and domicile test of residency and so will be considered a resident of Australia for income tax purposes for the years ended 30 June 20XX, 20XX, 20XX and 20XX. You are also a resident under the 183-day test for the year ended 30 June 20XX.

Question 2

Summary

We have concluded that the tiebreaker tests in Article X of the Country B agreement apply so that you are deemed to be a resident only of Country B for treaty purposes.

Detailed reasoning

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. Where this is the case, 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.

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 (see also ATO ID 2003/1195).

Australia has entered into a double tax agreement with Country B, the Agreement between Australia and Country B for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (Country B agreement).

The Country B agreement operates to avoid the double taxation of income received by residents of Australia and Country B.

Article X of the 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.

The tiebreaker tests in cascading order are whether you have a permanent home in one of the countries, in which country the individual has an habitual abode, or to which country the individual's personal and economic relations are closest.

Permanent home

The first arm of the tie-breaker test considers where you have a permanent home.

Permanent home is not defined in the Country B 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.

We have concluded that you have a permanent home in Australia and Country B based on the following considerations:

• You have taken some of you belongings with you to Country B.
• You rent a property in Country B to live while working in Country B.
• Your role is for a three-year period and may then be extended.
• You have an established home in Australia which your spouse continues to live in while you are living in Country B.
• Your family has remained in Australia, although your spouse may join you in Country B full time.
• You stay in your home with your spouse whenever you are back in Australia.

Habitual abode

The second arm of the tie-breaker test considers where your habitual abode is.

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.

ATO view of habitual abode

There are a number of ATO Interpretative Decisions which contain the ATO view regarding 'habitual abode'.

In ATO ID 2004/774, a taxpayer who spent time at their homes in both Australia and the US during a single income year was held to have a habitual abode in both Australia and the US because it was 'part of their usual pattern of activity'.

ATO ID 2006/184 considers a taxpayer working in Australia for a period of four years, but 'spending time' in Italy during this period, and who had a home available to him there. The 'reasons for decision' in this ATO ID states, in part, that:

The notion of an habitual abode is not simply a test of where a person stays more frequently but also looks to whether living in a particular country is normal or customary having regard to the taxpayer's circumstances. As it is usual or customary for the taxpayer to spend time in both countries, the taxpayer has a habitual abode in both countries.

Under the second arm of the test the Commissioner considers that you have an habitual abode in Australia due to your spouse remaining in Australia in your jointly owned home. The Commissioner also considers that you have a habitual abode in Country B.

As there is not a clear decision based on the first two arms of the residence tie-breaker test the third arm must be considered.

Personal and economic ties (centre of vital interests)

The third arm considers to which country your personal and economic relations are closest.

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.

We have concluded that your personal and economic ties are closer to Country B at this point in time, based on the following considerations:

• You have established strong social and professional connections in Country B.
• You have not and do not intend to visit Australia regularly or for long periods during your time in Country B.
• Your spouse may move to Country B to join you full time during your current contract.
• You have investment properties in Australia which you receive rental income from.
• Your employment is in Country B, which earns you your salary and wages.
• You have financial obligations in Country B, being the payment of rent for your long-term accommodation while working in Country B.
• You are an Australian citizen.

Question 2 Conclusion

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