Edited version of private advice

Authorisation Number: 1052080264320

Date of advice: 25 January 2023

Ruling

Subject: Residency

Question

Are you a resident of Australia for income tax purposes from the 20XX-20XX income years?

Answer

Yes.

Question

Are you a resident of Australia under the double taxation agreement with Country X for the 20XX-20XX income years?

Answer

Yes.

Question

Is your income from employment in Country X subject to tax in Country X under Article X of the Double Tax Agreement between Country X and Australia?

Answer

Yes.

Question

Is your income from your investment properties subject to tax in Australia under Article X of the Double Tax Agreement between Country X and Australia?

Answer

Yes.

Question

Is the income you receive from your rental properties subject to tax in Australia under Article X of the Double Tax Agreement between Country X and Australia?

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

Year ended 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

X March 20XX

Relevant facts and circumstances

You were born in Australia and are an Australian citizen.

You have spent almost all your life in Australia and almost all your immediate family live in Australia.

In May 20XX you departed Australia to travel the world.

On your departure, you had no fixed destination in mind and no fixed timeline for your return to Australia.

You never intended at the time of departing to depart indefinitely.

During May 20XX and March 20XX, you visited several countries (many of these on multiple occasions).

During this period, you returned to Australia a total of X times for a combined total of X days. You continued to consider Australia as your home and lodged Australian tax returns during this period.

You entered Country X on your Country Y passport which gave you the legal right to travel to Country X and remain in Country X as a tourist indefinitely.

In late 20XX, you saw a small wooden cabin in the forest in Country X listed for sale on the internet, which you ultimately purchased.

Settlement on the cabin occurred in March 20XX.

This cabin was officially classed as a holiday home by the Country X authorities. The cabin was small and had no electricity, running water or council services.

It was neither constructed nor purchased with permanent habitation in mind.

You purchased the cabin essentially "for fun": as a project to fix up a bit, and as a small base to enable you to continue exploring Continent A and Country X in particular, as well as to experience "life in a cabin". At no stage did you consider making this your permanent home.

You set up a small single panel solar electricity system in your cabin.

You fitted insulation into the ceiling, however the walls and floors of your cabin remained uninsulated.

You entered Country X several times from May 20XX and March 20XX.

Between March 20XX to March 20XX, you entered Country X several times for a combined total of X days. You did not work for this entire period.

During this period, you also visited a total of 10 other countries (many on multiple occasions) for a combined total of X days, including one trip back home to Australia for a total of XX days.

You undertook a hike in Country X in 20XX which took you several months to complete.

You spent several months away from your cabin from February 20XX to June 20XX volunteering with residents of Country X and during this time you worked with them, lived with them and shared meals with them.

In May 20XX, you requested confirmation of your continued tax residency in Australia.

In August 20XX, you were issued with a "Certificate of Residency" confirming your Australian Tax Residency, which was valid from August 20XX to August 20XX.

In late 20XX or early 20XX, you decided to sell your cabin in Country X and to return to Australia permanently.

Your parent had already booked flights from Australia to Continent A for a short holiday in the middle of 20XX, so it was your intention to list your cabin for sale immediately after they returned to Australia, and to return to Australia once the sale had been finalised, which you hoped would be by September or October of 20XX.

In February-March 20XX, due to the onset of Covid-19, although it was your intention and wish to return to Australia in (or before) September or October of 20XX, it was simply impossible to do so, due to travel restrictions.

When it became clear that you would not be able to return to Australia in 20XX, you purchased a vehicle in Country X and tried to find a job in Country X.

You signed a twelve-month lease and rented a space in a home some distance from your cabin whilst you looked for work.

You were offered work some distance away from the space you were renting and broke your lease.

You were provided with a permanent full-time position; however, you terminated your contract after X weeks as you felt that it was not having a positive impact on your life, and you were concerned about health and safety conditions.

Whilst you were working, you were provided with accommodation in a house which your company rented.

You spent both winters during the 20XX and 20XX income years in your cabin.

During the Country X winters, the solar electricity system you had installed in your cabin did not function.

Whilst residing in your cabin during these winters, you experienced harsh conditions and undertook many difficult tasks.

These extreme conditions and tasks confirmed for you that your cabin was uninhabitable in winter.

Ultimately, Australia's international borders were not opened in any meaningful way until early 20XX. Throughout the entirety of this period, at all times it remained your intention to return permanently to Australia as soon as the Covid-19 situation allowed.

In July 20XX (while Australia's borders were still firmly closed, and you remained in Country X) you purchased a new home in Australia.

Subsequent to Australia's international borders finally beginning to reopen in early 20XX, you returned to Australia in May 20XX, having sold your cabin and car.

In October 20XX, the Country X authorities wrote to you questioning why you did not provide details of your Australian income and assets in your Country X tax return for the 20XX income year.

In October 20XX, you responded to the Country X authorities explaining essentially that you were a tax resident of Australia for this period. You acknowledged that you were also a tax resident of Country X according to Country X domestic law.

During your stay in Country X you owned several residential investment properties in Australia, as well as Australian Managed Funds. These investments were funded secured debt held by a bank in Australia.

While in Country X, you used your Australian bank accounts not only for your investment expenses, but also for your day-to-day living expenses. You did also open a Country X bank account only because you needed it to pay certain bills in Country X.

You do not anticipate travelling internationally in the coming years.

When completing incoming and outgoing passenger cards, you outlined that you were an Australian resident travelling for the purpose of a holiday.

You do not consider yourself to be a resident of any foreign country for taxation purposes.

You are registered in the Country Y for tax as you stayed there in prior years.

You have stated that under Country X law, any person who enters Country X for a period of X days or more in a X day period is classed as being a resident of Country X for tax purposes.

You also stated that according to Country X Law, a person will remain a resident for tax purposes for a period of two years after leaving Country X.

You did not inform the Australian Electoral Commission or Medicare that you were departing Australia.

You received your mail to your parent's house in Australia; however, it was difficult for your parent to forward you your mail via email, and you decided to rent a PO Box in Country X.

You received foreign income for the 20XX income year and the 20XX income year.

You declared income in your income tax returns for the 20XX and 20XX income year as foreign income or foreign tax paid.

You did not have a return flight to Australia booked as you were hoping to sell your cabin after your family member visited you from Australia and you were unsure how long this would take.

The Country X Authority asked you why you did not disclose your Australian income from 20XX-20XX.

You advised The Country X Authority that you were a resident of Australia for the relevant financial years and were not required to disclose your Australian income to them.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

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

International Tax Agreements Act 1953

Reasons for decision

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

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 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 57 reminds us that 'it is no part of the ordinary meaning of reside in the 1936 Act that there be a "principal" or even "usual" place of residence. ... It is important that ... "resident" not be construed and applied as if there were such adjectival qualifications.' For this reason, the test is not about dominance or exclusivity.

Application to your situation

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

•         You departed Australia to travel around the world.

•         You have not lived in Australia for a period of X up until May 20XX.

•         You have only made a few short visits back to Australia during that time.

•         You did not have a home available to you in Australia as you had previously stayed in work accommodation.

•         You purchased a cabin in Country X which you used as a base during your travels.

You are not a resident of Australia under the resides test up until May 20XX when you were residing in Country X.

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, 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 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

In your case, you were born in Australia and your domicile of origin is Australia.

It is considered that you did not abandon your domicile of origin in Australia and acquire a domicile of choice in Country X. Although you were entitled to reside in Country X as a tourist indefinitely, you did not intend to stay in Country X long term, and it was always your intention to return to Australia. You were registered as a "Person with Own Funds" and not as an employed person or a person seeking work. You were required to have enough money to live and work in Country X and were not entitled to financial assistance or benefits from the Country X authorities. Therefore, your domicile is Australia.

Permanent place of abode

If you have an Australian domicile, you are an Australian resident unless the Commissioner is satisfied that your permanent place of abode is outside Australia. This is a question of fact to be determined in light of all the facts and circumstances of each case.

'Permanent' does not mean everlasting or forever, but it is to be distinguished from temporary or transitory.

The phrase 'permanent place of abode' calls for a consideration of the physical surroundings in which you live, extending to a town or country. It does not extend to more than one country, or a region of the world.

The Full Federal Court in Harding v Commissioner of Taxation [2019] FCA 29 held at paragraphs 36 and 40 that key considerations in determining whether a taxpayer has their permanent place of abode outside Australia are:

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

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

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

(a)  the intended and actual length of the taxpayer's stay in the overseas country;

(b)  whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time;

(c)   whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia;

(d)  whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;

(e)  the duration and continuity of the taxpayer's presence in the overseas country; and

(f)    the durability of association that the person has with a particular place in Australia, i.e. maintaining assets in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

As with the factors under the resides test, no one single factor is decisive, and the weight given to each factor depends on the individual circumstances.

Application to your situation

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

•         You departed Australia for a holiday.

•         You entered Country X on a tourist visa.

•         You were registered as a "Person with Own Funds" and not as an employed person or a person seeking work. You were required to have enough money to live and work in Country X and were not entitled to financial assistance or benefits from the Country X authorities.

•         You purchased a small cabin which was officially classed as a holiday home by the Country X authorities. The cabin was small and had no electricity, running water or council services.

•         You only used this cabin as a base for your travels.

•         You viewed this cabin as more of a fun project instead of a permanent residence.

•         Whilst residing in your cabin during the winter months, you experienced harsh conditions and undertook many difficult tasks including trekking through snow to collect water, rationing your firewood, bathing and washing your clothes in cold water and attempting to dry your clothes in freezing conditions.

•         These extreme conditions and tasks confirmed for you that your cabin was uninhabitable in winter.

•         Your investments and investment properties are in Australia.

•         You did not intend to stay long term in Country X, and you always intended to return to Australia.

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

Therefore, you are 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 were in Australia for 183 days or more in the 20XX income year. 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.

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 in Australia:

•         You were born in Australia and are an Australian citizen.

•         You have spent nearly all your life in Australia.

•         Most of your extended family lives in Australia.

•         You have several investment properties in Australia which you are currently renting.

•         You have Australian Managed Funds.

•         You have Australian bank accounts which you used to fund your investments and day to day living expenses.

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

Following this period, you were not present in Australia for 183 days or more during the 20XX-20XX income years.

Therefore, you are not a resident under this test.

Superannuation Test

An individual is a resident of Australia if they are either a member of the superannuation scheme established by deed under the Superannuation Act 1990 or an eligible employee for the purposes of the Superannuation Act 1976, or they are the spouse, or the child under 16, of such a person.

Application to your situation

You are not a member on behalf of whom contributions are being made to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS) or a spouse of such a person, or a child under 16 of such a person. Therefore, you are not a resident under this test.

Conclusion

You satisfy the domicile test of residency and so are a resident of Australia for income tax purposes for the years ended 30 June 20XX, 30 June 20XX, 30 June 20XX, 30 June 20XX, 30 June 20XX and the years ending 30 June 20XX and 30 June 20XX.

Question Two

Under Australian law, you are an Australian resident for taxation purposes for the years ending 30 June 20XX to 30 June 20XX. However, the Country X Taxation Authority also consider you to be a resident for the relevant financial years.

If you are determined to be a dual resident, then the residency tiebreaker test needs to be applied using Country X's double tax agreement.

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.

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 X of the Country X 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 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.

We have concluded that you didn't have a permanent home in Country X based on the following considerations:

•         You purchased cabin in Country X which you deemed uninhabitable in winter.

•         The cabin did not have the essential requirements of a permanent home including electricity, running water or council facilities.

•         The cabin was officially classed as a holiday home by the Country X authorities.

•         You purchased the cabin for a fun project with no intention of making it a permanent home.

•         The cabin was only used as a temporary base for your travels.

•         You rented a space in someone's home for a month before breaking your lease.

•         You stayed with residents of Country X temporarily during your time volunteering with them.

•         You stayed in accommodation provided by your employer which is no longer available to you.

We have concluded that you didn't have a permanent home in Australia based on the following considerations:

•         Whilst living in Australia you were staying in accommodation provided by your employer which is no longer available to you.

•         You own investment properties in Australia which you are currently renting and are therefore unavailable to you.

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.

We have concluded that did not have a habitual place of abode in Australia or Country X based on the following considerations:

•         You entered Country X on a tourist visa and continued to travel to various countries.

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.

We have concluded that your personal and economic ties were closer to Australia based on the following considerations:

•         You own X investment properties in Australia funded by an Australian bank.

•         You have Australian Managed Funds.

•         You have Australian bank accounts which you used to fund your investments and day to day living expenses.

Conclusion

When applying Article X to your situation, your personal and economic ties are closer to Australia, so therefore you would be considered a resident of Australia for the relevant income periods.

Question 3

Article X of the Country X Agreement deals with remuneration or other income derived in respect of personal (including professional) services.

Relevantly, Article X states that remuneration or other income derived by an individual who is a resident of one of the Contracting States shall be subject to tax only in that State unless the services are performed or exercised in the other Contracting State. If the services are so performed or exercised such remuneration or other income as is derived therefrom shall be deemed to have a source in, and may be taxed in, that other Contracting State.

In your case, you are a resident of Australia for the purposes of the Country X Double Tax Agreement, and you carried out your employment services solely in Country X.

Therefore, your employment income is subject to tax only in Country X under Article X of the Double Tax Agreement between Country X and Australia.

As you carried out your employment services in Country X, the income you derived is not deemed to have a source in Australia and should be taxed in Country X.

Question 4

Article X of the Country X Agreement deals with income from real property.

Article X states that income derived by a resident of a Contracting State from real property may be taxed in the Contracting State in which the real property is situated.

In your case, you are a resident of Australia for the purposes of the Country X Double Tax Agreement, and you receive income from investment properties in Australia.

Therefore, the income you receive from your investment properties is subject to tax only in Australia under Article X of the Country X Agreement between Country X and Australia.

As this income is derived from investment properties in Australia, it is deemed to have a source in Australia and should be taxed in Australia.

Question 5

Article X of the Country X Agreement deals with income from dividends.

Article X states that dividends paid by a company which is a resident of a Contracting State for the purposes of its tax, being dividends beneficially owned by a resident of the other Contracting State, may be taxed in that other State.

In your case, you receive income from investments in Australia which were funded in Australian dollars by an Australian bank.

Therefore, the income you receive from your investment properties in subject to tax only in Australia under Article X of the Country X Agreement between Country X and Australia.

As this income is derived from investments in Australia, it is deemed to have a source in Australia and should be taxed in Australia.