Edited version of private advice

Authorisation Number: 1052154870749

Date of advice: 11 August 2023

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for taxation purposes on and from Date 1, until you depart Country X and return to Australia?

Answer:

Yes.

Question 2

Are you a resident of Australia under Article X of the Double Tax Agreement with Country X?

Answer

Yes.

This ruling applies for the following periods:

Income year ended 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were born in Australia and are a citizen of Australia.

You commenced full time employment with an Australian Government Department (Australian Employer) several years ago.

Your spouse (Person A) accepted a position (the Position) in Country X with an International Organisation (the Organisation) commencing on Date 2 and ending several years later on Date 3.

You departed Australia on Date 1 to accompany Person A to Country X. Your dependent child (Person B) travelled to Country X with you and Person A.

You travelled to Country X on your Australian passport.

You entered Country X on a temporary visa valid for several months, which was exchanged on arrival for a permit (the Permit) which enable you to stay in Country X until Date 4, being just prior to Date 3.

You have not been granted permanent residency in Country X, with the issuing of the Permit being dependant on Person A continuing in the Position.

You and Person A do not intend residing in Country X or outside of Australia indefinitely, and you both intend returning to Australia once the Position is finished.

You have remained employed by the Australian Employer in a full-time position under a remote work arrangement while you are in Country X for the duration of the Position, continuing to have access to the same equipment available to employees of the Australian Employer, having a desk to undertake your work activities at a specified premises.

You work arrangements are the same as the Australian Employer's employees based in Australia apart from where you physically undertake the work.

You receive employment income from the Australian employer in relation to your work in Country X.

You have the following in Country X:

•                     a leased fully furnished apartment in Country X, which has a lease term of twelve months that is renewable for further terms of twelve months.

•                     household and personal items purchased in Country X

•                     household items, such as kitchenware, artwork, and personal items including clothing and electronic devices taken with you from Australia; and

•                     bank accounts for dealing in local currency.

You use your Australian drivers' licence in Country X.

You did not have any connections in Country X prior to arriving there. You have made friends while there, mostly from within your work circles and from the expatriate community, and parents of Person B's school friends. You attend an international church.

You are a tax resident of Country X and are required to lodge tax returns there.

Prior to departing for Country X, you and Person A lived in your jointly owned property (the Property) where you intend returning to live after you return from Country X.

The Property is being rented while you are in Country X, with the rental lease containing a clause to enable you to resume living in the Property if you return earlier than expected, which allows you to terminate the lease after providing the tenant/s with an eight weeks' notice to vacate.

There is a mortgage on the Property which you and Person A continue to pay while you are in Country X.

You have the following in Australia:

•                     bank accounts that you use to pay the Property mortgage and other outgoing Australian expenses, such as regularly making donations to a wide range of Australian charities

•                     shares held on the Australian stock market as a saving plan for Person B, acquiring more shares several times each year via an Australian brokerage account; and

•                     household effects kept in storage, including all of your furniture, some artwork, kitchen items, clothing and various miscellaneous items.

Your salary from the Australian Employer is paid into your Australian bank account.

You receive rental income from the Property and interest from the Australian bank accounts.

Your and Person A's families reside in Australia, with whom you will keep in regular contact while you are in Country X. You also have a significant network of friends with whom you have regular contact, including arranging opportunities for friends to stay with you in Country X.

Person B stays connected with their Australian friends via video chats to enable them to maintain their connection with them, prior to their return to Australia.

Neither you nor Person A have been a member of the CSS or PSS Commonwealth Superannuation funds, having been members of the PSSAP from when you commenced employment with the Australian Employer until you elected to have your respective superannuation paid into an industry fund.

You did not have your name removed from the Australian Electoral Office but have registered to vote as an overseas elector.

You have not advised any Australian financial institutions or Australian companies with whom you have investments that you are a foreign resident.

You have suspended your private health insurance in Australia and will reactivate it when you return to Australia.

You did not notify Medicare to have your name removed from their records.

Neither you nor Person A have returned to Australia up to this point since your departure on Date 1.

You and your family will return to Australia during the ruling period to attend a wedding. You have booked return E-Tickets for you and Person B for a period of less than two weeks.

You and your family anticipate returning to Australia for one additional trip during the ruling period as Person A is provided with eight days of home leave per two years of service by the Organisation, which will cover the return flights for you and your family.

You and Person A do not have return airline tickets to Australia but are entitled to receive them from the Organisation to return to Australia when the Position is finished.

The Position ends on Date 3, with the earlier Date 4 being the last date you can leave Country X in accordance with the Permit. However, you anticipate returning to Australia several months earlier than Date 4 in either Month 1 or Month 2.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1936 subsection 6(1)

International Tax Agreements Act 1953

Reasons for decision

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.

While physical presence is an important consideration, physical absence does not necessarily result in non-residence. It is well established in case law that a person does not cease to be a resident simply by absence; rather, the question is whether they have maintained a 'continuity of association' with Australia which is in turn established by considering their other connections to Australia.

Application to your situation

You departed Australia on Date 1 to travel to Country X where you and your family will stay until the end of the Position on Date 3, with Date 4 occurring just prior to Date 3 being the latest time you can return to Australia due to the Permit.

We have taken the following into consideration when determining whether you meet the resides test for the period you are overseas:

•                     You and your family travelled to Country X and will be physically there from your arrival until you depart Country X to return to Australia, except for the periods you travel to Australia for short trips on two occasions.

•                     Your intention is to remain in Country X until the end of the Position, which will not be extended. At the end of the Position, you and your family will return to Australia, which you anticipate will occur in in Month 1 or Month 2 due to Person B's enrolment in school in Australia.

•                     You and your family are staying in a fully furnished leased apartment in Country X. You have taken some of household effects and personal items with you to Country X and have purchased some items while in Country X.

•                     The Australian property you jointly own with Person A is being rented out while you are in Country X and you continue to pay the mortgage on this property. You are able to issue the tenants a notice to vacate with a period of eight weeks if you wish to resume living at the Property

•                     You have continued your employment with the Australian Employer while you are in Country X, working remotely, while Person A is completing the Position. You and your family will return to Australia at the end of the Position, resuming your employment in the Australian office of the Australian Employer, and Person A will resume their employment with the same employer.

•                     You and Person A both have extended family and friends living in Australia, with whom you regularly communicate with. Person B maintains contact with their friends in Australia. You have made friends in Country X, mostly from within your work circles, the expatriate community, and parents of Person B's school friends. You attend an international church in Paris

•                     You have a bank account, shares and household effects and personal items in storage in Australia. In Country X you have household effects and personal items that you took with you, household items acquired over there, and banks accounts; and

•                     You and your family obtained visas/permits to enable you to remain in Country X for the duration of the Position.

As mentioned above, being a resident of another country does not diminish any connection to Australia. In your situation you will be in Country X for a finite period of time during which you will not break your ties to Australia, retaining a continuity of association with Australia.

Therefore, you meet the resides test for the period you are in Country X.

Although the law only requires you to be considered a resident under one test, for completeness the other tests are also considered.

Domicile test

Under the domicile test, you are a resident of Australia if your domicile is in Australia unless the Commissioner is satisfied that your permanent place of abode is outside Australia.

Domicile

Whether your domicile is in Australia is determined by the Domicile Act 1982 and the common law rules on domicile.

Your domicile is your domicile of origin (usually the domicile of your father at the time of your birth) unless you have a domicile of dependence or have acquired a domicile of choice elsewhere. To acquire a domicile of choice of a particular country you must be lawfully present there and hold the positive intention to make that country your home indefinitely. Your domicile continues until you acquire a different domicile. Whether your domicile has changed depends on an objective consideration of all relevant facts.

Application to your situation

In your case, you were born in Australia and your domicile of origin is Australia. You are an Australian citizen.

Based on the information provided it is not viewed that you had abandoned your domicile in Australia, nor had you actively applied for, or been issued, a visa that would allow you to remain Country X indefinitely. You obtained visas that enabled you to stay in Country X for the duration of the Position, but you have not chosen to migrate to there.

Nothing has been provided to support that you had an intention to change your domicile given that you only intended to live in Country X for the period of the Position and then return to Australia, with no steps having been undertaken to change your domicile.

Therefore, you will be viewed as being a resident of Australia under the domicile test for the relevant ruling period.

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:

•                     Your intention is to stay in Country X for a finite period for duration of the Position and then return to Australia in either Month 1 or Month 1.

•                     You and Person A are leasing an apartment in Country X for the length of your stay there.

•                     Your jointly owned Australian home is being leased while you are in Country X, which is available to you after a short period of notice for the tenant/s to vacate. You and your family will resume living in this property when you return to Australia; and

•                     You had taken some of your household effects and personal items to Country X, with the majority being kept in storage in Australia.

It cannot be viewed that you have abandoned the Property while you are in Country X. While it is leased out, you could resume living there after a short period after notifying the tenant/s to vacate. It is viewed that you retained a continuity with Australia while you are in Country X, with the intention to return to the Property at the end of the Position, but which will be earlier in Month 1 or Months 2.

The Commissioner is not satisfied that your permanent place of abode is outside Australia. Therefore, you are a resident of Australia under the domicile test.

183-day test

Where a person is present in Australia for 183 days or more during the year of income the person will be a resident, unless the Commissioner is satisfied that both:

•                     the person's usual place of abode is outside Australia, and

•                     the person does not intend to take up residence in Australia.

Application to your situation

During the ruling period:

•                     You were not present in Australia for 183 days or more during the first income year in the ruling period and:

•                     You will not be present for 184 days or more in the second income year; and

•                     You will not be present in Australia for 183 days or more during the third and fourth 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

We have determined that you met the resides test, domicile test, and the Commissioner is not satisfied that you have a permanent place of abode outside of Australia as you will not abandon your connection with Australia during the period you are in Country X.

Question 2: Are you a resident of Australia under Article 4 of the Double Tax Agreement with Country X?

Summary

You are a resident of Australia during the period you will be in Country X under the Double Taxation Agreement between Australia and Country X because your personal and economic relations are closer to 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 (the 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 (DTAs). Paragraph 104 provides that the OECD Model Tax Convention and Commentary will often need to be considered in interpreting double tax agreements.[1]

Where a person is a resident of both Australia and another country under the domestic tax law of each country it will be necessary to determine residency for the purposes of the relevant double tax agreement. 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 agreement. The tiebreaker rules do not change a taxpayer's residency status for domestic law purposes.

However, to consider the tiebreaker rules, a person must be a 'resident' of each contracting state as specified in the relevant double tax agreement. Broadly, a person is a 'resident of a contracting state' if they are fully liable to tax in that country. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein.

Article X of the Double Taxation Agreement between Australia and Country X (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 DTA.

Article X(X) of the DTA states:

Where by reason of the preceding provisions of this Article a person, being an individual, is a resident of both Contracting States, the person's status shall be determined as follows:

(a)          the individual shall be deemed to be a resident only of the State in which a permanent home is available to that individual; but if a permanent home is available in both States, or in neither of them, that individual shall be deemed to be a resident only of the State with which the individual's personal and economic relations are closer (centre of vital interests);

(b)          if the State in which the centre of vital interests is situated cannot be determined, the individual shall be deemed to be a resident only of the State of which that individual is a national or citizen.

The tiebreaker rules do not change a taxpayer's residency status for domestic law purposes.

Application to your situation

You are a tax resident of Country X and are also viewed as being a resident of Australia during the period you will be in Country X as outlined above.

Therefore, it is necessary to consider the application of the provisions contained in subparagraphs X(a) and X(b) of the DTA as follows:

Permanent home

Permanent home is not defined in the DTA. 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.

Application to your situation

It is viewed that you will have access to a permanent home in both contracting states. Therefore, it is necessary to move onto the habitual abode test.

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.

Application to your situation

It is clear that you have a habitual abode in Country X as you will spend the majority of time there during the period Person A is completing the Position, with several short visits to Australia. However, you will also maintain the Property which could be accessed after a short period of notice and which you would be residing at if in Australia and which you would consider as your home.

Therefore, we will consider your personal and economic ties as follows.

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.

In Commissioner of Taxation v Pike [2020] FCAFC 158 (Pike), the Full Federal Court stated at paragraph 39 that:

39. First, no error is discernible in the approach of the primary judge in examining Mr Pike's personal and economic considerations. Each case must be fact specific. In some cases the personal and economic considerations may be so intertwined that they are not separate considerations, whereas in other cases, they may be quite separate and distinct matters. Further, and contrary to the New Zealand decision in FFF, the clause does not place greater weight on personal factors over economic factors. As the parties agreed, Art 4(3)(c) poses a composite test and 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. The primary judge correctly looked at Mr Pike's overall circumstances and engaged in a balancing of the significance of those personal and economic considerations as supporting ties closer to one contracting state than the other.

Based on Pike, the Commissioner has to balance all personal and economic facts together with no greater weight being placed on personal acts.

Application to your situation

As you have a permanent home available in both countries, you will be deemed to be a resident only of the State with which your personal and economic relations are closer.

In your case:

•                     You were born in and are a citizen of Australia.

•                     You will only be in Country X for the length of the Position and will not become a permanent resident of Country X.

•                     You do not have any assets of note in Country X with the majority of your assets being located in Australia, such as the Property, bank accounts and your superannuation fund. You received rental income from Australia.

•                     You continue to be employed by the Australian Employer, receiving your employment income from them while working remotely in Country X.

•                     You and your family did not have any personal connections in Country X prior to your arrival, having made friends there after your arrival while maintaining a significant friend basis and extended family in Australia; and

•                     The connection with Country X will exist for the duration of the Position with your personal connections being closer to Australia which have remained ongoing while you are in Country X, specifically with your extended family and friends, the Property, and the city where the Australian Employer is located.

On balance, you are taken to be a resident of Australia for the purpose of the DTA as your personal and economic ties have greater significance and are closer to Australia.

Conclusion

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

[1] See also ATO ID 2003/1195