Edited version of private advice

Date of advice: 28 November 2024

Authorisation number: 1052337719923

Ruling

Subject: Residency

Question 1

Are you an Australian resident for tax purposes for the income year ending 30 June 20YY?

Answer 1

Yes.

Question 2

Are you a resident of Australia under Article X of the double tax agreement (DTA) between Australia and Country B?

Answer 2

No.

Question 3

Is the income you derived from your employment in Country B assessable in Australia under Article X of the DTA between Australia and Country B?

Answer 3

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were born in Australia and are a citizen of Australia by birth.

You relocated to Country B for a period of time.

You were granted a visa that allowed you to stay in Country B for two years.

The purpose of your travel was for employment purposes.

You took leave without pay from your Australian employer for a period of 12 months.

You intended to stay in Country B for the entire two year period allowed by the visa and were considering an extension to a third year. You also intended to review options available to you upon cessation of this visa.

You initially lived in an Airbnb in Country B, and then rented a flat.

You made a return visit to Australia for a period of two weeks.

You returned to Australia to live within 12 months for family reasons.

You have various assets in both Australia and Country B.

Prior to departing Australia, you were residing in your family home. You did not own any property in any country.

You have no spouse or dependents.

You did not advise the Australian Electoral Office to have your name removed from the electoral roll prior to departing Australia, as you were not certain of your overseas living arrangements at the time of your departure.

You cancelled your Private Health insurance when you originally left Australia.

You have lodged an income tax return with the Country B tax authority. This tax return was lodged as a resident of Country B for tax purposes.

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.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 995-1

International Tax Agreements Act 1953 section 4

International Tax Agreements Act 1953 section 5

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, 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 together with an intention to return to that place and an attitude that that place remains 'home'. 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 ruling period based on the following:

•                     Your visa only allowed you to remain in the country of issue for up to two years.

•                     You took leave without pay from your Australian employer for a period of 12 months.

•                     You made a return visit to Australia prior to your eventual return.

•                     While influenced by personal matters, your absence from Country A was only for short term.

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, your domicile of origin is Australia.

It is considered that you did not abandon your domicile of origin in Australia and acquire a domicile of choice in Country B; for example, you were not living in Country B for a long period of time and you were not granted citizenship of Country B.

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 not satisfied that your permanent place of abode was outside Australia during the 20XX income year because you returned to Australia within 12 months of departure and did not cut many ties to Australia, for example, you took leave without pay from your Australian employer for a period of time. Consequently, it is considered that you did not definitely abandon, in a permanent way, living in Australia.

Therefore, you are 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 were not present in Australia for 183 days or more during the 20XX income year. 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

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 domicile tests of residency and so are a resident of Australia for income tax purposes for the ruling period.

Question 2

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.

Article X 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.

The status of an individual who, by reason of the preceding provisions of this Article is a resident of both Contracting States, shall be determined as follows:

•                     that individual shall be deemed to be a resident only of the Contracting State in which a permanent home is available to that individual; but if a permanent home is available in both States, or in neither of them, that individual shall be deemed to be a resident only of the State with which the individual's personal and economic relations are closer (centre of vital interests);

•                     if the Contracting State in which the centre of vital interests is situated cannot be determined, the individual shall be deemed to be a resident only of the State of which that individual is a national.

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 did not have a permanent home in Australia based on the following consideration:

•                     You do not own any property in Australia and prior to leaving Australia you were living in your family's home.

We have concluded that you did not have a permanent home in Country B until late XX/20YY based on the following consideration:

•                     You were initially residing in a short stay rental for a period in Country B.

•                     We have concluded that you had a permanent home in Country B from late XX/20YY as you entered a lease to rent a property at that time.

As you did not have a permanent home in Country B until this time, we will therefore need to consider to which country your personal and economic ties were closest.

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 B based on the following consideration:

•                     Although you have extended family in Australia, you carried out your employment duties in Country B from which you derived your employment income. This significant economic factor outweighs your family and economic ties to Australia.

Conclusion

We have concluded that the tiebreaker tests in Article X 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.

Question 3

Article X of the Country B Agreement deals with employment income.

Relatively, Article X provides that income from salaries, wages and other similar remuneration derived by a resident or a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State.

Therefore, as your employment was exercised in Country B, the income from your employment will only be taxable in Country B and not in Australia.