Edited version of private advice

Authorisation Number: 1052195027002

Date of advice: 30 November 2023

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for taxation purposes as per section 6(1) of the Income Tax Assessment Act 1936?

Answer

Yes.

Question 2

Are you a resident of Australia for taxation purposes under Article 4 of the Double Tax Agreement between Australia and Country B?

Answer

Yes.

This private ruling applies for the following periods:

Year ended 30 June 20YY

Year ending 30 June 20YY

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were born in Country A in 19YY and are a Country A citizen.

Your extended family lives in Country A.

You moved to Country B in 20YY and have been a Country B resident for many years.

Your spouse is an Australian citizen, and you have children who were born in the Country B.

Your children have Australian passports, along with Australian citizenship.

You and your family departed from Country B and arrived in Australia on DD MM 20YY.

You travelled to Australia to keep your family safe from the effects that the COVID 19 pandemic was having in Country B.

You travelled on a Visitor's Visa and have remained in Australia since.

Since residing in Australia, you have been granted with a visa which allows you to reside in Australia permanently.

Prior to your arrival in Australia and whilst living in Country B you held a Visa to be able to work and live in Country B. Your Visa expired on DD MM 20YY

Following the expiry of your Country B Visa, you reapplied in MM 20YY and were granted with a new Country B visa on DD MM 20YY.

You advised there were delays in processing your Country B visa renewal due to the consulate in Australia thus you and your family were unable to return to Country B and had been waiting for it to be processed before you could return.

Since 20YY, you have operated two business in Country B and are also a board member for a not-for-profit organisation in Country B.

You have maintained your ownership and involvement with your businesses, since residing in Australia, and have been working remotely for these businesses.

You and your family intend to return to Country B permanently as soon as practicable.

At this stage you have not booked any return flights or indicated when you are likely to return to Country B.

Your children are currently enrolled in an Australian School until MM 20YY.

Your bank accounts, credit cards and phones are in Country B.

You have no bank account or other assets in Australia.

You pay your expenses using a debit card linked to your bank account in Country B

Your mailing address is the Australian residential address, and you also have a mailing address in Country B.

Your furniture and personal items are in Country B storage, and you mainly have brought items suitable for a short-term stay whilst in Australia.

Whilst in Australia, you took a long term lease for a property which ended in MM 20YY, which you are now leasing on a month-to-month basis.

You have both an Australian and Country B driver's license.

You do not own any property in Country B.

You are a member of a synagogue in Country B.

Since residing in Australia, you have obtained a mortgage preapproval to secure permanent accommodation on your return to Country B.

Neither you nor your spouse are Commonwealth of Australia Government employees for superannuation (super) purposes.

Neither you nor your spouse are members of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 995-1

International Tax Agreements Act 1953

Reasons for decision

QUESTION 1

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.

Application to your situation

You are a resident of Australia under the resides test for the relevant ruling period based on the following:

•         You arrived in Australia on DD MM 20YY, on a Visitor's Visa and have remained in Australia since this time.

•         Since residing in Australia, you have been granted with a visa which allows you to reside in Australia permanently.

•         The reason you travelled to Australia was to keep your family safe from the effects that the COVID 19 pandemic was having in Country B and your intention was to return as soon as practicable.

•         Since arriving in Australia, you have been working remotely for your Country B businesses.

•         Your spouse is an Australian citizen and they, along with your children, travelled with you to Australia.

•         Your children have Australian passports, along with Australian citizenship.

•         Your children are currently enrolled in an Australian School until MM 20YY.

•         You have no bank account or other assets in Australia.

•         You pay your expenses using a debit card linked to your bank account in Country B.

•         Whilst in Australia, you initially took a 12-month lease for a property which ended in MM 20YY. You continue to rent this property on a month-to-month basis.

•         You do not own any property in Country B.

•         Prior to your arrival in Australia and whilst living in Country B you held a Visa. Your Visa expired on DD MM 20YY.

•         Following the expiry of your Country B Visa, you reapplied in MM 20YY and were granted with a new visa on DD MM 20YY.

•         At this stage you have not booked any return flights or indicated when you are likely to return to Country B.

We consider that your circumstances are consistent with residing in Australia. You have been physically present in Australia since MM 20YY and following the reissue of your Country B visa in MM 20YY, you have made no attempts to return to the Country B.

Whilst residing in Australia, you have also applied for and were granted a Partner visa which has allowed you to stay within Australia permanently. You are joined in Australia with your wife, who is an Australian citizen, and your 3 children.

We understand that your intention is to return to Country B, however this has not occurred. On balance, your circumstances demonstrate that you are residing in Australia according to the ordinary meaning of the word.

We balanced these circumstances against your stored assets in Country B, and your Country B based businesses (that you have been operating remotely whilst in Australia). It is not a requirement of the resides test that the intention to reside in Australia be permanent, or that all ties be severed.

Therefore, you are an Australian resident under the resides test for the period DD MM 20YY to DD MM 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 Mexico and acquired a domicile of choice in Country B.

It is considered that you did not abandon your domicile of choice in Country B and acquire a new domicile of choice in Australia. Whilst you are entitled to reside in Australia permanently, your intentions are to return to the Country B at some point.

Therefore, your domicile is Country B, and you are not an Australian resident 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 had been in Australia for 183 days or more in the 20YY-20YY income year and will have been in Australia for 183 days or more in the 20YY-20YY income year. Therefore, you will be a resident 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:

•         You arrived in Australia on DD MM 20YY, on a Visitor Visa and have remained in Australia since this time.

•         Whilst in Australia, you initially took a long term lease for a property which ended in MM 20YY. You continue to rent this property on a month-to-month basis

•         You do not own any property in Country B.

Based on your circumstances, the Commissioner is not 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 have been residing in Australia since DD MM 20YY.

•         Since residing in Australia, you have been granted with a Partner Visa which allows you to reside in Australia permanently.

•         Your spouse is an Australian citizen and they, along with your children, travelled with you to Australia.

•         Your children have Australian passports, along with Australian citizenship.

•         Your children are currently enrolled in an Australian School until MM 20YY.

•         Whilst in Australia, you took a long term lease for a property which ended in MM 20YY. You continue to rent this property, on a month-to-month basis.

•         You have stayed in Australia throughout the ruling period, except for a XX-day period from DD MM 20YY to DD MM 20YY when you travelled to XXX to attend a wedding.

After weighing up the evidence, the Commissioner is satisfied that you did intend to take up residency in Australia during the period from the relevant ruling period.

Based on the information provided, you are an Australian 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 an Australian resident under this test.

Conclusion

You satisfy the residesand the 183- day tests of residency and so are a resident of Australia for income tax purposes for the relevant ruling period.

QUESTION 2

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.

Article X of Country B 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.

Article X of Country B agreement states:

(1) For the purposes of this Convention:

(a) a person is a resident of Australia if the person is:

(i) an Australian corporation; or

(ii) any other person (except a company as defined under the law of Australia relating to Australian tax) who, under that law, is a resident of Australia, provided that, in relation to any income, a person who:

(iii) is subject to Australian tax on income which is from sources in Australia; or

(iv) is a partnership, an estate of a deceased individual or a trust (other than a trust that is a provident, benefit, superannuation, or retirement fund, or that is established for public charitable purposes or for the purpose of enabling scientific research to be conducted by or in conjunction with a public university or public hospital, the income of which is exempt from tax under the law of Australia relating to Australian tax),

shall not be treated as a resident of Australia except to the extent that the income is subject to Australian tax as the income of a resident, either in the hands of that person or in the hands of a partner or beneficiary, or, if that income is exempt from Australian tax, is so exempt solely because it is subject to Country B tax; and

(b) a person is a resident of Country B if the person is:

(i) a Country B corporation; or

(ii) any other person (except a corporation or unincorporated entity treated as a corporation for Country B tax purposes) resident in Country B for purposes of its tax, provided that, in relation to any income derived by a partnership, an estate of a deceased individual or a trust, such person shall not be treated as a resident of the Country B except to the extent that the income is subject to Country B tax as the income of a resident, either in its hands or in the hands of a partner or beneficiary, or, if that income is exempt from Country B tax, is exempt

other than because such person, partner or beneficiary is not a Country B person according to Country B law relating to Country B tax.

(2) Whereby application of paragraph (1) an individual is a resident of both Contracting States, he shall be deemed to be a resident of the State:

(a) in which he maintains his permanent home.

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

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

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

(3) An individual who is deemed to be a resident of one of the Contracting States for any year of income, or taxable year, as the case may be by reason of the provisions of paragraph (2) shall, for all purposes of this Convention, be deemed to be a resident only of that State for such year.

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':

•         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.

•         any form of home may be considered, including a house or apartment belonging to or rented by the individual and a rented furnished room.

We have concluded that you didn't have a permanent home both in Australia and Country B based on the following considerations:

•         Whilst in Australia, you took a long term lease for a property which ended in MM 20YY, which you are now leasing on a month-to-month basis.

•         You do not hold any ownership interest in any property in Country B.

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 concluded that your habitual abode between DD MM 20YY and DD MM 20YY was Australia based on the following considerations

•         You have been residing in Australia since DD MM 20YY.

•         Your spouse is an Australian citizen and they, along with your children, travelled with you to Australia.

•         Your children have Australian passports, along with Australian citizenship.

•         Your children are currently enrolled in an Australian School until MM 20YY.

•         Whilst in Australia, you took a long term lease for a property which ended in MM 20YY. You continue to rent this property, on a month-to-month basis.

•         You have stayed in Australia throughout the ruling period, except for a XX-day period from DD MM 20YY to DD MM 20YY when you travelled to XXX to attend a wedding.

Conclusion

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