Edited version of private advice

Authorisation Number: 1052134601220

Date of advice: 28 June 2023

Ruling

Subject: Individual residency

Question

Were you a resident of Australia for tax purposes under subsection 6(1) of the Income Tax Assessment Act 1936 for the year ending 30 June 2022?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2022

The scheme commenced on:

Year ended 30 June 20XZ

Relevant facts and circumstances

You are an individual currently residing overseas and you are not an Australian citizen.

You came to Australia in 20XX to reside here long-term with your family.

In 20XX you established a company with yourself as the sole shareholder and director.

In 20XY you were granted a permanent visa (Business Skills (Residence) (class DF) State/Territory Sponsored Business Owners (subclass 892) to reside in Australia indefinitely. You currently have a resident return visa.

You were neither an eligible employee for the purposes of the Superannuation Act 1976 nor a member of the superannuation scheme established by deed under the Superannuation Act 1990. You were also not the spouse of such a person.

You received an offer to work at a firm in your home country and left Australia in the financial year 20XZ and have not travelled outside your home country since.

Prior to your departure you resigned as a director of your company.

You will make short visits to Australia, and you will stay at your former residence when here.

You still own assets in Australia which comprise:

•                     Shares in the company,

•                     Motor vehicle,

•                     Cash in bank accounts with Australian banks.

You are also a beneficiary of family trusts.

You own a property in your home country where you have been living since your return in 20XZ.

You have not visited Australia since your departure in 20XZ.

You do not have any social or sporting connections with Australia.

Relevant legislative provisions

Income Tax Assessment Act 1936- Subsection 6(1)

Reasons for decision

Residency test

The statutory definition of resident is set out in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) and, in respect of individuals, states that:

resident or resident of Australia means:

(a) a person, other than a company, who resides in Australia and includes a person:

(i) whose domicile is in Australia, unless the Commissioner is satisfied that the person's permanent place of abode is outside Australia;

(ii) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and that the person does not intend to take up residence in Australia; or

(iii) who is:

(A) a member of the superannuation scheme established by deed under the Superannuation Act 1990; or

(B) an eligible employee for the purposes of the Superannuation Act 1976; or

(C) the spouse, or a child under 16, of a person covered by sub-subparagraph (A) or (B) ...

The above definition provides four tests for determining whether an individual is a resident for income tax purposes. These are:

a)    residence according to ordinary concepts,

b)    the domicile and permanent place of abode test,

c)    the 183 day test, and

d)    the Commonwealth superannuation fund test.

The tests that are relevant to your circumstances are tests (a) to (c). You do not satisfy test (d), as you do not have a relevant interest in a Commonwealth superannuation fund.

Residence according to ordinary concepts

Whether a person is a resident of Australia is a question of fact and degree to be determined having regard to the circumstances of the particular case.

As there is no definition of the word 'reside' in Australian income tax law, the ordinary meaning of the word must be considered. The Macquarie Dictionary defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time', and the Shorter Oxford English Dictionary defines it 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'.

Paragraphs 20 and 21 of TR 2023/1 provide that:

20. The ordinary concepts test is asking whether your presence in Australia is usual and settled in contrast to temporary and casual. This is informed by both the nature, duration and quality of the person's physical presence and an intention to treat Australia as home. Factors that commonly inform the relevant association with Australia are:

•         period of physical presence in Australia

•         intention or purpose of presence

•         behaviour while in Australia

•         family, and business or employment ties

•         maintenance and location of assets, and

•         social and living arrangements.

21. No single factor is necessarily decisive. The weight given to each factor varies depending on individual circumstances.

In Harding v FCT [2018] FCA 837 (Harding), Derrington J discussed the use of a 'checklist' of relevant factors that had been developed in the AAT through analysis of various residency decisions, such as in Re Iyengar v FCT (2011) 85 ATR 924 and Re Sneddon v FCT (2012) 89 ATR 739, and stated at [46] that:

Those decisions identified a number of topics relevant to the ascertaining of a person's residence in Australia such as the person's physical presence in Australia, their nationality, the history of their past residence and movements, their mode of life and habits, the frequency, regularity and duration of visits to Australia, their purpose for visiting or leaving Australia, the remaining family and business ties with Australia in comparison to any other foreign country and the maintenance of the place of abode.

His Honour noted at [46] that:

However, these factors do not constitute some kind of rigid formula for the determination of whether a person is a resident. They do not each invariably apply in all cases. They are merely the constitutive indicators or objective facts which are frequently relevant to the determination of the nature and quality of a person's presence in or association with a particular location. A consideration of those objective matters will also reflect the actual state of mind of the person in question concerning their intention to treat a place as their home.

Although the decision in Harding was the subject of a successful appeal in Harding v FCT [2019] FCAFC 29 (Harding Full Court), the majority of the Full Federal Court accepted Derrington J's conclusion in respect of the 'ordinarily resides' test.

The period of physical presence in Australia is an important factor but is not, by itself, decisive. You must have some connection to Australia that characterises your presence as residing here.

In Hafza v Director-General of Social Security (1985) 6 FCR 444 (Hafza) at 449-450, Wilcox J discussed the concept of residency in relation to legislation which had incorporated the 'residency' definition from the ITAA 1936:

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] VR 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 236. It is important to observe firstly, that a person may simultaneously be a resident in more than one place - see the facts of Lysaght (supra) and the reference by Williams J to "a home or homes" - and, secondly, that the application of the general concept of residence to any particular case must depend upon the wording, and underlying purposes, of the particular statute in relation to which the question arises. But, where 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.

In Hafza, Wilcox J stated that a lack of physical presence in a particular place does not necessarily lead to a conclusion that a person has ceased to be resident there. Rather, His Honour stated that the relevant test is whether the person has retained a 'continuity of association', an intention to return, and an attitude that the place remains 'home'.

In assessing the question of residence, it is therefore useful to consider the factors that have been identified as relevant by the courts and the Tribunal, and which have been set out by the Commissioner in paragraph 20 of TR 2023/1.

Although residency is a matter to be determined on a year by year basis, events that occurred outside the period in question are also relevant in determining the nature and quality of a person's association with Australia.

Having considered the totality of the facts as presented, we do not consider that you have retained a continuity of association with Australia such that you can be said to reside in Australia under the 'ordinarily resides' test.

You are therefore not considered to be a resident of Australia for the purposes of the ordinarily resides test for the year ended 30 June 2022.

Domicile and permanent place of abode test

An Australian domiciled person is not a resident where the Commissioner is satisfied that their permanent place of abode is outside Australia.

The Commissioner has not found it necessary to determine whether you acquired a domicile of choice in Australia following your move here, nor whether you have reacquired your domicile of origin following your move back to your home country. This is because the Commissioner is satisfied that your permanent place of abode was outside Australia for the year ended 30 June 2022 for the purposes of determining whether you are a resident of Australia under subparagraph (a)(i) of the definition of 'resident of Australia' in subsection 6(1) of the ITAA 1936.

The 183 day test

The 183 day test will deem a person to be a resident of Australia where that person has been in Australia during more than one-half of the year of income, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia, and that the person does not intend to take up residence in Australia.

In the year ending 30 June 2022, you did not spend any days in Australia. You are therefore not considered to be a resident of Australia under the 183 day test.

Conclusion

You were not a resident of Australia for the purposes of subsection 6(1) of the ITAA 1936 for the period from 1 July 2021 to 30 June 2022.