Edited version of private advice

Authorisation Number: 1052172847453

Date of advice: 26 September 2023

Ruling

Subject: Residency

Question 1

Are you an Australian resident for tax purposes for the income year ending 30 June 20XX?

Answer

Yes

Question 2

Are you a resident solely of Australia for the purposes of the double tax agreement between Australia and Country A during the income year ended 30 June 20YY?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

You were born in Country A.

You lived in Country A until you were YY years old.

You have since lived in Australia for YY years.

You are a dual citizen of Australia and Country A.

You possess both an Australian passport and Country A passport.

You have been travelling between Australia and Country A since February 20YY.

You returned to Country A on X September 20YY to begin a remote working arrangement as a contractor with an Australian company; your former employer.

You expect to return to Australia in February 20YY and again in June 20YY for a month each visit.

Going forward, you expect to spend approximately X to X months per year in Country A with the remaining X to X months being spent in Australia.

The purpose of your travel to Country A is due to family commitments.

Your parent has had heart surgery earlier this year and you intend to be close to take care of them.

You want to be with your spouse in Country A and support their business.

Your travel to Australia for occasional periods is to maintain team engagement with your workplace.

You are a resident of Country A for tax purposes.

Your spouse is unable to travel due to business commitments.

Your spouse intends to travel to Australia sometime in the future.

Your family are all Country A citizens.

You financially support your parents in Country A.

Your spouse is financially independent.

Your live with your parents and your spouse in the same property owned by your parents in Country A.

You are a member of a gym in Australia which you will freeze during your absences.

You have no other social or sporting connections in any other countries.

You have an international driving licence and scooter licence in Country A.

You are enrolled in the Australian Electoral Commission and will vote while you are overseas.

You intend to cancel your private health insurance.

You own a property located in Australia.

Your household possessions remain in the property.

When returning to Australia you will reside in your Australian property.

You have bank accounts and a mortgage with Australian financial institutions.

You own no assets outside of Australia.

You derive no income from sources in Country A.

You will open a bank account in Country A.

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 (TR 2023/1).

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 considered the following paragraphs of TR 2023/1 when reviewing your facts and circumstances.

Paragraphs 25 and 30 state:

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.

.... can be contrasted with a situation where a person has previously spent a long time in Australia despite only spending short periods in Australia in the relevant income year. In such a case, the shorter period of physical presence in Australia assumes less relevance if the person has retained a continuity of association with Australia, or a particular place within Australia, together with an intention to return to Australia and an attitude that Australia remains their home.

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

•         You left Australia in September 20YY and expect to make return visits to Australia in February 20YY and June 20YY to stay for a month each visit

•         Your purpose of travel to Country A is to care for your parents and remain with your spouse

•         You own your Australian property with your household contents and personal effects

•         When returning to Australia you will reside in your Australian property

•         You have bank accounts and a home loan in Australia

•         While in Country A you will be working remotely for an Australian company

Although you will spend most of the income year outside Australia, you have been a long term Australian resident and it is considered that you will retain a continuity of association with Australia during the income year.

Therefore, you are a resident of Australia under the resides test for the period XX July 20YY to XX June 20YY.

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

It is considered that you abandoned your domicile of origin in Country A and acquired Australia as your domicile of choice. It does not appear that you your domicile will revert to Country A in the current income year based on the facts provided.

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 in reference to the following paragraphs of TR 2023/1.

Paragraphs 74 and 80 state:

Generally, a departure from Australia with an intention to return to Australia after a finite period would not result in you having your permanent place of abode overseas. This is consistent with the legislative intent of the definition. However, if some time through the period overseas your intentions changed, all the factors would need to be reconsidered at that point to determine whether your permanent place of abode is overseas.

Retaining your dwelling in Australia does not necessarily mean that you remain a resident. It will depend on the circumstances and reasons for its retention. To illustrate:

•         where you retain your home but lease it out to an arm's length party, its retention will assume less significance

•         where you retain your home but only so your family can remain living in it while they make arrangements to join you overseas shortly, it will also assume less significance

•         however, the home in Australia will assume more significance where it is kept available for your use, you do in fact return to it and the accommodation overseas is consistent with a transitory stay.

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

•         You left Australia in September 20YY and expect to make return visits to Australia in February 20YY and June 20YY to stay for a month each visit

•         You will be staying in your parent's property with your spouse located in Country A

•         You have retained your home in Australia which is available for your use

•         When returning to Australia you will reoccupy your Australian residence

•         You have bank accounts and a home loan in Australia

•         While in Country A you will be working remotely for an Australian company

In your case, you have been a long term Australian resident and it is considered that you have not definitely abandoned, in a permanent way, living in Australia.

Consequently, 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 will not have been present in Australia for 183 days or more during the 20YY 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 resides and domicile tests of residency and so are a resident of Australia for income tax purposes for the year ended XX June 20YY.

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.

You are a resident of Country A for tax purposes. 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 4 of the Country A Agreement 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 Article reads:

1. For the purposes of this Agreement, a person is a resident of a Contracting State:

(a) in the case of Australia, if the person is a resident of Australia for the purposes of Australian tax; and

(b) in the case of Country A, if the person is liable, under the law of Country A, to tax therein by reason of the person's domicile, residence, place of management or any other criterion of a similar nature.

2. A person is not a resident of a Contracting State for the purposes of this Agreement if the person is liable to tax in that State in respect only of income from sources in that State.

3. Where by reason of the preceding provisions of this Article a person, being an individual, is a resident of both Contracting States, then the status of the person shall be determined in accordance with the following rules:

(a) the person shall be deemed to be a resident solely of the Contracting State in which a permanent home is available to the person;

(b) if a permanent home is available to the person in both Contracting States, or in neither of them, the person shall be deemed to be a resident solely of the Contracting State with which the person's economic and personal relations are closer.

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 Australia and Country A based on the following considerations:

•         You have an Australian property available to you

•         You are residing with your parents in their property with your spouse in Country A

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 Australia based on the following considerations:

In your case, your ties to Country A include:

• You are a citizen of Country A
• Your parents and spouse live in Country A
• You will spend over half the income year living with your spouse and parents in your parent's home
• You will open a bank account in Country A
• You will be carrying out your contractual work duties in Country A for the majority of the current income year.

Your ties to Australia include:

• You are an Australian citizen
• You own and maintain a home in Australia
• You own personal possessions and furniture in Australia
• You have bank accounts and a home loan with an Australian bank
• You will continue to work as a contractor for your previous Australian employer
• You entered into the employment contract in Australia and are paid from Australia
• You will spend approximately XX months of the current income year living and carrying out your work related duties in Australia.

From the above, while it is evident that your personal ties are closer to Country A than Australia, it is also evident that your economic ties through your assets and employment income stream are overwhelmingly closer to Australia than Country A.

Consequently, we consider that your personal and economic ties as a whole are closer to Australia mainly due to the significant economic ties to Australia and the virtual lack of any economic ties to Country A.

[1] See also ATO ID 2003/1195