Edited version of private advice

Authorisation Number: 1052184262228

Date of advice: 23 October 2023

Ruling

Subject: Residency

Question

Are you a resident of Australia for tax purposes from the 20XX - 20XX income years?

Answer

Yes.

Question

Are you a resident of Australia under the double taxation agreement with Country X for the 20XX - 20XX income years?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

X July 20XX

Relevant facts and circumstances

You and your spouse are both citizens of Country X.

You, your spouse and three of your children were born in Country X.

Your eldest child was born in Australia while you completed your Master of Business Administration degree in Australia.

You are a resident of Country X for tax purpose.

On X July 20XX, you and your family arrived in Australia with the intention of enrolling your two eldest children in a secondary school in Australia.

Upon your arrival in Australia, you lived in a property owned by your biological parents.

You did not intend to stay in Australia permanently.

From XX September 20XX to X February 20XX, you travelled between Country X and Australia to maintain your business in Country X. Your spouse remained in Australia with your children.

Your children were also enrolled to commence school in Country X in September 20XX.

You stayed in Australia for the remainder of 20XX and more than half of 20XX due to travel restrictions.

In February 20XX, you and your spouse jointly purchased a block of land in Australia and commenced construction of a property.

In September 20XX, your travel exemption was approved to return to Country X to take care your father and your business.

In June 20XX, you departed Australia and remained in Country X for approximately three months to maintain business and to provide support for your family following the passing of your father.

From XX September 20XX to XX May 20XX, you continued travel between Australia and Country X.

You applied for a permanent residence visa (subclass 132) which was granted on XX August 20XX.

You also applied for Resident Return Visa repeatedly and it was granted on XX August 20XX, XX February 20XX and X June 20XX.

In April 20XX, this property was completed, and you moved into this property with your family.

You are a director and executive chairman of a company in Country X.

You carry out work duties remotely while you are in Australia.

You plan to leave Australia permanently when your two eldest children complete secondary school.

In Australia, you have a driver license, private health insurance, Medicare registration, bank account, golf club membership, an investment property, a residential property.

In Country X, you have a residential property which is furnished and occupied by staff.

In Country X, you have a car, bank account, saving and investment funds, entitlement to a public pension, enrolment to vote and mobile phone plan, golf club memberships.

Your extended family including your mother and three siblings in Country X.

On the incoming and outgoing passenger cards, you stated that you are an Australian resident and provided an Australian address.

You lodged foreign income tax returns while living in Australia.

You are not a Commonwealth of Australia Government employee for superannuation (super) purposes.

You are not a member of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990.

You were in Australia for the following number of days during the relevant financial years:

Days in Australia for Year ended 30 June 20XX = 323 days

Days in Australia for Year ended 30 June 20XX = 365 days

Days in Australia for Year ended 30 June 20XX = 269 days

Days in Australia for Year ended 30 June 20XX = 156 days

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 subsection 995-1(1)

International Tax Agreements Act 1953

Reasons for decision

Question 1

Detailed reasoning

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 living in Australia since 20XX.

•         Your spouse and your four children also are living here with you.

•         You jointly own a family home and an investment property in Australia.

•         You can carry out work duties remotely when you are in Australia.

•         You are an Australian resident when completing incoming and outgoing passenger cards

•         You have applied for permanent residence visa multiple times.

•         You have a driver's license, private health insurance, Medicare registration, bank account, golf club membership here in Australia.

You are a resident of Australia under the resides test for the 20XX to 20XX income year.

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 Country X and your domicile of origin is Country X.

Although you obtained permanent residency in Australia, it is considered that you did not abandon your domicile of origin in Malaysia and acquire a domicile of choice in Australia as it was always your intention to move back to Country X and not live in Australia permanently.

Therefore, your domicile is Country X, 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 20XX income year. Therefore, you are not a resident in the 2023 income year under this test.

You have been in Australia for 183 days or more in the 20XX, 20XX and 20XX income years. Therefore, you will be a resident in the 20XX, 20XX and 20XX income years under this test unless the Commissioner is satisfied that your usual place of abode was outside Australia and you do not have an intention to take up residence in Australia.

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:

•         Your extended family including your mother and three siblings in Country X

•         You work exclusively for your Country X business.

•         You maintain your residence in Country X.

•         Your primary purpose in coming to Australia merely to support your spouse and your children.

•         At all times, you plan to leave Australia permanently when your two eldest children have completed secondary school.

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 applied for Permanent Resident visa few times.

•         You own a residential property and an investment property in Australia.

•         You have Bank accounts and golf club membership.

•         Your spouse and children are in Australia.

Based on your circumstances, the Commissioner is satisfied that you did intend to take up residence in Australia for the relevant income years.

Therefore, you are a resident of Australia under the 183-day test for the 20XX - 20XX income year.

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 the 183-day tests of residency and so are a resident of Australia for income tax purposes for the years ended 30 June 20XX, 30 June 20XX, 30 June 20XX.

You satisfy the resided tests of residency and so are a resident of Australia for income tax purposes for the years ended 30 June 20XX.

Question Two

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 Country X 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.

1. For the purposes of this Agreement, a person is a resident of one of the Contracting States -

(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 X, if the person is resident in Country X for the purposes of Country X tax.

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

(a) he shall be deemed to be a resident solely of the Contracting State in which he has a permanent home available to him;

(b) if he has a permanent home available to him in both Contracting States, or if he does not have a permanent home available to him in either of them, he shall be deemed to be a resident solely of the Contracting State in which he has an habitual abode;

(c) if he has a habitual abode in both Contracting States, or if he does not have a habitual abode in either of them, he shall be deemed to be a resident solely of the Contracting State with which his personal and economic relations are the closer.

3. In determining for the purposes of paragraph 2 the Contracting State with which an individual ' s personal and economic relations are the closer, the matters to which regard may be had shall include the citizenship of the individual.

4. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident solely of the Contracting State in which its place of effective management is situated.

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 X based on the following considerations:

•  you maintain a residential property in Country X and you stay in your property when you are in Country X.

•  The property remains fully furnished.

We also have concluded that you have permanent home in Australia based on the following considerations:

•         You purchased a block of land and built a residential property.

•         You and your family live in the property.

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 in Australia based on the following considerations:

•  You have your family here in Australia, including your spouse and four children.

•  You have a driver license.

•  You have golf club membership

•  You have bank account, an investment property.

•  You have private health insurance.

We have concluded that your habitual place of abode in Country X based on the following consideration:

•  You have your extended family in Country X, including your mother and three siblings.

•  You have golf club membership.

•  You remain your friend circle in Country X.

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 X based on the following considerations:

•  You are a director and executive chairman of a major urban planning and development company that is based in Country X.

Conclusion

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

[1] See also ATO ID 2003/1195.