Edited version of private advice

Authorisation Number: 1052201341113

Date of advice: 21 December 2023

Ruling

Subject: Residency

Question

Will you be a "resident" or "resident of Australia" as defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) for income years ended 30 June xxxx and 30 June yyyy?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June xxxx

Year ended 30 June yyyy

The scheme commences on:

1 July wwww

Relevant facts and circumstances

1.         You are an Australian citizen.

2.         On [date] you moved overseas with your family.

Relevant legislative provisions

Section 6 Income Tax Assessment Act 1936

Does IVA apply to this private ruling?

No.

Reasons for decision

8.         The expressions "resident" or "resident of Australia" for tax purposes are defined in section 6 of the Income Tax Assessment Act 1936. As per Taxation Ruling 2023/1 (TR 2023/1) the definitions contain 4 alternative tests for residency of individuals. A 'resident' or 'resident of Australia' is:

(a)       a person, other than a company, who resides in Australia [ordinary concepts test] and includes a person:

(i)         whose domicile is in Australia, unless the Commissioner is satisfied that the person's permanent place of abode is outside Australia; [domicile test];

(ii)        who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and that the person does not intend to take up residency in Australia; [183-day test]; or

(iii)      who is:

(A) a member of the superannuation scheme established by deed under the Superannuation Act 1990; or

(B) an eligible employee for the purposes of the Superannuation Act 1976; or

(C) the spouse, or a child under 16, of a person covered by sub-paragraph (A) or (B)... [Commonwealth superannuation fund test].

9.         As it is taken as an assumption that you will not be in Australia for more than one-half of the year of income, the 183-day test does not apply to you. As you are not a member of a Commonwealth Superannuation Scheme, the Commonwealth superannuation fund test does not apply to you.

10.       The following paragraphs turn to the first test: the ordinary concepts test.

Ordinary concepts test

11.       The first test of residency is the "ordinary concepts" or "ordinarily resides" test.

12.       As there is no definition of the word 'reside' in Australian income tax law, the ordinary meaning of the word must be considered. The Macquarie Dictionary defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time', and the Shorter Oxford English Dictionary defines it 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'.

13.       Paragraph 20 of TR 2023/1 states that:

"...the ordinary concepts test is asking whether your presence in Australia is usual and settled in contrast to temporary and casual. This is informed by both the nature, duration and quality of the person's physical presence and an intention to treat Australia as home. The factors that commonly inform the relevant association with Australia are:

•         period of physical presence in Australia

•         intention or purpose of presence

•         behaviour while in Australia

•         family, and business or employment ties

•         maintenance and location of assets, and

•         social and living arrangements.

21. No single factor is necessarily decisive. The weight given to each factor varies depending on individual circumstances.

22. Many of the factors outlined in paragraph 20 of this Ruling are interrelated. For example, continued family connections are often also accompanied by assets in Australia (such as a house, furniture or a motor vehicle) and behaviour consistent with a familiar routine while in Australia. Temporary visitors often have few assets and few social connections.

23. For these reasons, it is important to consider all the relevant connections together to inform the question of whether you reside in Australia."

Case law

14.       In Hafza v Director-General of Social Security (1985) 6 FCR 444 (Hafza) at 449-450, Wilcox J discussed the concept of residency in relation to legislation which had incorporated the 'residency' definition from ITAA 1936:

"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] VR 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 236. It is important to observe firstly, that a person may simultaneously be a resident in more than one place - see the facts of Lysaght (supra) and the reference by Williams J to "a home or homes" - and, secondly, that the application of the general concept of residence to any particular case must depend upon the wording, and underlying purposes, of the particular statute in relation to which the question arises. But, where 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."

15.       In Hafza, Wilcox J stated that a lack of physical presence in a particular place does not necessarily lead to a conclusion that a person has ceased to be resident there. Rather, His Honour stated that the relevant test is whether the person has retained a 'continuity of association', an intention to return, and an attitude that the place remains 'home'.

16.       In Harding v FCT [2018] FCA 837 (Harding), Derrington J discussed the use of a 'checklist' of relevant factors that had been developed in the AAT through analysis of various residency decisions, such as in Re Iyengar v FCT (2011) 85 ATR 924 and Re Sneddon v FCT (2012) 89 ATR 739, and stated at [46] that:

"Those decisions identified a number of topics relevant to the ascertaining of a person's residence in Australia such as the person's physical presence in Australia, their nationality, the history of their past residence and movements, their mode of life and habits, the frequency, regularity and duration of visits to Australia, their purpose for visiting or leaving Australia, the remaining family and business ties with Australia in comparison to any other foreign country and the maintenance of the place of abode.

17.       His Honour noted at [46] that:

However, these factors do not constitute some kind of rigid formula for the determination of whether a person is a resident. They do not each invariably apply in all cases. They are merely the constitutive indicators or objective facts which are frequently relevant to the determination of the nature and quality of a person's presence in or association with a particular location. A consideration of those objective matters will also reflect the actual state of mind of the person in question concerning their intention to treat a place as their home. [Emphasis added]."

18.       Further, in Harding, on appeal(2019 ATC 21445), the Full Federal Court discussed the taxpayer's connections retained in Australia. Their honours Logan J and Davies J in a joint judgement said at pages 21464-21465:

"(d) The Commissioner also relied on the financial connections Mr Harding retained in Australia, such as the maintenance of his bank account, the purchase of an investment property, the investments with IOOF and the keeping of his financial affairs substantially in Australia. Again, the primary judge took these connections into account in reaching his conclusion concerning the residence of Mr Harding in the year in dispute. His Honour said at [84]-[85] as follows:

2019 ATC 21465

... I have accepted that, at this point in his life, his decision was to leave Australia permanently come what may and regardless of whether his family followed him at a later date. In those circumstances, the financial arrangements which remained in place, or which were put in place subsequent to his departure, are more properly regarded as the remnants of his prior residency and the fact that he retained ongoing responsibilities to Mrs Tracy Harding and her children for whom Mr Harding provided. They should not be seen as indicators of a continuing intention to maintain residency in Australia.

It should be added that the factor of where a person maintains investments may, in these days, have little bearing on where a person resides. In the past quarter of a century there has been a growing internationalisation of investment markets which has increased the ability of people in one country to make investments in businesses in other countries [emphasis added]. In this case it is, perhaps, not surprising that Mr Harding maintained significant investments in the relatively stable financial markets in Australia despite having abandoned his residency here.

Once again, there is no reason to doubt the accuracy of the foregoing findings of fact and the conclusions reached by his Honour."

19.       Although the decision in Harding was the subject of a successful appeal in Harding v FCT [2019] FCAFC 29 (Harding Full Court), the majority of the Full Federal Court accepted Derrington J's conclusion in respect of the 'ordinarily resides' test.

20.       In assessing the question of residence, it is therefore useful to consider the factors that have been identified as relevant by case law, and which have been set out by the Commissioner in paragraph 20 of TR 2023/1.

21.       Residency is a matter to be determined on a year by-year basis, and events that occurred outside the period in question are also relevant in determining the nature and quality of a person's association with Australia.

Period of physical presence in Australia

22.       Paragraph 26 of TR 2023/1 states that:

"The period of physical presence or length of time in Australia is an important factor when considering whether you reside here, but it is not a determinative factor. Importantly, there is a distinction between 'staying' in Australia and residing in it. Merely staying in Australia is normally insufficient. You must have some connection to Australia that characterises your presence as 'residing' in it. This will be informed by the other factors set out in paragraph 20 of this Ruling."

Intention or purpose of presence

23.       Paragraph 31 of TR 2023/1 states that:

"Your intention, purpose or reason for being in Australia helps to determine whether you reside here. While you may have multiple reasons, there is usually a main purpose to your presence."

24.       Further, paragraph 34 of TR 2023/1 states that:

"Staying for the purpose of a short period of work is normally insufficient to establish that you are a resident of Australia. This would not normally demonstrate a connection to Australia that is consistent with residing here. Likewise, coming to Australia for a holiday would not normally demonstrate a connection to Australia that is consistent with residing here, even when supplemented by casual or short-term employment, and even when you spend considerable time in Australia."

Behaviour in Australia

25.       Paragraph 42 of TR 2023/1 states that:

"Your behaviour relevantly includes the way you live as part of the regular order of your life. If the way you live reflects a degree of continuity, routine or habit, coupled with other factors such as intention, it may be consistent with residing in Australia."

Family and business / employment ties

26.       Paragraphs 46-50 of TR 2023/1 state that:

"46. The presence (or absence) of your family also informs the nature of your connection to Australia. The presence of immediate family in Australia is often accompanied by increased connections to Australia (including period of physical presence, assets such as a family home and motor vehicles, and an intention to return to a place you consider to be your home) and a settled routine consistent with residing in Australia.

47. The term and type of employment or business association you may have will also be relevant, particularly as these will usually be accompanied by other factors such as physical presence and assets in Australia. For example, entering Australia to take up an employment contract or to set up a business often results in behaviour that indicates you reside here.

48. While the test is about whether you reside in Australia, the presence or absence of family, and the extent of business or employment ties in the overseas country will be relevant in giving context to your connection to Australia. Business or employment ties overseas may be less significant if they can be, and are, performed from anywhere in the world.

49. Generally speaking, working overseas but returning to Australia at intervals to an established family and social life will often mean you are still residing in Australia. This is the case even if you spend more time overseas than in Australia in any given income year. Usually, such an arrangement indicates you are residing in Australia and another country. Having an ongoing, deliberate connection to Australia even though you have a connection to another country through your work does not make you a mere visitor to Australia. In such a case, Australia is your home and you are properly regarded as residing here.

50. This can be contrasted with a situation where you leave Australia to work overseas and shift your life overseas. For example, if you, and your family (if you have one), relocate overseas for work for some years establishing a permanent base and a routine overseas consistent with 'living' there, returning only occasionally for short stays while taking leave from work, then, depending on other facts and circumstances, you might not be a resident under the ordinary concepts test."

Maintenance and location of assets

27.       Paragraph 51-52 of TR 2023/1 states that:

"51. Living in a property in Australia that you own or are purchasing suggests establishment of a home in Australia consistent with residing here. Other assets in Australia, such as motor vehicles, superannuation investments and bank accounts, add further weight to you having established behaviour consistent with residing here.

52. The relevance and weight given to assets must be considered in your individual context. Both the significance of the assets to you and the reasons why they were acquired or maintained will be relevant. For example, opening a bank account in Australia may be no more than a mere convenience in which to deposit locally acquired earnings to fund a holiday. Australian bank accounts held open while you are located overseas could be consistent with maintaining a continuity of association with Australia, but could also be the result of there being no pressing reason to close them."

Social and living arrangements

28.       Paragraph 53-54 of TR 2023/1 states that:

"53. Your social and living arrangements may indicate you are a resident, particularly when coupled with other factors. Social and living arrangements are the way you interact with your surroundings during your stay in Australia. These arrangements may include joining sporting or community organisations, enrolling children in school, redirecting mail to Australia or committing to a residential lease.

54. It is the routine and habit associated with the social and living arrangements that is indicative of residency rather than the existence of hobbies and recreational pursuits themselves."

Conclusion: ordinary concepts test

29.       On the basis of the factors specified above, the Commissioner considers that the weight of considerations points towards the finding that you are a resident of Australia for the purposes of the ordinary concepts test for the period for the relevant period.

30.       For the reasons expressed above, you will be a "resident" or "resident of Australia" as defined in subsection 6(1) of the ITAA 1936 for the relevant income years.