Edited version of private advice

Authorisation Number: 1052155667580

Date of advice: 14 August 2023

Ruling

Subject: Residency

Question

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

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were born in the Country A.

You are dual citizens of Australia and the Country A.

You immigrated to Australia in 20XX and have no intention to return to Country A.

You left Australia on XX December 20XX and stayed in Country B until XX March 20XX.

You have been in the Country C ever since.

You have a visa which entitles you to remain in the Country C permanently.

Your purpose of travel is to enjoy retirement while living within your means. You are enjoying retirement in the warm weather and freedom of Country C.

You were not physically present within Australia throughout the entirety of the 20XX financial year.

You state Australian residents upon your incoming and outgoing passenger cards.

You are not residents of any foreign country for taxation purposes.

You do not intend to apply for citizenship in Country C.

You intend to return to Australia to live permanently when your adult child has children.

You have no social or sporting connections in either Country C or Australia.

You have not advised any Australian financial institutions that you are a non-resident for tax purposes.

You rent a furnished unit in Country C.

You own an Australian property that has been rented out on a commercial lease at normal commercial rates to a non-arm's length party.

You own an off the plan unit in the Country D which is yet to be constructed.

You have various bank accounts within Australian financial institutions and a self-managed superfund.

You receive pension income from the Country A.

You receive rental income from your Australia property as well as superannuation disbursements.

You are not a member of the Public Sector Superannuation Scheme (PSS) or Commonwealth Superannuation Scheme (CSS).

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 995-1

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.

Application to your situation

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

•         You left Australia in December 20XX for an extended period of time and were not physically present in Australia during the 20XX income year

•         You are enjoying retirement in the warm weather and freedom of Country C

•         You have an adult child who lives in Australia and you wish to return here to care for your grandchildren in the future

•         You own a residential property in Australia, a superannuation fund and multiple financial institution accounts

•         You currently lease a furnished unit in Country C

•         Your Australian residence is not currently available for you to live in as you are renting it out

From the above, it is considered that on balance you are not residing in Australia according to the ordinary meaning of the word.

Therefore, you are not a resident of Australia under the resides test for the period X July 20XX to XX June 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 immigrated to Australia in 20XX and became Australian citizens.

It is considered that you abandoned your domicile of origin and acquired a domicile of choice which was Australia. You have retained this domicile of choice despite your travels as there is a reasonably anticipated contingency of you returning to Australia permanently to provide care to your daughter's children in future. Therefore, your domicile is Australia.

Permanent place of abode

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Application to your situation

We have considered your circumstances, taking consideration of relevant examples provided within TR 2023/1 listed below.

Paragraphs 75-77 of TR 2023/1 state:

If you take up an employment opportunity overseas or commence living overseas with no fixed timeframe in mind but as a tentative venture, you are unlikely to have your permanent place of abode overseas. This is because you are likely to retain Australia as your home, for a time at least, maintaining connections that are not consistent with an abandonment of Australia as your place of residency. As intentions and situations evolve, the circumstances may later point to you having your permanent place of abode overseas.

On the other hand, if you depart for an unspecified or substantial period, pack up your home in Australia, set up a home in a foreign country and live there with your family returning only occasionally such as for cultural events, special celebrations or annual leave, you are likely to meet the description of someone who has abandoned Australia as a place of residency and commenced living permanently overseas. This is despite the fact that you may at some point intend to return to Australia.

For practical purposes, it is convenient to set some 'rule of thumb' on what substantial means. Broadly, 2 years is considered to be a substantial period of time. What this means is that if your intended length of stay is less than 2 years, you are unlikely to be able to establish that your permanent place of abode is outside of Australia. Whether a stay of precisely 2 years or longer means you fall within the proviso will depend on the circumstances. The critical question is whether a person has in fact abandoned Australian residency and commenced to live in a permanent way overseas.

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

•         You left Australia on XX December 20XX for an expected period of 9 months and subsequently extended your time away

•         You stayed in Country B until XX March 20XX before relocating to Country C where you remain living with a permanent visa

•         Your adult child lives in Australia, and you are making a visit here in September 20XX

•         You intend to return to Australia to live permanently when your child has children

•         You rented out your principal residence in Australia under a commercial lease arrangement to a non-arm's length party

•         You have a rental agreement until 20XX for a furnished unit in Country C

•         You have your mail sent to an Australian address and indicate that you are Australian residents on incoming and outgoing passenger cards

•         You have not advised any Australian financial institutions that you are a non-resident for tax purposes.

•         Your financial institutional accounts, personal property and self-managed superfund are within Australia

You have spent XX months in Country C during the 20XX financial year, however you have maintained a durability of association with Australia and have not definitely abandoned, in a permanent way, living in Australia.

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

You have not been present in Australia for 183 days or more during the 20XX income year. Therefore, you are not a resident under this test.

Superannuation test

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

Application to your situation

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

Conclusion

You satisfy the Domicile test of residency and so are a resident of Australia for income tax purposes for the year ended XX June 20XX.