Edited version of private advice

Authorisation Number: 1052216141214

Date of advice: 15 February 2024

Ruling

Subject: Residency

Question 1

Is the taxpayer an Australian resident under subsection 6(1) of the Income Tax Assessment Act 1936 from the 1 July 20VV to early 20XX?

Answer

Yes.

Question 2

Is the taxpayer an Australian resident under subsection 6(1) of the Income Tax Assessment Act 1936 after early 20XX?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20WW

Year ended 30 June 20XX

Year ended 30 June 20YY

Year ended 30 June 20ZZ

Relevant facts and circumstances

The taxpayer was born in Country A and moved to Australia. They became an Australian citizen when they were a child. They are an Australian citizen and also a citizen of Country A.

The taxpayer co-founded and operates an overseas company (Country X company), which was incorporated in Country X several years ago. In late 20VV, Country X company raised capital from external investors. The terms of the investment require that the taxpayer be present in Country X until late 20ZZ. The taxpayer is also contracted to Country X company until late 20ZZ. The taxpayer's stay may be extended a year or two.

The taxpayer was renting their accommodation in XXXXX until the lease finished in late 20VV. The taxpayer then travelled to City A in Country X for recreational purposes for more than a week. The taxpayer then returned to Australia for 3 months. Upon their return to Australia, the taxpayer stayed with their partner and extended family who are all located in different Australian capital cities. The taxpayer also had several domestic holidays.

In early 20WW (the calendar year following 20VV year), the taxpayer departed for Country X for around 6 months. The taxpayer stayed in City A and City B, Country X. The chief purpose of the taxpayer's stay was work purposes. During this period the taxpayer stayed in short term rental accommodation.

The taxpayer then moved to Country Y for around 4 months. During this time, the taxpayer carried on their Country X based business, and also undertook some sightseeing. The taxpayer stayed in short term furnished accommodation.

The taxpayer returned to Country X for work purposes for almost a month. They stayed in short term furnished accommodation in City A.

At the end of 20WW, the taxpayer returned to Australia and will be staying for just over a month. The taxpayer will be staying with extended family who are all located in different Australian capital cities, staying with their partner at the partner's home and taking domestic holidays.

The taxpayer will depart Australia for City A, Country X in early 20XX.

The taxpayer travelled to Country X on a two year working visa which can be renewed.

Future stay in Country X

As mentioned above, the taxpayer departed Australia in early 20XX and, will be living in Country X until late 20ZZ. Their stay in Country X may be extended by a year or two. They intend to reside in Country X for 10 months (approximately) and return to Australia for 1.5 to 2 months a year, in order to spend time with their partner and extended family.

During their stay in Country X, they plan to lease a furnished apartment. In this regard, the taxpayer will be renting for the duration of their stay in Country X.

The taxpayer's partner is considering temporarily moving to Country X to live with them about 1 year after the taxpayer moves, and both will be returning to Australia together after the taxpayer's capital raising obligations requiring them to reside in Country X (Country X obligations) are complete.

The taxpayer will also hold a Country X driver's licence. Other than colleagues and investors, the taxpayer has no social ties in Country X.

Australian connection

The taxpayer's partner of several years lives and works in Australia and they plan to visit each other every 3 months including for 1.5 to 2 straight months per year in Australia. The taxpayer has extended family and friends in different Australian capital cities, which the taxpayer will be seeing during the 1.5 to 2 months in Australia.

When they return to Australia during the 20XX to 20ZZ years, the taxpayer will be staying with their partner at their partner's home and their extended family and taking domestic holidays.

The taxpayer plans to return to Australia as when their Country X obligations are complete and will remit all of their payments after living requirements, into their Australian bank account.

The taxpayer does not own property in Australia. They hold Australian bank accounts. The taxpayer has a family trust.

The taxpayer does not have any business/ employment relationships in Australia.

The taxpayer holds an Australian driver's licence. The taxpayer is enrolled in Australia for overseas voting.

The taxpayer has cancelled their private health insurance.

In relation to the taxpayer's furniture and household effects that are currently located in Australia, these are held by the taxpayer's partner and extended family until they return to Australia full time.

Apart from any valuables which travel with the taxpayer, the remainder of the taxpayer's personal possessions are with them, and the rest of their personal possessions are with their partner and extended family until they return to Australia.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Question 1

Is the taxpayer an Australian resident under subsection 6(1) of the Income Tax Assessment Act 1936 from 1 July 20VV to early 20XX?

Summary

The taxpayer is an Australian resident under subsection 6(1) of the Income Tax Assessment Act 1936 from 1 July 20VV to early on0XX.

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 term 'resident of Australia' is relevantly defined in subsection 6(1) of the ITAA 1936 to mean:

(a)            a person, other than a company, who resides in Australia 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;

(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 residence in Australia; 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-subparagraph (A) or (B); and

The above definition of resident, in effect, provides 4 tests for determining whether an individual is a resident for taxation purposes. These tests are:

1.            residency under ordinary concepts test in paragraph 6(1)(a) ('ordinary concepts test');

2.            the domicile (and permanent place of abode) test in subparagraph 6(1)(a)(i);

3.            the 183 day test in subparagraph 6(1)(a)(ii); and

4.            the Commonwealth superannuation fund test in subparagraph 6(1)(a)(iii).

A taxpayer will be treated as a resident of Australia for an income year where it satisfies one of these four tests. It does not matter if a taxpayer does not meet any of the other tests. A taxpayer is not a resident if it does not meet any of the tests.

A taxpayer may become a resident or cease to be a resident of Australia during a year of income under the ordinary concepts test, domicile test or 183 day test. The commencement and cessation of residency depends on the taxpayer's facts and circumstances.

183-day test

In relation to the 183-day test in subparagraph 6(1)(a)(ii) the taxpayer is not a resident of Australia for the income year ended 20WW, 20XX, 20YY and 20ZZ. One of the requirements to be met to satisfy this test is that an individual must be present in Australia for more than 183 days during an income year continuously or intermittently.

The taxpayer was present in Australia during the 20WW income for less than 183 days, therefore the taxpayer was not a resident under the 183 day test for the 20WW income year.

In relation to the 20XX income year, the taxpayer was present in Australia for just more than a month at which point they will return to Country X. Therefore, the taxpayer will not be a resident under the 183 day test for the 20XX income year.

In 20YY to 20ZZ income years, the taxpayer will be present for 1.5 to 2 months each year and therefore will not be a resident under the 183 day test for these years.

Commonwealth superannuation fund test

The taxpayer is also not a resident under the Commonwealth Superannuation Fund test in subparagraph 6(1)(a)(iii). The taxpayer is not a contributing member of the Public Sector Superannuation Scheme or the Commonwealth Superannuation Scheme, a spouse of such a person or a child under 16 years of age of such a person.

Ordinary Concepts test

The term 'resides' in paragraph 6(1)(a) is not defined in the income tax provisions either the ITAA 1936 or ITAA 1997, and therefore it takes on its ordinary meaning. Taxation Ruling TR 2023/1 Income tax: residency tests for individuals (TR 2023/1) provides guidance on the Commissioner's interpretation of the ordinary meaning of the word 'resides'.

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 test is whether the person has retained a 'continuity of association' with the place, coupled with an intention to return to that place and an attitude that it remains home (see Hafza v Director-General of Social Security (1985) 6 FCR 444 at 449 per Wilcox J).

To determine an individual's residency status, it is appropriate to look beyond the period spent in (or out of) Australia. Factors from the entire income year and surrounding income years provide more information to help determine whether an individual meets one of the residency tests.

In TR 2023/1 at paragraph 20 it is explained that the ordinary concepts test is asking whether an individual's presence in Australia is usual and settled as opposed 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.

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/employment ties

•         maintenance and location of assets

•         social and living arrangements.

It is important to note that no single factor is necessarily decisive, and many are interrelated. The weight given to each factor varies depending on individual circumstances.

In relation to the period of physical presence, TR 2023/1 provides that an individual's period of physical presence or length of time in Australia, although an important factor, is not a determinative factor when considering an individual's residency status. An individual must have some connection to Australia that characterises their presence as 'residing' in it. This will be informed by the other factors, which are listed above.

Furthermore, 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 of the 'Ordinary Concepts test'

On the facts presented, the taxpayer was an Australian resident for tax purposes from 1 July 20VV to early 20WW as the taxpayer resided in Australia.

However, from the early 20WW, being the date that the taxpayer departed for City A, until the end of the ruling period i.e., 30 June 20ZZ the taxpayer was not a resident of Australia under the 'ordinary concepts' test for the following reasons:

•         Since the taxpayer's departure in early 20WW the taxpayer has been physically absent from Australia for most of the time. They returned to Australia for at the end of 20WW for just a month. In future years, the taxpayer anticipates that they may be returning for 1.5 to 2 months per year. However, as noted above, the period of physical presence in Australia although relevant is not a determinative factor as to whether a person is a resident or not.

•         The purpose of the taxpayer's visits since their departure in early 20WW was for a mixture of holiday and seeing their partner, extended family and friends.

•         The taxpayer does not have an established abode in Australia to which they will return to from overseas. The lease on their rental accommodation had finished in late 20VV. While the taxpayer is in Australia, they will be staying in various places. These include staying with their partner in City A, their extended family in City B and City C, and in hotel or other holiday accommodation when taking domestic holidays.

•         Apart from their bank accounts, some personal possessions and household effects which are being stored, the taxpayer has no other assets in Australia.

•         The taxpayer has no business/ employment relationships in Australia. The operation of Country X company, which the taxpayer co-founded and operates, dictates that they are based in Country X.

Whilst the taxpayer will return to Australia for short visits, these visits do not exhibit a settled purpose. As such, it is considered that the taxpayer has not retained a continuity of association with Australia.

Accordingly, it is considered that the taxpayer is not a resident of Australia under the 'ordinary concepts test' from the date of their departure in early 20WW until 30 June 20ZZ as the taxpayer does not 'reside' in Australia during this period.

Whilst we have determined, so far that the taxpayer is not a resident under the 183 day-test and the Commonwealth superannuation fund test for the 20WW, 20XX, 20YY and 20ZZ income years and the ordinary concepts test for the period from early 20WW (date of departure to City A), it is still necessary to consider the application of the domicile test.

Domicile Test

Under the domicile test, if a person is considered to have their domicile in Australia, they will be considered an Australian resident unless the Commissioner is satisfied that they have a permanent place of abode outside of Australia.

Whether a person's domicile is in Australia is determined by the Domicile Act 1982 (Cth) and the common law rules on domicile. A person's domicile is generally their country of birth - referred to as the 'domicile of origin'.

A person's domicile continues until a different one is acquired, either by choice or operation of the law.

In TR 2023/1 at paragraphs 59 to 62, the concept of domicile of choice is discussed where it is stated:

59. To acquire a domicile of choice you must have both lawful physical presence in a foreign country and an intention to make your home indefinitely in that country.

60. When considering intention, we have regard to objectively observable conduct. While assertions of intention will always be relevant, if there is a difference between that assertion and the conduct, we may rely on the conduct.

61. Obtaining a visa to migrate to a particular country would be consistent with an intention to make your home indefinitely in that country. A working visa, even for a substantial period of time, would usually not be sufficient evidence of an intention to acquire a new domicile of choice.

62. If you have an Australian domicile and you are living outside Australia, you will retain your Australian domicile if you intend to return to Australia on a clearly foreseen and reasonably anticipated contingency (for example, at the end of your employment contract), even if you stay overseas for a substantial period. This is because you lack the necessary intention to settle in that country indefinitely. On the other hand, if you only have in mind a vague possibility of returning to Australia, such as making a fortune or some sentiment about dying in the land of your forebears, such a state of mind is consistent with the intention required by law to acquire a domicile of choice in the foreign country.

As the taxpayer was born in Country A, their domicile of origin is Country A. However, when the taxpayer emigrated to Australia when they were a child, they acquired an Australian domicile as their domicile of choice.

The taxpayer has asserted that they intend to return to live in Australia at some time in the future. As there is no other evidence, at this point of time, to suggest otherwise, it is accepted that the taxpayer's domicile remains in Australia.

It is noted that the taxpayer has a visa to live in Country X which may be extended upon its expiration in late 20XX. However, the possession of the visa on its own is insufficient to show that the taxpayer intends to reside in Country X indefinitely.

Where a taxpayer has an Australian domicile, they are an Australian resident unless the Commissioner is satisfied that their permanent place of abode is outside Australia. This aspect is discussed below.

Permanent Place of Abode

Whether a taxpayer has permanent place of abode in a foreign country 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 a person lives, 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 at [41] stated that it favoured the construction of the phrase 'permanent place of abode' as used at first instance in Applegate v Commissioner of Taxation [1978] 1 NSWLR 126 at 134:

"place of abode" may mean the house in which a person lives or the country, city or town in which he is for the time being to be found. I am of the view that the latter is the meaning of the expression used in s. 6(1.) of the Act."

The Full Federal Court at 40 summarised its thoughts on 'permanent place of abode' as follows:

•         the word 'place' in the context of the phrase 'outside Australia' involves a consideration of the town or country in which a person is physically residing 'permanently';

•         so long as the taxpayer has 'definitely abandoned' his or her residence in Australia, it is not necessary for the taxpayer to be permanently located at a particular house or flat in a particular town within a foreign country or for the person to live in one particular town, suburb or village within a given country;

•         the word 'place' should accordingly be read as including a reference to a country or state;

•         moving between foreign countries is not the same as being permanently in one country; and

•         the words 'permanent place' require the identification of a country in which the taxpayer is living permanently.

Consequently, it is considered that the Full Federal Court in Harding provides two key considerations in determining whether a taxpayer has their permanent place of abode outside Australia. These 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.

Relevant factors as to whether your permanent place of abode is overseas include:

•         length of overseas stay

•         nature of accommodation, and

•         durability of association.

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.

In relation to a person's length of overseas stay, TR 2023/1 at paragraphs 76 and 77 states that if:

'you leave Australia 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.

77. 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.'

Application of the Permanent Place of Abode test

The taxpayer did not have a permanent place of abode outside Australia from 1 July 20VV to early 20XX, being the date on which the taxpayer returned to City A, Country X for work which recommenced in early 20XX. This is based on the following considerations:

•         The taxpayer initially departed in early 20WW for City A, Country X and intends to stay in City A, Country X until late 20ZZ to operate a company which they co-founded and which they have an indirect interest in its shareholding through their family trust. The taxpayer's stay in Country X may be extended a further year or two. It is considered that the taxpayer will be present in City A for a substantial period of time.

•         The taxpayer possesses a two year visa that allows him to live and work in Country X. This visa can be renewed. The taxpayer's partner may join him in Country X in a years' time.

•         Country X company, which the taxpayer operates, is based in City A, Country X. It is a requirement of the taxpayer's work obligations that they reside specifically in City A, Country X.

•         However, it is considered that the taxpayer's permanent place of abode was not in Country X prior to early 20XX. This is because their stay in City A in early 20WW was only for 6 months before they relocated to Country Y for 4 months, returning to City A for a month and thereafter to Australia for just over a month. As indicated in the Harding case, the term 'permanent place of abode' does not extend to a series of temporary residences in different countries. Given the transitory nature of the taxpayer's residences prior to early 20XX, it is considered that the taxpayer has not established a permanent place of abode outside of Australia between 1 July 20VV and early 20XX.

Therefore, in respect of this period i.e., 1 July 20VV to early 20XX, the taxpayer is a resident of Australia: they satisfied the domicile test as their domicile is in Australia and they did not have a 'permanent place' of abode outside of Australia.

Question 2

Is the taxpayer an Australian resident under subsection 6(1) of the Income Tax Assessment Act 1936 after early 20XX?

Summary

The taxpayer is not an Australian resident under subsection 6(1) of the Income Tax Assessment Act 1936 after early 20XX.

Detailed reasoning

In our reasons for decision for question 1, we considered the application of the of the 183 day-test and the Commonwealth superannuation fund test and the ordinary concepts test to the taxpayer's circumstances for the whole of the ruling period i.e., from 20WW to 20ZZ income years. It was concluded that the taxpayer was not a resident under:

•         the 183 day-test for the 20WW, 20XX, 20YY and 20ZZ income years;

•         the Commonwealth superannuation fund test for the 20WW, 20XX, 20YY and 20ZZ income years;

•         the ordinary concepts test for the period from early 20WW (being date of departure to City A) to the end of the ruling period i.e., 30 June 20ZZ.

For an explanation on how we arrived at the above conclusion, refer to the reasons for decision for question 1.

The following discussion will focus on the domicile test. The law relating to the domicile test is set out in the discussion on this test in our reasons for decision for question 1. In question 1, we have concluded that the taxpayer's domicile remains in Australia as there was insufficient evidence to show that the taxpayer intends to reside in Country X indefinitely. This conclusion also applies to the period after early 20XX, and therefore the taxpayer's domicile will remain in Australia for the remaining period.

Consequently, as the taxpayer's domicile is in Australia they will be treated as an Australian resident unless they have established a permanent place of abode outside of Australia.

Application of the Permanent Place of Abode test

We have taken the following into consideration when deciding whether the taxpayer has a permanent place of abode outside Australia from early 20XX:

•         As previously determined, the taxpayer cannot be said to have had a permanent place of abode outside Australia from 1 July 20VV to early 20XX, given that the various countries in which they were located during this time were divided between Australia, Country X and Country Y. However, from early 20XX, the taxpayer intends to live in furnished rental accommodation in City A with a lease for up to 10 months at a time. This may mean that the taxpayer may be required to move from apartment to apartment whilst they reside in City A. The fact that the taxpayer may be staying in a series of temporary residences whilst in City A and not staying in a fixed place, would still be acceptable as a permanent place of abode.

•         In terms of the taxpayer's ties to Australia, the taxpayer has substantially broken ties with Australia. The taxpayer does not have any business/ employment relationships in Australia. the taxpayer does not have a home available to them in Australia as they gave up their lease on their apartment in late 20VV. When they return to Australia, which is only for short periods of time, the taxpayer will be staying in various places. In this regard, the taxpayer will be staying with their partner at the partner's home and their extended family who are all located in different Australian capital cities and taking domestic holidays.

Other than bank accounts, their household effects and some personal possessions, the taxpayer has no other assets in Australia.

In light of the above and in line with the Harding case decision, it is considered that from early 20XX, the taxpayer will not satisfy the domicile test. They have abandoned their place of residence in Australia, as explained above and they will have established a permanent place of abode outside of Australia i.e., Country X. This is notwithstanding that they may be living in a series of temporary residences whilst living in City A.

Therefore, it is concluded that for the period between early 20XX to the 30 June 20ZZ, the taxpayer is not a resident of Australia under the domicile test as the taxpayer will have a permanent place of abode outside of Australia.