Edited version of private advice

Authorisation Number: 1052216310000

Date of advice: 29 January 2024

Ruling

Subject: Residency

Issue 1 - definition of temporary resident

Question 1

Will you meet the definition of the 'temporary resident' as defined under section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Issue 2 - residency

Question 2

Will you answer 'yes' to both questions of "are you an Australian resident?" and "did you become a resident for tax purposes during the year?" in your income tax return for the 2023 financial year under subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

Issue 3 - income tax rates

Question 3

Will you be subject to individual income tax rates for Australian residents, rather than the tax rates for foreign residents under subsection 3(1) of the Income Tax Rates Act 1986 (The Rates Act)?

Answer 3

Yes.

This private ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

On XX XX 19XX, you were born in Country X. You continue to be a citizen of Country X.

Between 20XX and XX 20XX, you were self-employed and managed the operations of a Company in Country X.

On XX XX 20XX, the Australian government granted you a "Business Innovation and Investment (Provisional) visa (subclass 188B)" (the 188B Visa).

The 188B Visa is a temporary visa under the Migration Act 1958.

You are the main applicant of the 188B Visa.

On XX XX 20XX, your spouse (your Spouse) and your child (your Child) were also granted a subclass188B visa.

Your Spouse earns their own income and financially independent. Your Spouse is XX years old.

Your support your Child with their study and living expenses. Your child is XX years old.

On XX XX 20XX, you arrived in Australia.

Your intentions are to seek permanent Australian residency when the conditions of the 188B Visa are satisfied.

During the 20XX financial year (20XXFY) you were in Australia on the following dates, totalling 317 days.

•         XX XX 20XX to XX XX 20XX (inclusive), which is 200 days.

•         XX XX 20XX to XX XX 20XX (inclusive), which is 117 days.

During the 20XXFY your Spouse mainly resided in China.

You and your Spouse are not Australian residents under the Social Security Act 1991.

You have resided at the following addresses whilst living in Australia:

•         Address A

•         Address B.

Address A was your first residential address when you commenced living in Australia.

Address A was the address listed on your incoming and outgoing passenger cards when you travelled overseas whilst residing in Australia under the 188B Visa.

On XX XX 20XX, you commenced living at Address B.

Address B is your current residential address.

You have signed a rental agreement for Address B which will cease effective XX XX 20XX.

You do not own Australian real estate or shares.

You are not a Director of any Australian companies.

During the 20XXFY you did not receive any remuneration from employer or personal services income (PSI) from Australian sources.

You intend to stay in Australia for approximately 300 days per year for the foreseeable future.

You maintain active bank accounts in Australia and hold Australian government bonds.

You are undertaking English language study at TAFE in Australia.

You earn foreign sourced income.

You are required to lodge income tax returns in Country X.

When you travel to Country X, you sometimes stay in a hotel for short stays.

When you travel to Country X, you sometimes stay in your own property.

You own X apartments in China.

From around XX 20XX, you have rented out two of these apartments.

Your residential property address is XX (Property A).

Property A remains vacant to allow you to live in it when you travel to Country X.

Your household effects are stored in Country X.

When you migrated to Australia, you brought some personal affects.

You temporarily keep other personal effects in Country X.

You maintain active bank accounts in Country X.

You hold drivers' licences in Australia and Country X.

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

On XX XX 20XX, the 188B visa will expire.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 6(1)

Income Tax Assessment Act 1997 section 995-1

Income Tax Rates Act 1986 subsection 3(1)

Reasons for decision

Issue 1 - definition of temporary resident

Question 1

Will you meet the definition of the 'temporary resident' as defined under section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Summary

Yes. Based on the information provided to the Commissioner, you are a temporary resident under the ITAA 1997 as you meet the requirements within the meaning of section 995-1 of the ITAA 1997 through holding a temporary special category visa.

Section 995-1 of the ITAA 1997 states that you are a temporary resident if you hold a visa within the meaning of the Migration Act 1958, and neither you nor your spouse are an Australian resident within the meaning of the Social Security Act 1991. For the purposes of the Social Security Act 1991 an Australian resident is a person living in Australia who is an Australian citizen, a permanent visa holder or a protected special category visa holder.

In your case, you and your spouse are citizens of China and hold temporary visas within the meaning of the Migration Act 1958.

Issue 2 - residency

Question 2

Will you answer 'yes' to both questions of "are you an Australian resident?" and "did you become a resident for tax purposes during the year?" in your income tax return for the 2023 financial year under subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Summary

You are a resident of Australia for taxation purposes.

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 Draft 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

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

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

•         Physical presence - you have been physically present in Australia from the date of your arrival, being XX XX 20XX.

•         Intention or purpose - On XX XX 20XX, the Australian government granted you a "Business Innovation and Investment (Provisional) visa (subclass 188B)" (the 188B Visa). You have stated that your intentions are to seek permanent Australian residency when the conditions of the 188B Visa are satisfied. Your intentions are to stay in Australia for approximately 300 days per year for the foreseeable future.

•         Behaviour - your behaviour since arriving in Australia shows that you have settled into accommodation. You have taken short periods of travel back to Country X, before returning to Australia. Your behaviour reflects a degree of continuity, routine or habit that is consistent with residing in Australia.

•         Family and business/employment ties - Your family does not currently reside in Australia. Your Spouse and Child have both secured a "Business Innovation and Investment (Provisional) visa (subclass 188B)" with the intent to relocate to Australia. You have no employment in Australia.

•         Maintenance and location of assets - you have opened bank accounts and entered into a long-term rental lease in Australia. You own X properties in Country X, along with active bank accounts.

•         Social and living arrangements - you have commenced undertaking English language study at TAFE in Australia.

Therefore, from the date you arrived in Australia until the end of the ruling period you are viewed as being a resident of Australia for taxation purposes.

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 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 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, you are a citizen of Country X and your domicile of origin in Country X.

It is considered that you have not abandoned your domicile of origin and acquired a domicile of choice in Australia. You are not entitled to reside in Australia as you are neither a citizen of Australia nor the holder of a permanent resident visa during the ruling period.

Therefore, your domicile is still 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 intent to take up residence in Australia.

Application to your situation

You have been present in Australia for 183 days or more in the 2023 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

The Commissioner is satisfied that you did intend to take up residence in Australia for the relevant income year. Your usual place of abode has become Australia, where you have rented a home pursuant to a long-term lease. During the 2023FY ruling period, you were present in Australia for 317 days. Furthermore, it is noted that your intention is to take up residence in Australia.

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

As outlined above, for the ruling period the Commissioner accepts that you are a resident of Australia for taxation purposes under the resides test and the 183-day test. Under the resides test, the Commissioner regards you as residing in Australia according to ordinary concepts. Under the 183-day test, the Commissioner is satisfied that you did intend to take up residence in Australia for the relevant income year.

You are a resident of Australia on and from XX XX 20XX, when you arrived in Australia, up to and including the ruling period end date.

Issue 3 - income tax rates

Question 3

Will you be subject to individual income tax rates for Australian residents, rather than the tax rates for foreign residents under subsection 3(1) of the Income Tax Rates Act 1986 (the Rates Act)?

Summary

Yes.

The rates of tax on taxable income for resident taxpayers are contained in Part 1 of the Schedule 7 to the Rates Act. The tax-free threshold is applicable to resident taxpayers as defined in section 3 of the Rates Act.

The term 'resident taxpayer' is defined in section 3 of the Rates Act to be a taxpayer who is not a 'prescribed non-resident'. Section 3 of the Rates Act defines 'prescribed non-resident' as a person who, at all times during the year of income, is a non-resident, not being a person, whom certain pensions, allowances or benefits are payable to and subject to tax in Australia.

As you are not considered to be a non-resident, the definition of a prescribed non-resident under section 3 of the Rates Act is not satisfied and instead the definition of resident taxpayer is met.

You will be taxed on the same basis as a resident Australian citizen pursuant to section 768-910 of the ITAA 1997, which provides that ordinary income received by temporary residents of Australia from a foreign source (excluding employment related income and capital gains on shares and rights acquired under employee share schemes) is not assessable income in Australia. Temporary residents that hold a visa subclass 188B only need to declare income derived in Australia.

You can apply the individual income tax rates for Australian residents because you meet the definition of resident taxpayer. You are eligible for the tax-free threshold in Schedule 7 of the Rates Act.