Edited version of private advice

Authorisation Number: 1052237668029

Date of advice: 2 April 2024

Ruling

Subject: Residency

Question 1

Are you an Australian resident for tax purposes under section 6 of the Income Tax Assessment Act 1936 for the income years ended 30 June 20XX, 30 June 20XX, 30 June 20XX and 30 June 20XX?

Answer

Yes.

Question 2

Are you an Australian resident for tax purposes of the Double Tax Agreement between Australia and 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:

1 July 20XX

Relevant facts and circumstances

You and your spouse are both citizens of Country X.

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

You are a resident of Country X for tax purposes.

In July of 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 spouse's parent.

You did not intend to stay in Australia permanently.

You travelled to Country X with family in early 20XX for one month.

In February 20XX, you returned to Australia with your family for the 2 eldest children to start school.

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

You stayed in Australia for the remainder of 20XX and two following financial years.

On XX June 20XX, you travelled from and to Country X with family for approximately a month and returned to Australia on XX July 20XX.

From XX August 20XX until XX December 20XX, you continued travel between Australia and Country X.

In April 20XX, the construction on the block in Australia was completed. You and your family moved into this property.

You plan to leave Australia permanently when your eldest children's education complete.

You have your extended family lives in Country X, including your parents, your siblings and your relative.

In Country X, you hold directorships on several companies, and you also own few companies. You carry out work duties on these businesses remotely from Australia.

In Country X, you have a residential property which is furnished and occupied all the time by staffs.

You maintain strong social ties with your friends in Country X.

In Country X remains your car, your driver's license, your credit cards, bank accounts, investment funds, mobile phone plan, entitlement to a public pension, golf club memberships.

In Australia, you have your car, your Australian driver's license, your private health insurance, Medicare registration.

You also have an investment property in Australia.

You have no mail redirected to Australia.

You are not Commonwealth of Australia government employees for superannuation 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 Year ended 30 June 20XX more than 183 days.

You were in Australia for Year ended 30 June 20XX more than 183 days.

You were in Australia for Year ended 30 June 20XX more than 183 days.

You were in Australia for Year ended 30 June 20XX more than 183 days.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 6(1)

Income Tax Assessment Act 1997 section 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... 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 resides test is about 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. The ordinary meaning of reside does not require an individual to have a principle or usual place of residence in Australia.

Application to your situation

You are a resident of Australia under the resides test for the period 1 July 20XX to 30 June 20XX income years based on the following:

•         You have been living in Australia since 20XX.

•         Your spouse and your four children also accompany with you in Australia.

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

•         You carry out work duties remotely from Australia.

•         You have a driver's license, private health insurance, Medicare registration.

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.

It is considered that you did not abandon your domicile of origin in Country X 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 been in Australia for 183 days or more in the relevant income years. 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 not satisfied that your usual place of abode was outside Australia for the relevant income years based in the following:

•         Your spouse and your children accompany you when in Australia.

•         You with your spouse jointly own a family home in Australia.

•         You maintain your driver license, private health insurance, Medicare registration in Australia.

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

The Commissioner is satisfied that you did not intend to take up residence in Australia for the relevant income years because:

•         You and your spouse have no intention of remaining in Australia beyond the eldest children's education period.

•         You maintain a home where you live upon your return to Country X.

Therefore, you are a resident of Australia under the 183-day test for the period 1 July 20XX to 30 June 20XX.

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

Question 2

Detailed reasoning

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 4 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. Whereby 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. Whereby 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':

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 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 Australia based on the following considerations:

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

•         You and your family live in the property.

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

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

•         The property remains fully furnished and it has never been rent out.

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 was in Australia based on the following considerations:

•         You intend to live in Australia to support for your children's education.

•         You have Australian driver license, private health insurance, Medicare registration.

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

•         You have remained your Country X property available for you and your family to return.

•         You have your extended family in Country X, including your parent and two brothers.

•         You have remained your Country X driver license, golf club memberships.

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], personal factors do not have greater weight than economic factors. In each case it will be a matter of fact and degree 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 hold directorships on several companies in Country X.

•         You wholly-owns few companies in Country X.

•         You have not carried out work duties that relate to Australian projects.

Conclusion

We have concluded that the tiebreaker tests in Article 4 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 purposes and not of Australia for the purposes of working out liability to tax on your income under the double tax agreement.

[1] See also ATO ID 2003/1195