Edited version of private advice

Authorisation Number: 1052134775018

NOTICE

This edited version has been found to be misleading or incorrect. It does not represent the ATO’s view of the relevant law.

This notice must not be taken to imply anything about:

● the binding nature of the private advice issued to the applicant

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Edited versions cannot be relied upon as precedent or used for determining how the ATO will apply the law in other cases.

Date of advice: 30 June 2023

Ruling

Subject: Residency

Question 1

Am I an Australian resident for taxation purposes for the period XX XX 20XX to XX XX 20XX?

Answer

No.

Question 2

Am I an Australian resident for taxation purposes under the Australian and COUNTRY A Double Tax Agreement (DTA)?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

XX XX 20XX

Relevant facts and circumstances

Your country of origin is in COUNTRY A. You are a dual citizen of COUNTRY A where you acquired your Australian citizenship in 19XX by descent.

You are married to COUNTRY A citizen and have two dependants. Your wife resides in Australia on a visa and is in the process of applying for another visa.

From 19XX to 19XX you resided in Australia to complete secondary education and tertiary education. You then departed Australia and have been permanently residing in COUNTRY A since 19XX.

Before arrival to Australia on XX XX 20XX

You and your family have been residing at your COUNTRY A home as your principal place of residence. This property was purchased in 20XX, has not been used to produce rental income and is owned as joint tenants by you and your wife.

You also own a holiday home in COUNTRY A. This property was purchased in 20XX.

Your personal and household effects are in COUNTRY A.

You have several bank accounts in COUNTRY A for daily use and use them to receive income from employment and investments.

Your employer is in COUNTRY A. You maintain your COUNTRY A health insurance which covers your wife and dependants.

Your dependants attended school in COUNTRY A. You only had social connections to friends and family in COUNTRY A.

After arrival to Australia on XX XX 20XX

You and your family arrived in Australia on XX XX 20XX.

Since your arrival, you have shared your time in your COUNTRY A Home and your temporary accommodation in Australia.

You do not intend to relocate permanently to Australia but to stay temporarily for your dependant's secondary school education in Australia. You intend to continue to reside for part of the year in COUNTRY A.

You intend to have your dependants attend school in Australia however it is undetermined the number of years they will attend school in Australia.

You and your wife signed a short lease for a property in Australia. This lease is not intended to be your principal place of residence. You intend on extending the lease of the property by XX or XX months and purchasing an investment property in Australia.

You continue to maintain your COUNTRY A health insurance however you have also taken out private health insurance in Australia to have health coverage in Australia.

You opened bank accounts in Australia to pay for living expenses, applied for a Medicare card and acquired a driver's licence.

You and your wife have mobile phone contracts in Australia. You also maintain your COUNTRY A mobile phone contracts in COUNTRY A to maintain social connections as you will spend a significant amount of time each year in COUNTRY A.

You and your wife's social connections are in COUNTRY A and you do not have professional or personal associations or memberships in Australia.

You and your wife continue to lodge COUNTRY A tax returns as tax residents of COUNTRY A.

Employment

Your wife does not work in Australia.

You work for a COUNTRY A employer as the Chief Executive Officer, Director, board member and owner of less than a majority of shares in the company. The company has no connections to Australia

You continue to work for your COUNTRY A employer when you are physically present in COUNTRY A. While in Australia you perform your work remotely. You intend to spend several weeks per month in COUNTRY A to perform your work and visit family and friends. You intend to spend the other weeks in the month working remotely from Australia.

You are paid by your COUNTRY A employer in COUNTRY A dollars into your COUNTRY A bank account.

You and your family intend to spend the entirety of the school holidays in COUNTRY A or in other overseas countries and you have already booked some of these trips.

You will continue to travel frequently to the United States to reside and continue working in the US in the upcoming years for work and personal purposes. You have already booked or planned several trips already some of which include your dependants and wife.

Home in COUNTRY A

You and your family will continue to maintain and reside at your COUNTRY A home and maintain your COUNTRY A holiday home without using either to produce rental income. You continue to pay all utility and other running costs incurred by both properties.

Your household effects remain at your COUNTRY A home. You intend to return to this property permanently immediately after your dependants finish their education. You purchased temporary low-cost furniture for short-term use and have been lent some basic items. You intend on selling this temporary furniture or giving it away to charity when you permanently depart Australia.

No personal effects, other than clothes, were brought to Australia. The clothes continue to stay with you and be transported in your suitcase when you travel between your home in COUNTRY A and temporary rental in Australia.

COUNTRY A mail continues to be sent to your COUNTRY A home.

Other personal factors

You and your wife maintain your COUNTRY A driver's licences and you and your wife own two vehicles which continue to be stored in your COUNTRY A home.

You and your wife will retain your COUNTRY A voter registration, and you have re-registered to vote in COUNTRY A.

You hold several positions in a COUNTRY A association and committee.

You have several non-property investments in COUNTRY A that are managed by a COUNTRY A wealth management fund.

You will continue to lodge COUNTRY A individual tax returns as a resident for your COUNTRY A income.

Location of assets

You own several residential properties in COUNTRY A. You own a share in a commercial property in COUNTRY A.

You hold several investment and retirement accounts in COUNTRY A. You hold a donor fund in COUNTRY A.

You control several trust accounts for your dependants in COUNTRY A.

You own a vehicle in Australia for private use.

You do not have an Australian superannuation fund.

You maintain your COUNTRY A bank accounts.

Neither you nor your spouse are eligible to contribute to the PSS or the CSS Commonwealth super funds.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

International Tax Agreements Act 1953

Reasons for decision

Question 1

Am I an Australian resident for taxation purposes for the period XX XX 20XX to XX XX 20XX?

Summary

No.

Detailed reasoning

Overview of the law

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 Taxation Ruling TR 2023/1 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.

Application to your situation

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

•                     You have been residing in COUNTRY A since 19XX. You arrived in Australia on XX XX 20XX.

•                     Between XX XX 20XX to XX XX 20XX you were present in COUNTRY A for XX days and XX days in Australia as you travelled frequently between Australia and COUNTRY A.

•                     Between XX XX 20XX and XX XX 20XX you intend to be present in COUNTRY A for XX days and XX days in Australia as you intend to travel frequently between Australia and COUNTRY A.

•                     Your spouse and children occasionally accompany you however they mostly stay in Australia when you travel.

•                     You work for a COUNTRY A employer as the Chief Executive Officer, Director, board member and owner of a majority of shares in the company. Your COUNTRY A employer has no connections to Australia. You spend time in COUNTRY A for work and personal purposes.

•                     You do not intend to relocate permanently to Australia but to stay temporarily for your dependant's school education in Australia. You intend to continue to reside for part of the year in COUNTRY A.

•                     You intend to have your dependants attend school in Australia however it is undetermined the number of years they will attend school in Australia.

•                     You will continue to lodge COUNTRY A individual tax returns as a resident for your COUNTRY A income.

•                     You and your wife maintain your COUNTRY A driver's licences and you and your wife own two vehicles which continue to be stored in your COUNTRY A home.

•                     Your social connections largely remain in COUNTRY A. You and your wife will retain your COUNTRY A voter registration, and you have re-registered to vote in COUNTRY A. You hold positions in an associate and committee.

•                     COUNTRY A mail continues to be sent to your COUNTRY A home.

•                     The majority of all your assets are located in COUNTRY A. You own several residential properties in COUNTRY A. You own a share in a commercial property in COUNTRY A. You hold several investment and retirement accounts in COUNTRY A. You hold a donor fund in COUNTRY A and control several trust accounts for your dependants in COUNTRY A.

You are not a resident of Australia under the resides test for the period XX XX 20XX to XX XX 20XX

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 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 COUNTRY A and your domicile of origin is COUNTRY A You became an Australian citizen in 19XX.

It is considered that you did not abandon your domicile of origin in COUNTRY A and acquire a domicile of choice in Australia. While you obtained citizenship in Australia you do not intend to live here indefinitely.

Therefore, your domicile is in COUNTRY A 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 not been present in Australia for 183 days or more during the 2023 income year, and it is unlikely you would be present for more than 183 days in the 20XX-20XX income years. Therefore, you are not a resident under this test.

For completeness, we have included the below analysis of your usual place of abode on the chance that you are in Australia for more than 183 days in an income year.

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 connections with your country of origin in COUNTRY A. You work as the Chief Executive Officer, Director, board member and owner of majority of shares in the company. The company has no connections to Australia. Your social ties largely remain in COUNTRY A as you will retain your COUNTRY A voter registration, and you have re-registered to vote in COUNTRY A. Further, you hold positions in an association and committee.

•                     You and your family will continue to maintain and reside at your COUNTRY A home and maintain your COUNTRY A holiday home without using either to produce rental income. You continue to pay all utility and other running costs incurred by both properties.

•                     You and your wife signed a short lease for a property in Australia. This lease is not intended to be your principal place of residence. You intend on extending the lease of the property by 6 or 12 months and purchasing an investment property in Australia.

•                     You do not intend to relocate permanently to Australia but to stay temporarily for your dependant's school education in Australia. You intend to continue to reside for part of the year in COUNTRY A. You intend to have your dependants attend school in Australia however it is undetermined the number of years they will attend school in Australia

Based on your circumstances, the Commissioner is satisfied that your usual place of abode was outside Australia for the relevant income years.

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 do not intend to relocate permanently to Australia but to stay temporarily for your dependant's school education in Australia. You intend to continue to reside for part of the year in COUNTRY A.

•                     You will continue to travel frequently to COUNTRY A to reside and continue working in COUNTRY A in the upcoming years for work and personal purposes.

•                     You and your family will continue to maintain and reside at your COUNTRY A home and maintain your COUNTRY A holiday home without using either to produce rental income. You continue to pay all utility and other running costs incurred by both properties.

•                     Your household effects remain at your COUNTRY A home. You intend to return to this property permanently immediately after your dependants finish their education

•                     Intending to take up residence does not just mean intend to stay a long time, it means to intend to live here in such a manner that you would reside here.

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

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

As you do not satisfy any of the four tests of residency, you are not a resident of Australia for income tax purposes for the period XX XX 20XX to XX XX 20XX.

Question 2

Am I an Australian resident for taxation purposes under the Australian and COUNTRY A, Double Taxation Agreement?

Summary

No. We have concluded that the tiebreaker tests in Article X of COUNTRY A DTA apply so that you are deemed to be a resident only of COUNTRY A for treaty purposes. The provisions of the COUNTRY A DTA will therefore apply on the basis that you are a resident of the COUNTRY A for tax purposes and not of Australia.

Detailed reasoning

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.[1]

Article X of the DTA 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 relevant tiebreaker test in the DTA is as follows:

Where an individual is a resident of both Contracting States, he shall be deemed to be a resident of the State:

(a) in which he maintains his permanent home;

(b) if the provisions of sub-paragraph (a) do not apply, in which he has an habitual abode if he has his permanent home in both Contracting States or in neither of the Contracting States; or

(c) if the provisions of sub-paragraphs (a) and (b) do not apply, with which his personal and economic relations are closer if he has an habitual abode in both Contracting States or in neither of the Contracting States.

For the purposes of this paragraph, in determining an individual's permanent home, regard shall be given to the place where the individual dwells with his family, and in determining the Contracting State with which an individual's personal and economic relations are closer, regard shall be given to his citizenship (if he is a citizen of one of the Contracting States).

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 have a permanent home in COUNTRY A and Australia based on the following considerations:

•                     You continue to maintain at your COUNTRY A home as your principal place of residence. This property was purchased in XXXX, has not been used to produce rental income and is owned as joint tenants by you and your wife. You continue to pay all utility and other running costs incurred by this property.

•                     You signed a short lease for a property in Australia. This lease is not intended to be your principal place of residence. You intend on extending the lease of the property by 6 or 12 months however you are considering other rental properties closer to your dependant's school.

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 your habitual place of abode was in COUNTRY A and Australia based on the following considerations:

•                     You spend time in both COUNTRY A at your COUNTRY A home and in Australia at your rental.

•                     Between XX XX 20XX to XX XX 20XX you were present in COUNTRY A for XX days and XX days in Australia as you travelled frequently between Australia and COUNTRY A.

•                     Between XX XX 20XX and XX XX 20XX you intend to be present in COUNTRY A for XX days and XX days in Australia as you intend to travel frequently between Australia and COUNTRY A.

•                     You continue to work for your COUNTRY A employer when you are physically present in COUNTRY A. While in Australia you perform your work remotely. You intend to spend several weeks per month in COUNTRY A to perform your work and visit family and friends. You intend to spend the remaining weeks a month working remotely from Australia. You will continue to travel frequently to COUNTRY A to reside and continue working in COUNTRY A in the upcoming years for work and personal purposes.

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 COUNTRY A based on the following considerations:

•                     You work for a COUNTRY A employer as the Chief Executive Officer, Director, board member and owner of some shares in the company. The company has no connections to Australia. You are paid by the company in COUNTRY A dollars into your COUNTRY A bank account. You do not work for an Australian employer.

•                     You will spend XX days in Australia between XX XX 20XX to XX XX 20XX. However, you will spend XX days in COUNTRY A during this time. You intend to spend XX days in Australia between XX XX 20XX and XX XX 20XX. However, you will spend XX days in COUNTRY A during this time.

•                     You do not intend to relocate permanently to Australia but to stay temporarily for your dependant's secondary school education in Australia. You intend to return to COUNTRY A permanently immediately after your dependants finish their education

•                     You continue to maintain your COUNTRY A health insurance however you have also taken out private health insurance in Australia to have health coverage in Australia. You opened bank accounts in Australia to pay for living expenses, applied for a Medicare card and acquired a driver's licence.

•                     You and your wife have mobile phone contracts in Australia. You also maintain your COUNTRY A mobile phone contracts to maintain social connections as you will spend a significant amount of time each year in COUNTRY A.

•                     Your household effects remain at COUNTRY A home. You purchased temporary low-cost furniture for short-term use at your Australian rental and have been lent some basic items. You intend on selling this temporary furniture or giving it away to charity when you permanently depart Australia. No personal effects, other than clothes, were brought to Australia. The clothes continue to stay with you and be transported in your suitcase when you travel between your home in COUNTRY A and temporary rental in Australia.

•                     You and your wife's social connections are in COUNTRY A and you do not have professional or personal associations or memberships in Australia. You and your wife will retain your COUNTRY A voter registration, and you have re-registered to vote in COUNTRY A. You hold positions in a committee and association in COUNTRY A.

•                     The majority of all your assets are in COUNTRY A. You own several residential properties in COUNTRY A. You own a share in a commercial property in COUNTRY A. You hold several investment and retirement accounts in COUNTRY A You hold a donor fund and control several trust accounts for your dependants in COUNTRY A. You own a car in Australia.

Conclusion

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

[1] See also ATO ID 2003/1195