Edited version of private advice

Authorisation Number: 1052068199668

Date of advice: 15 December 2022

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for taxation purposes?

Answer

Yes.

Question 2

Are you a resident of Australia for the purposes of the Double Tax Agreement between Australia and XXX (the XXX Agreement)?

Answer

No.

Question 3

Will the employment income you earned in XXX during the income year ended 30 June 20XX be taxable only in XXX?

Answer

Yes.

This ruling applies for the following period:

For the year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were born in XXX on XX XXX 19XX and hold a XXX passport.

Your spouse obtained an Australian visa in 20XX and is an Australian resident.

You moved to Australia with your spouse and young child in 20XX.

In 20XX, you also obtained an Australian Permanent Resident visa and purchased a home in Australia with your spouse.

Between 20XX and 20XX you worked and lived in Australia. You and your spouse had a second child in Australia during this time.

Between 20XX and March 20XX you worked in XXX and would return to Australia regularly to spend time with your family.

Between March 20XX and July 20XX you lived in Australia and were unemployed.

On XX July 20XX, you travelled to XXX for a job interview and in September 20XX, you commenced employment in XXX.

You returned to Australia on XX January 20XX to spend time with your family and stayed for a period of XX days before returning to XXX.

You intend continuing your employment in XXX for the next two or three years during which time, you plan on returning to Australia every three months to spend time with your family. Your next visit is scheduled for December 20XX.

You plan on returning to Australia to live permanently at some time in the future.

You are a registered resident of XXX and have a XXX government issued ID card.

Your spouse and children are Australian residents and have remained in Australia. Your children attend school in Australia and your spouse has permanent employment in Australia.

Your spouse and children reside in the residential property that you purchased in 20XX.

When you are in XXX, you live in an apartment that you are renting on a XXX-month lease. This expired in September 20XX, and you entered another XXX-month lease for a different property.

You are a resident of XXX for tax purposes and pay income tax in XXX.

You have no professional, social or sporting connections in Australia.

You have family connections in XXX including siblings and your parents.

You own property and hold bank accounts in both Australia and XXX.

You have not informed the Australian Electoral Committee, Medicare or Australian Financial Institutions that you have accounts with of the fact that are currently working and living in XXX.

You have a driver's licence for both XXX and Australia.

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

These reasons for decision accompany the Notice of private ruling for XXX.

This is to explain how we reached our decision. This is not part of the private ruling.

Detailed reasoning

Question 1

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

The terms 'resident' and 'resident of Australia', as applied to an individual, are defined in subsection 6(1) of the ITAA 1936.

The definition offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are:

•         the resides test (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 Draft Taxation Ruling TR 2022/D2 Income tax: residency tests for individuals.

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.

We also note the following paragraphs from TR 2022/D2:28:

28. In many cases, a visit to Australia of less than 6 months is not sufficient time to be regarded as residing here. This is because a person does not usually establish a sufficient connection to Australia in this time.

29. This, however, can be contrasted with a situation where a person has previously spent a long time in Australia despite only spending short periods in Australia in the relevant income year. In such a case, the shorter period of physical presence in Australia assumes less relevance if the person has retained a continuity of association with Australia, or a particular place within Australia, together with an intention to return to Australia and an attitude that Australia remains their home.

47. Generally speaking, working overseas but returning to Australia at intervals to resume a pre-existing, established family and social life will often mean you are still residing in Australia. This is the case even if you spend more time overseas than in Australia in any given income year. Usually, such an arrangement indicates you are residing in Australia and another country. Having an ongoing, deliberate connection to Australia even though you have a connection to another country through your work does not make you a mere visitor to Australia. In such a case, Australia is your home and you are properly regarded as residing here.

Application to your situation

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

You lodged Income Tax Returns in Australia in the income years ended 30 June 20XX and 30 June 20XX whereby you declared you were an Australian resident for tax purposes. You hold accounts with Australian Financial Institutions and own residential property in Australia. Your spouse and children are Australian residents. Your spouse has permanent employment in Australia and your children attend school in Australia.

You departed Australia for XXX on XX July 20XX and did not return to Australia until XX January 20XX, at which time you stayed in Australia for a period of XX days before returning to XXX. During your time in Australia, you stayed with your family at a property that you own with your spouse.

As mentioned above, being a resident of another country does not diminish any connection to Australia. You have not broken any ties to Australia and have retained a continuity of association with Australia.

Therefore, you are a resident of Australia under the resides test for the period 1 July 20XX to 30 June 20XX.

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 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

In your case, you were born in XXX and your domicile of origin is XXX. However you immigrated to Australia with your family in 20XX, purchased a home here and obtained permanent residency. Your family is well established in Australia with your children attending school here and your spouse being an Australian resident.

It is considered that you abandoned your domicile of origin in XXX and acquired a domicile of choice in Australia. You obtained permanent residency in 20XX and you intend to live in Australia indefinitely.

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:

•         Although you spent most of the income year in XXX, you returned to Australia for XX days during the 20XX income year to spend time with your family.

•         You have established a home in Australia.

•         You have maintained assets in Australian and have not advised the Australian Electoral Committee, Medicare or Australian Financial Institutions that you have are currently working and living in XXX.

You have not definitely abandoned, in a permanent way, living in Australia and 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 income year. 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 residency and domicile tests of residency and so are a resident of Australia for income tax purposes for the year ended 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.

We acknowledge that you are a resident of XXX for tax purposes and pay tax on your income from your XXX employer.

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.[1]

Article 4 of the XXX 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 XXX Agreement. The tiebreaker rules do not change a taxpayer's residency status for domestic law purposes.

Article 4 is as follows:

1. For the purpose of this Agreement, the term "resident", in relation to a Contracting State, means a person who is fully liable to tax therein by reason of being a resident of that State under the tax law of that State.

2. A person is not a resident of a Contracting State for the purposes of this Agreement if the person is liable to tax in that State in respect only of income from sources in that State.

3. Where by reason of the preceding provisions of this Article a person, being an individual, is a resident of both Contracting States, then the status of the person shall be determined in accordance with the following rules:

(a) the person shall be deemed to be a resident solely of the Contracting State in which a permanent home is available to the person;

(b) if a permanent home is available to the person in both Contracting States, or in neither of them, the person shall be deemed to be a resident solely of the Contracting State with which the person's economic and personal relations are the closer.

Permanent home

Permanent home is not defined in the XXX 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.

We have concluded that you had a permanent home in both XXX and Australia based on the following considerations:

•         You have a XXX-month lease on your property in XXX that you have exclusive use of.

•         You own a residential property in Australia with your spouse, that you stay at when you are in Australia.

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.

In your case, your ties to XXX include the following:

•         Your siblings and parents live in XXX.

•         You have bank accounts in XXX.

•         You own a property in XXX.

•         You have a XXX driver's licence.

•         You are a registered resident of XXX and have a XXX government issued ID card.

•         You have permanent employment in XXX with a XXX company and pay tax in XXX on your income.

Your ties to Australia included the following:

•         Your spouse and children remain living in Australia.

•         You have bank accounts in Australia.

•         You own a property in Australia.

•         You have an Australian driver's licence.

•         You hold a Permanent Residency Visa.

•         You have not informed the Australian Electoral Committee, Medicare or Australian Financial Institutions that you have accounts with of the fact that are currently working and living in XXX.

We have concluded that your personal and economic ties as a whole were closer to XXX. Although your personal ties were closer to Australia through your immediate family, your economic relations were closer to XXX due to the significance of the income stream you derived from your employment that supported your life and lifestyle along with that of your family.

Conclusion

The tiebreaker tests in Article 4 of the XXX Agreement apply so that you are deemed to be a resident only of XXX for treaty purposes. The provisions of the XXX Agreement will therefore apply on the basis that you are a resident of XXX for tax purpose and not of Australia.

Question 3

Article 15 of the XXX Agreement relevantly provides:

1.      Subject to the provisions of Articles 16, 18, 19, 20 and 21, salaries, wages and other similar remuneration derived by an individual who is a resident of a Contracting State in respect of an employment shall be taxable only in that Contracting 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 carried out your employment duties in XXX during the income year ended 30 June 20XX meaning that your income will be taxable only in XXX.

[1] See also ATO ID 2003/1195.