Edited version of private advice

Authorisation Number: 1052292797958

Date of advice: 23 August 2024

Ruling

Subject: Residency

Question 1

Is the taxpayer a resident of Australia for the purposes of subsection 6(1) of the Income Tax Assessment Act 1936 for the 20XX income year?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 January 20XX

Relevant facts and circumstances

1.            The taxpayer was born in Australia.

2.            The taxpayer has not adopted a domicile of choice.

3.            The taxpayer is an Australian citizen and is not a citizen of any other country.

4.            The taxpayer has resided solely in Country X since 20XX.

5.            The taxpayer separated from their spouse during 20XX but not legally divorced.

6.            The taxpayer and their spouse executed a confidential financial agreement in 20XX which states the taxpayer will be relocating overseas on a permanent basis. The written agreement separated their assets before the taxpayer moved overseas.

7.            The taxpayer has not executed a binding financial agreement for the purposes of claiming the Marriage or relationship breakdown rollover outlined in Subdivision 126-A of the Income Tax Assessment Act 1997 (ITAA 1997).

8.            The taxpayer's children live in Australia with the spouse.

9.            The taxpayer travelled to Australia for a few weeks to see their children during the relevant income year.

10.          The taxpayer undertakes business activities in Country X and intends to remain in that country for a minimum of 3 years.

11.          The taxpayer earns consultancy income in Country X through their company that is incorporated in Country X.

12.          The taxpayer's company does not have any Australian clients or Australian business. The taxpayer's clients are based in countries close to Country X so that they are in the same time zone and a short flight away for face-to-face meetings. It is not possible to run his business from Australia.

13.          The taxpayer has bank accounts, furniture, and personal belongings in Country X. The taxpayer has friends and professional networks in Country X. The Country X is their home.

14.          The taxpayer obtained a driver's licence in Country X.

15.          The taxpayer lives in a leased apartment in Country X. The lease is in the taxpayer's name and is currently leased to the end of 20XX, which the taxpayer intends to renew unless the taxpayer buys a property.

16.          The taxpayer is in the market to buy an apartment in Country X as soon as possible.

17.          The taxpayer holds a Country X identity card.

18.          The taxpayer holds an employee visa issued by his Country X company, which is renewed every 2 years. There is no limit on the renewals allowed.

19.          The taxpayer owns one property in Australia jointly with their separated spouse. The property is used by the taxpayer's spouse and children, as agreed to in their financial agreement. This property will remain in joint names in the foreseeable future.

20.          The taxpayer maintains one Australian bank account, which has their Country X residential address listed, to receive dividends and pay bills that the taxpayer is obliged to pay for their children. The taxpayer still uses the same Australian mobile phone that XX has had for 20+ years. The phone bill is paid from the bank account.

21.          The taxpayer also has a Country X mobile phone number.

22.          In Australia, the taxpayer has investment in shares, some cash and superannuation, which the taxpayer is not currently contributing to. The taxpayer is a beneficiary of an Australian resident discretionary trust which holds investments. The taxpayer and their separated spouse are the trustees.

23.          The taxpayer maintains their investments in Australian shares as XX believes they are a good investment opportunity compared to other worldwide alternatives. The taxpayer intends to hold onto their Australian shares indefinitely, and preferably only divest these upon becoming an Australian tax resident again.

24.          The taxpayer and their spouse is not 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.

25.          The taxpayer is not currently listed on the Australian electoral roll.

26.          The taxpayer has local private health insurance in Country X and has established a relationship with a doctor and dentist in Country X.

27.          The taxpayer has a family Australian private health insurance for their family. The taxpayer has not used any Australian medical insurance since relocating overseas.

28.          When the taxpayer travels to Australia during the period, the purpose will be recorded as 'Visitor or temporary entrant' on the incoming passenger card not 'Resident returning to Australia'.

29.          The taxpayer intends to travel to Australia once per year to see the children.

30.          When the taxpayer visits the children, XX stays in the spare bedroom of the family home for convenience.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 104-165

Income Tax Assessment Act 1997 Subdivision 118-B

Income Tax Assessment Act 1997 subsection 118-110(5)

Income Tax Assessment Act 1997 Subdivision 126-A

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

1.            Subsection 995-1(1) of the 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).

2.            The terms 'resident' and 'resident of Australia', as applied to an individual, are defined in subsection 6(1) of the ITAA 1936.

3.            The definition offers 4 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.

4.            Only one of the tests needs to be met for an individual to be a resident of Australia for tax purposes.

5.            Our interpretation of the law in respect of residency is set out in Taxation Ruling TR 2023/1 Income tax: residency tests for individuals.

The resides test

6.            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', as the term 'reside' is not defined in the Australian income tax law.

7.            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'.

8.            The Commissioner considers the following factors in relation to whether a taxpayer is a resident under the 'resides' test:[1]

•                     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.

9.            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.[2]

10.          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.

11.          Since leaving Australia, the taxpayer has resided in Country X, and has not resided in any other country. That is, the taxpayer relocated to another country and has established a home and a business in that country, making only one trip to Australia to see the children for a few weeks. The taxpayer has assets in Country X and in Australia, holds a Country X identity card and driver's licence and has friends and professional networks in Country X. Based on the information provided against the factors listed above, the taxpayer will not satisfy the resides test.

The domicile test

12.          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.[3]

Domicile

13.          In Australia, the concept of domicile is governed by common law as modified by the Domicile Act 1982.[4]

14.          Domicile considers whether there is a legal relationship between a person and Australia. There are 3 types of domicile:[5]

•                     a 'domicile of origin', which is attributed to each individual at birth

•                     a 'domicile of dependence', which is relevant where a person (such as a minor) lacks capacity to acquire their own domicile and their domicile is determined by reference to someone else's domicile (such as a parent), and

•                     a 'domicile of choice', which is the domicile a person, with the capacity to do so, acquires voluntary.

15.          You always have a domicile, and you can only have one domicile at any point in time. Your domicile continues until you acquire a different one, either by choice or operation of law. You cannot abandon a domicile of origin without replacement.[6]

16.          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.

17.          When considering intention, we have regard to objectively observable conduct. 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. [7]

18.          The taxpayer was born in Australia and therefore has a domicile of origin of Australia.

19.          The domicile of dependence does not apply as the taxpayer is an adult and has capacity to make their own decisions.

20.          Whilst the financial agreement signed with their spouse states XX will be relocating overseas on a permanent basis, XX only holds an employee visa that can be renewed every 2 years and intends to remain in Country X for a minimum of 3 years. That is, the taxpayer has not made a domicile of choice to any other county. Therefore, their domicile remains their domicile of origin, which is Australia.

Permanent place of abode

21.          If you have an Australian domicile, you are an Australian resident unless the Commissioner is satisfied that your permanent place of abode is outside Australia.[8] This is a question of fact to be determined in light of all the facts and circumstances of each case.

22.          'Permanent' does not mean everlasting or forever, but it is to be distinguished from temporary or transitory.[9]

23.          The phrase 'permanent place of abode' calls for a consideration of the physical surroundings in which you live, extending to a town or country.[10] It does not extend to more than one country, or a region of the world.

24.          The Full Federal Court in Harding v Commissioner of Taxation [2019] FCA 29 held at paragraphs 36 and 40 that key considerations in determining whether a taxpayer has their permanent place of abode outside Australia 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.

25.          The Commissioner considers the following factors relevant to whether a taxpayer's permanent place of abode is outside Australia:

•                  the intended and actual length of the taxpayer's stay in the overseas country;

•                  whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time;

•                  whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia;

•                  whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;

•                  the duration and continuity of the taxpayer's presence in the overseas country;

•                  the durability of association that the person has with a particular place in Australia, i.e. maintaining assets in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

26.          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.

27.          Since relocating to Country X to undertake business activities, the taxpayer has acquired new assets, set up bank accounts, obtained a driver's licence and identity card specific to that country, established new friends and professional relationships and intends to buy an apartment. Consideration of these facts indicates that the taxpayer intends to establish a permanent home in Country X. Moreover, the taxpayer has stated he intends to remain in Country X indefinitely and to relocate overseas on a permanent basis.

28.          Consequently, the Commissioner is satisfied that the taxpayer has a permanent place of abode outside of Australia. Therefore, whilst the taxpayer is an Australian domiciled person, XX will not pass the domicile test.

The 183-day test

29.          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:[11]

•                     the person's usual place of abode is outside Australia, and

•                     the person does not intend to take up residence in Australia.

30.          As the taxpayer travelled to Australia for less than 183 days in Australia, he will not pass the 183-day test.

Commonwealth superannuation fund test

31.          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.

32.          Neither the taxpayer or their spouse is 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. Therefore, the taxpayer will not satisfy this test.

Residency Conclusion

33.          As the taxpayer will not satisfy any of the 4 tests to be a resident of Australia in the 2024 income year, he will be considered to be a non-resident of Australia for that income year.

[1] Taxation Ruling TR 2023/1 Income Tax: residency tests for individuals, paragraph 20.

[2] TR 2023/1, paragraph 21.

[3] TR 2023/1, paragraph 55.

[4] TR 2023/1, paragraph 56.

[5] TR 2023/1, paragraph 57.

[6] TR 2023/1, paragraph 58.

[7] TR 2023/1, paragraphs 60 and 61.

[8] TR 2023/1, paragraph 63.

[9] TR 2023/1, paragraph 65.

[10] TR 2023/1, paragraph 66.

[11] TR 2023/1, paragraph 83.