Edited version of private advice

Authorisation Number: 1052317407199

Date of advice: 17 October 2024

Ruling

Subject: Residency

Question 1

Are you a resident for tax purposes under subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) for the 20XX and 20XX income years?

Answer

Yes.

Question 2

Are you a temporary resident for tax purposes until XX XX 20XX?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 July 20XX

Year ending 30 July 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Person A and Person B are married.

Person A and B were born in Country X.

From XX XX 20XX, you are temporary tax residents of Australia, holding a temporary visa.

On XX XX 20XX, you both signed a rental agreement. You have signed subsequent rental agreements and still live at this address.

On XX 20XX, you sold your Country X property.

On XX XX 20XX, you both applied for Permanent Residency visas.

Whilst the permanent residency applications were being processed, you were both granted Bridging visas.

On XX X 20XX, you were both granted permanent residency visas.

When you travel to Country X, you stay with family as you have sold your permanent home in Country X. You intend to move all of your personal effects to Australia.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 6(1)

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Question 1

Overview of the law

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 both a resident under the resides test for the 20XX and 20XX income years based on the following:

•         physical presence - you entered Australia on XX XX 20XX and have been granted permanent residency effective XX XX 20XX.

•         intention - you entered Australia with the intention of residing here.

•         behaviour while in Australia - you have rented the same property in Australia from XX XX 20XX. You continue to reside in the property. You have applied for, and been granted, permanent residency. You intend to relocate your personal belongings to Australia.

•         family and business/employment ties: you work for your own company and source income from investments both in Country X and Australia.

•         maintenance and location of assets - the majority of your assets remain in Country X. You both hold Country X and Australian bank accounts.

•         social and living arrangements - your family remains in Country X. You are married and intend to remain in Australia now that you have been granted permanent residency.

In your case, it is considered that the way you live in Australia from the time you arrived reflected a degree of continuity, routine or habit which, couple with your intention demonstrates that you are residents under the resides test from the date you arrived here.

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.

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 acquired a domicile of choice elsewhere. To acquire a domicile of choice in a particular country you mut 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.

You arrived in Australia on XX XX 20XX under a temporary visa. You were not entitled to reside in Australia indefinitely until you obtained a permanent residency visa. On XX XX 20XX, you applied for permanent residency, this was granted on XX XX 20XX.

Consequently, up until XX XX 20XX it is considered that you had not yet abandoned your domicile of origin and acquired a domicile of choice in Australia.

Therefore, your domicile is Country X, and you are not a resident of Australia under the domicile test from XX XX 20XX until XX XX 20XX.

Your domicile of choice became Australia on XX XX 20XX, upon the granting of your permanent residency visas.

Permanent place of abode

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. This 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 you live, 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] FCAFC 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.

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.

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.

Application to your situation

The Commissioner is not satisfied that your permanent place of abode from XX XX 20XX is outside Australia because:

•         you are now entitled to reside in Australia permanently

•         you have sold your assets in Country X and will move your possessions to Australia in order to establish a permanent home.

You both are a resident under the domicile test on the granting of your permanent residency visas, effective XX XX 20XX.

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 were in Australia for 183 days or more during the income years ending 30 June 20XX and 30 June 20XX. 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 on the following:

•         you sold your family home in Country X, and you intend to ship your remaining possessions to Australia.

•         you have secured a long-term rental in Australia.

•         your intention is to stay in Australia permanently from when you arrived on XX XX 20XX.

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 residence' 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 intend to take up residence in Australia for the relevant income years because:

•         you sold your family home in Country X.

•         you have sought and been granted permanent residency visas.

You are a resident under this test from the date of your arrival 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 both not members 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 satisfy the resides and 183-day test of residency and so you both are a resident of Australia for income tax purposes for the 20XX and 20XX income years. You both are also a resident of Australia from XX XX 20XX under the Domicile test for the 20XX income year.

Question 2

Temporary resident of Australia for tax purposes

An individual is a temporary resident for taxation purposes if:

•         they hold a temporary visa granted under the Migration Act 1958, and

•         they are not an Australian resident within the meaning of the Social Security Act 1991, and

•         they do not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991.

The Social Security Act 1991 defines an Australian resident as a person who resides in Australia and is an Australian citizen, the holder of a permanent visa, or a protected special category visa holder who was in Australia on or before 26 February 2001.

Based on the facts you have provided you are a temporary resident of Australia until XX XX 20XX for taxation purposes because:

•         you held a temporary visa issued under the Migration Act 1958, which expired on XX XX 20XX.

•         you applied for permanent residence on XX XX 20XX.

•         you remained in Australia under a 'Bridging visas from XX XX 20XX whilst your permanent residency applications were processed.

•         neither of you are Australian residents within the meaning of the Social Security Act 1991.

As a temporary resident of Australia, you generally only need to declare:

•         income you derived from Australian sources.

•         any income you earn from employment or services performed overseas while you are a temporary resident of Australia.

Certain capital gains may also be exempt from Australian tax for temporary residents.