Edited version of private advice

Authorisation Number: 1052336061031

Date of advice: 26 November 2024

Ruling

Subject: Residency/assessable income

Question 1

Are you a resident of Australia for tax purposes for the 20XX and 20XX income years?

Answer 1

No.

Question 2

Is the income you receive from the Country X assessable in Australia?

Answer 2

No.

Question 3

Will the interest you derive from a bank account in Country X be assessable in Australia?

Answer 3

No.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

XX/XX/20XX

Relevant facts and circumstances

You were born in Australia and are an Australian citizen.

You studied in Australia.

You were offered a position at an educational institution in Country X to complete your studies.

On XX/XX/20XX, you travelled to Country X.

You obtained a residence permit in Country X.

Your residence permit expires in XX/20XX; however, this can be renewed.

You do not intend on applying for permanent residency in Country X.

You are a tax resident of Country X.

You were provided with a payment by the educational institution you are studying at in Country X. The payment is valid for a period of time and when the payment concludes, you have the option to be employed for an additional period.

You spouse is an Australian citizen.

Your spouse accompanied you to Country X.

You were renting a property in Australia prior to your departure.

You are living with your spouse in Country X in a property that was provided to you. The property is available to you for a period. You intend to rent a property in Country X when the property is no longer available to you.

You and your spouse are waiting for a personal identity card. Once you have received your personal identity card, you intend to open a bank account in Country X and transfer your savings into this account to accrue interest.

You have bank accounts in Australia.

You have a small selection of household effects in a storage facility in Australia.

You have an Australian superannuation fund.

You have an Australian driver's licence.

You have informed the Australian Electoral Commission that you have departed Australia.

You have informed Medicare that you have departed Australia.

You have informed your private health insurer that you have departed Australia.

You intend to visit Australia X times for a period of time.

You intend to return to Australia permanently in X years.

You are not a contributing member or the spouse of a contributing member of the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS).

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 6-5

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

International Tax Agreements Act 1953

Reasons for decision

Question 1

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 will not be a resident of Australia under the resides test for the 2025 and 2026 income years based on the following:

•       You have a residence permit in Country X.

•       You intend to return to Australia permanently in 3-4 years.

•       Your spouse accompanied you to Country X.

•       You are undertaking studies at an educational institution in Country X.

•       You receive a scholarship payment in Country X.

•       You are living in a property in Country X with your spouse that has been provided to you for a period by the educational institution you are studying at.

•       You intend to rent a property in Country X.

•       You intend to open a bank account in Country X.

•       You will make minimal return visits to Australia during the relevant period

•       You have informed the AEC, Medicare, and your private health insurer that you have departed Australia.

You may still be an Australian resident if you meet the conditions of one of the other tests (the domicile test, 183-day test and Commonwealth superannuation fund test).

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 Australia and your domicile of origin is Australia.

It is considered that you have not abandoned your domicile of origin in Australia and acquired a domicile of choice in Country X. You are not entitled to reside in Country X indefinitely and while living in Country X, you only hold a residence permit which is valid until XX/20XX.

Therefore, your domicile is 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 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 satisfied that your permanent place of abode is outside Australia because:

•       You have a residence permit in Country X.

•       You intend to return to Australia permanently in 3-4 years.

•       Your spouse accompanied you to Country X.

•       You are undertaking studies at an educational institution in Country X.

•       You receive a scholarship payment in Country X.

•       You are living in a property in Country X with your spouse that has been provided to you for a period by the educational institution you are studying at.

•       You intend to rent a property in Country X.

•       You intend to open a bank account in Country X.

•       You have informed the AEC, Medicare, and your private health insurer that you have departed Australia.

Therefore, 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 will not be present in Australia for 183 days or more during the 20XX and 20XX income years.

Therefore, you will not be 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

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 you do not satisfy any of the tests of four tests of residency, you are not a resident of Australia for income tax purposes for the income years ending 30 June 20XX and 30 June 20XX.

Questions 2 & 3

Section 6-5 of the ITAA 1997 states that the assessable income of a foreign resident only includes income from an Australian source. Therefore, as your scholarship payment is not Australian sourced, it is not assessable in Australia.

This is confirmed by the DTA between Australia and Country X.

Article X of the Country X Agreement deals with income not expressly mentioned in the other articles of the agreement.

Article X states that income derived by a person who is a resident of one of the contacting states from sources in that contracting state shall only be taxable in the contracting state of which that person is a resident.

In your case, you are receiving a tax-free payment by an educational institution in Country X. You also intend to open a bank account in Country X and accrue interest.

As you are a not a tax resident of Australia, the payment will not be taxable in Australia. Further, any bank interest you accrue will be taxable only in Country X and will not be taxable in Australia.