Edited version of private advice

Authorisation Number: 1052320969051

Date of advice: 4 November 2024

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for domestic taxation purposes as defined by subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

Question 2

Are you a resident of Australia for the purposes of the tie break test in the Double Taxation Agreement (DTA) between Australia and Country B?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

XX XX 20XX

Relevant facts and circumstances

You are a dual-citizen of Country D and Australia. Your spouse is a Country E and Australian citizen.

You and your partner have three children.

You accepted an offer of employment from Company B for a permanent, full-time role to be based in Country B.

On XX XX 20XX, you departed Australia and relocated to Country B.

In XX 20XX, you started your employment.

A requirement of this role was for you to relocate permanently to Country B where you would become a Country B resident.

From XX 20XX to present, you hold an Employment Pass and Residents Pass in Country B, which are valid for XX years. Your employer will renew these every XX years.

Your reasons for accepting the role are:

•         because your primary priority was and is, your work and career in the XXX security industry

•         to provide for yourself and your family financially and to improve yours and your families long-term financial position.

You intend to continue your employment in Country B indefinitely.

Your spouse chose to remain in Australia to care for the three children so they could continue their schooling in Australia.

Your spouse is unemployed.

You own a residential property, where your spouse and children live permanently.

In Australia, you own a house, a car, bank accounts, household effects, and a compulsory superannuation fund, none of which produce any significant income.

You are not a government service employee.

Aside from a nominal amount of interest expected to be earned by you from Australian sources whilst you live and works in Country B, you do not anticipate earning any other Australian sourced income.

You currently lease a long-term accommodation (an apartment leased for XX months) in Country B, since XX XX 20XX to the present day. You intend to renew the lease after the initial XX term.

In Country B, you have a bank account, basic household furniture and personal effects.

You intend to return to Australia semi-regularly to visit your spouse and family, however you anticipate that you will be physically present in Australia for less than 183 days in any given year going forward.

During your short visits to Australia, you intend to maintain your apartment in Country B (which will remain vacant and will continue to house your belongings and personal effects awaiting your return).

You own an investment property in Country C along with a plot of vacant land.

You have foreign bank accounts upon which you earn foreign interest and where you receive foreign rental income.

Your income comprises of exempt foreign employment income, foreign rent, foreign interest, and Australian interest (anticipated).

You have suspended your private health insurance policy.

You operate a Country B mobile number permanently. You also maintained your Australian mobile number (for two-factor authentication purposes).

You have social ties in both Country B and Australia.

You have family ties in Australia. You do not have any family ties in Country B.

From XX XX 20XX, your personal ties will be closer to Australia due to the presence of your family.

You are a tax resident of Country B and are required to lodge returns and pay income tax in Country B annually.

From the date that you relocated to Country B, your economic ties are closer to Country B due to your income that you earns from your long-term employment.

Relevant legislative provision

Income Tax Assessment Act 1936 subsection 6(1)

Reasons for decision

Detailed reasoning

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 not a resident of Australia under the resides test for the period XX XX 20XX to XX XX 20XX. based on the following:

• On XX XX 20XX, you departed Australia and relocated to Country B. You intend to remain there permanently.
• You hold a XX month lease for rental accommodation in an apartment in Country B since XX XX 20XX. You intend to renew the lease after the initial XX term.
• Since XX 20XX, you have held employment and resident visas in Country B, which are valid for XX years. Your employer will renew these every XX years.
• Your spouse and children live in Australia in your family home.
• You intend to return to Australia semi-regularly to visit your spouse and family.
• In Australia, you own a house, a car, bank accounts, household effects, and a compulsory superannuation fund.
• You continue to leave your personal effects and belongings in Australia, even while in Country B.
• You will continue to use your mobile phone number while in Australia.

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 D and your domicile of origin was Country D.

It is considered that you abandoned your domicile of origin in Country D and acquired a domicile of choice in Australia. In XX 20XX, you acquired full-time employment in Country B. You were not entitled to reside in Country B indefinitely and while living in Country B, you only held a work pass and residence pass which was valid for XX years, pending renewal by your employer at the end of the XX period.

Therefore, your domicile remains in Australia.

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] FCA 29 (Harding) 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; and
• 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

As mentioned above in relation to the Harding case, one of the two key considerations in determining whether a taxpayer has their permanent place of abode outside Australia is whether the taxpayer has 'definitely abandoned, in a permanent way, living in Australia'.

In your case, during the period from XX XX XX24 to XX XX XX26, you are employed in Country B, had your own accommodation in Country B and spent the majority of your time outside Australia. However, it is noted that:

• your spouse and children are still living in the family home in Australia
• you financially support your spouse and children in Australia, as your spouse is unemployed.
• you intend to return to Australia to see your spouse and children for less than 183 days during any income year.

Consequently, it is considered that the above factors together demonstrate that from XX XX 20XX to XX XX 20XX you maintained a durability of association with Australia and had not definitely abandoned, in a permanent way, living in Australia.

Therefore, the Commissioner is not satisfied that your permanent place of abode was outside Australia from XX XX 20XX to XX XX 20XX.

You were still a resident of Australia for tax purposes under the domicile test from XX XX 20XX to 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 have not been present in Australia for 183 days or more during the 20XX to 20XX income years. Therefore, you are not a resident under this test.

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

As you are not a government service employee, 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 test of residency and so are a resident of Australia for income tax purposes for the XX XX 20XX to XX XX 20XX period.

Double Taxation Agreement

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.

The terms resident and resident of Country B, (regarding an individual), are defined in subsection 2(1) of Country B's the Income Tax Act 1947 as follows:

•         a person who, in the year preceding the year of assessment, resides in Country B except for such temporary absences therefrom as may be reasonable and not inconsistent with a claim by such person to be resident in Country B, and includes,

•         a person who is physically present or who exercises an employment (other than as a director of a company) in Country B for 183 days or more during the year preceding the year of assessment.

Further guidance is provided on the Inland Revenue Authority of Country B website which states:

"You are a tax resident for a particular Year of Assessment if you are a:

•         Country B Citizen or Country B Permanent Resident (SPR) who normally resides in Country B except for temporary absences; or

•         Foreigner who has stayed/worked in Country B:

­   for at least 183 days in the previous calendar year; or continuously

­   for 3 consecutive years; or

­   Foreigner who has worked in Country B for a continuous period straddling 2 calendar years and your total period of stay* is at least 183 days. This applies to foreign employees who entered Country B but excludes directors of a company, or public entertainers or professionals.

* Including your physical presence immediately before and after your employment.

Foreigners issued with a work pass that is valid for at least 1 year will also be treated as a tax resident. However, your tax residency status will be reviewed at the point of tax clearance when you cease your employment based on the tax residency rules. If your stay in Country B is less than 183 days, you will be regarded as a non-resident."

'Year of Assessment' is defined under Country B domestic income tax law as the calendar year running from 1st January through to 31st December.

As you are a resident of both Australia and Country B for taxation purposes, it is necessary to consider the provisions of the Agreement between the Government of Australia and the Government of Country B.

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 11 of the Country B 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.

ARTICLE 11 1. Subject to this Article and to Articles 12, 13 and 14 remuneration or other income derived by an individual who is a resident of one of the Contracting States in respect of personal (including professional) services shall be subject to tax only in that Contracting State unless the services are performed or exercised in the other Contracting State. If the services are so performed or exercised such remuneration or other income as is derived therefrom shall be deemed to have a source in, and may be taxed in, that other Contracting State.

We have concluded that the tiebreaker tests in Article 11 of the Country B Agreement apply so that you are deemed to be a resident only of Country B for treaty purposes. The provisions of the Country B Agreement will therefore apply on the basis that you are a resident of Country B for tax purposes and not of Australia for the purposes of working out liability to tax on your income under the double tax agreement.

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':

1. 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.
2. 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.

During the relevant period, you have had a permanent home available to you in both Australia (where your spouse and children have been living) and in Country B (where you have been living for the term of your lease).

You regularly come to Australia and spend time with your family. The home in Australia is available to you at all times.

Therefore, it is necessary to consider in which country you have a habitual abode, and if necessary where your personal and economic relations are closest.

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.

ATO view of habitual abode

There are a number of ATO Interpretative Decisions which contain the ATO view regarding 'habitual abode'.

In ATO ID 2004/774, a taxpayer who spent time at their homes in both Australia and the US during a single income year was held to have a habitual abode in both Australia and the US because it was 'part of their usual pattern of activity'.

ATO ID 2006/184 considers a taxpayer working in Australia for a period of four years, but 'spending time' in Italy during this period, and who had a home available to him there. The 'reasons for decision' in these ATOIDs state, in part, that:

The notion of a habitual abode is not simply a test of where a person stays more frequently but also looks to whether living in a particular country is normal or customary having regard to the taxpayer's circumstances. As it is usual or customary for the taxpayer to spend time in both countries, the taxpayer has a habitual abode in both countries.

By contrast, in ATO ID 2004/81, a German citizen was '...present in Australia for over 12 months. and did not return to Germany or another country during that time.' It is stated that: 'Therefore, the taxpayer's habitual abode was in Australia and not in Germany.'

This appears to suggest that a taxpayer will only have a 'habitual abode' in one country where they remain solely in that country for a specific period of time.

However, in ATO ID 2005/123 and ATO ID 2005/124, a Country B citizen who spent 'approximately 12 months' in Australia was held to have a habitual abode in both Country B and Australia. There was no suggestion in this ATO ID that the taxpayer returned to Country B at any time during this period. Nor is there any suggestion that the 'habitual abode' test was determined solely by reference to the 12 month period in which they were living in Australia.

Equally, ATO ID 2004/736 concerned a US citizen who spent 10 months in Australia on a research fellowship. It was argued in this ATO ID that a habitual abode:

...can be seen as the physical place in which an individual would normally live. This is not merely a test of where a person stays more frequently but also looks at whether living in a particular country is 'normal' having regard to the taxpayer's pattern of life.

It was '...considered that the taxpayer has a habitual abode in the US and in Australia', even though there is no suggestion that the taxpayer spent any time in the US during these ten months.

As mentioned in the OECD Commentary above, Article 4(3) of the double tax agreement envisages the possibility that the taxpayer can have a habitual abode in two places at the same time.

In the current case, you have a permanent full time employment position in Country B where you intend to spend most of your time in each income year. In addition to the time you spent at your home in Country B, in the 20XX to 20XX income years you intend to spend less than 183 days of any income year visiting your family in Australia.

Accordingly, it is considered that since XX 20XX you have had a habitual abode in Country B as the time you have spent there is part of your usual pattern of activity.

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.

Personal Relations

Although you have friends and work colleagues in Country B, Your strongest personal connections, those being your spouse and children, will reside in Australia. Accordingly, your personal connections are closer to Australia than to Country B.

Economic Relations

In terms of economic relations, Your economic relations are with 3 countries; Australia, Country B and Country C.

Your Australian assets comprise of a home, car, furniture, superannuation (which cannot be accessed until you retire), and bank accounts. Aside from a nominal amount of interest that may be earned by you from your Australian bank accounts, you will not generate any other income from Australia while you are living and working in Country A.

In contrast to your income, between 20XX and 20XX, your spouse (who is not employed), will have no income and will have little support for themself and your children.

Given that you will earn practically no income from Australia, with the bulk of your income derived almost exclusively from Country B where you live and work, your economic ties are overwhelmingly closer to Country B than to Australia.

Conclusion

We have concluded that the tiebreaker tests in Article 11 of the Country B Agreement apply so that you are deemed to be a resident only of Country B for treaty purposes. The provisions of the Country B Agreement will therefore apply on the basis that you are a resident of Country B for tax purpose and not of Australia.

[1] See also ATO ID 2003/1195.