Edited version of private advice

Authorisation Number: 1052099526602

Date of advice: 21 March 2023

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for income tax purposes for the 20XX income year?

Answer

Yes.

Question 2

Are you a resident of Australia for taxation purposes under Article X of the Double Tax Agreement between Australia and Country X?

Answer

Yes.

Question 3

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

Answer

Yes.

Question 4

Are you entitled to a foreign income tax offset (FITO) for any tax paid in Country X?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were born in Country Y

You moved to Country X in 20XX and became a citizen of Country X in September 20XX.

Your family also lives in Country X.

You rented a home in Country X whilst you were a student.

You also stayed with your sister in Country X.

You studied in Country X until 20XX.

You paid your entire Country X tuition fees yourself.

In Country X, the federal government provides a tuition tax credit where each year, students can claim a tax credit.

You had accumulated many tax credits from years of studying.

In 20XX, you travelled to Australia to work at an Australian university and worked there until July 20XX.

Your employer offered you a sponsored permanent residency visa that allowed you to stay in Australia permanently.

Your spouse travelled to Australia with you.

Your spouse also entered Australia on a permanent residency visa.

When you departed Country X, you brought some of your personal belongings to Australia and left most of them with your sister in Country X.

You rented a property in Australia.

Due to the Covid-19 pandemic, you were not able to move back to Country X as Australian borders were closed.

You accepted a position in Country X at a university in August 20XX and worked remotely from Australia from September 20XX to June 20XX.

In March 20XX, you returned to Country X for a compassionate visit and stayed for several weeks.

When you had been in Australia for X years, you were eligible to become an Australian citizen.

In September 20XX, you applied for Australian citizenship and became an Australian citizen in November 20XX.

As the tuition tax credits that you had received were going to expire, you claimed them in your Country X income tax return in the 20XX income tax year.

Since arriving in Australia, you have travelled to Country X several times per year to visit your family and attend academic conferences.

When completing incoming and outgoing passenger cards, you state that you are an Australian resident.

You do not own property in any country.

You have Australian and Country X drivers' licences.

You have Australian and Country X bank accounts.

You receive your mail in both Australia and Country X.

In July 20XX, you commenced a position at an Australian university and intend to work there until July 20XX.

You do not intend to reside in Australia permanently and intend to move back to Country X in August 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

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

Income Tax Assessment Act 1997 Subsection 770-10(1)

Income Tax Assessment Act 1997 Subsection 770-15(1)

Income Tax Assessment Act 1997 Section 770-130

International Tax Agreements Act 1953

Reasons for decision

Question 1

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 have lived in Australia since 20XX.

•         Your spouse accompanied you to Australia.

•         You applied for Australian citizenship in the 20XX income year.

•         You are renting a property in Australia.

•         You state that you are an Australian resident when completing incoming and outgoing passenger cards.

•         You have an Australian drivers' licence.

•         You have an Australian bank account.

•         You receive some of your mail in Australia.

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

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 Country Y and your domicile of origin is Country Y. You moved to Country X and acquired a domicile of choice in Country X.

Although you arrived in Australia on a permanent residency visa and subsequently obtained Australian citizenship, it is considered that you did not abandon your domicile of choice in Country X and acquire a domicile of choice in Australia as it was always your intention to move back to Country X and not live in Australia permanently.

Therefore, your domicile is Country X, 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 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.

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:

•         You have lived in Australia since 20XX.

•         Your spouse accompanied you to Australia.

•         You are renting a property in Australia.

•         You have an Australian bank account.

•         You receive some of your mail in Australia.

•         You exercised your employment in Australia.

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

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 lived in Australia since 20XX.

•         Your employer offered you a sponsored permanent residency visa that allowed you to stay in Australia permanently.

•         You applied for Australian citizenship in the 20XX income year.

•         You are renting a property in Australia.

Based on your circumstances, the Commissioner is not satisfied that you did not intend to take up residence in Australia for the relevant income year.

Therefore, you are a resident of Australia under the 183-day test for the 20XX income year.

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 resides and the 183-day 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.

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 Convention 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.

We have concluded that you did not have a permanent home available to you in Country X based on the following considerations:

•         You stayed with a relative in Country X on your return visits as a matter of convenience and did not stay there at all in the 20XX income year. The arrangement is not considered to be permanent as is required by this tiebreak test.

•         Prior to staying with your relative, you were living in a rental property whilst you were a student, and that property is no longer available to you.

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

•         You were renting a property in Australia.

Personal and economic ties (centre of vital interests)

For completeness, we will also consider where your personal and economic ties were closer to.

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 spent the 20XX income year living in Australia with your spouse and 'administered your property' from Australia.

•         You had been living and working in Australia for several years prior to the 20XX income year.

•         Although you were working remotely for an employer in Country X, your employment was exercised in Australia.

•         You have an Australian bank account which you use for savings and investments.

Conclusion

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

Question 3

Article X of the Country X Convention deals with income derived in respect salary, wages and other similar remuneration.

Relevantly, Article X(1) of the Country X Convention provides that the income from salary and wages of an Australian resident will be taxable only in Australia unless the employment is exercised in Country X If the employment is exercised in Country X, then Country X may also tax the income.

In your case, you are a resident of Australia for the purposes of the Country X Convention, and although your employment was situated in Country X you carried out your employment services solely in Australia.

Therefore, your employment income is subject to tax only in Australia under Article X of the Country X Convention.

Question 4

A taxpayer may be entitled to claim an offset for the foreign tax they have paid on income, profits or gains that are included in their Australian assessable income (section 770-10 of the ITAA 1997).

Foreign income tax is a tax imposed by a law other than Australian law, or income, profits or gains (section 770-15 of the ITAA 1997). The taxpayer must have paid the income tax before an offset is available. A taxpayer is deemed to have paid the foreign income tax if the foreign income tax has been withheld from the income at its source (section 770-130 of the ITAA 1997).

Foreign income tax includes that which has been correctly imposed in accordance with the relevant foreign law or, where the foreign jurisdiction has a tax treaty with Australia (having force of law under the International Tax Agreements Act 1953) has been correctly imposed in accordance with that tax treaty (section 770-15 of the ITAA 1997).

In your case, although you had tax deducted from your employment income in Country X, the ultimate result of your Country X income tax assessment was that you received a tax credit or refund as a result of the tuition tax credits.

Therefore, you did not pay any foreign tax for the purposes of section 770-10 of the ITAA 1997 and there is no amount that can be allowed as a foreign income tax offset against your Australian income tax assessment.

Accordingly, you are not entitled to a foreign income tax offset for the 20XX income year.