Edited version of private advice

Authorisation Number: 1052356316953

Date of advice: 5 February 2025

Ruling

Subject: Residency

Question 1

Is the taxpayer a resident of Australia for income tax purposes pursuant to subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) from 1 July 20XX to XX XXX 20XX?

Answer 1

Yes.

Question 2

Will the taxpayer be a resident of Australia for income tax purposes pursuant to subsection 6(1) of the ITAA 1936 from XX XXX 20XX to 30 June 20XX?

Answer 2

No.

Question 3

Will the answer to question 2 be altered if the taxpayer is deemed to have a domicile of choice of Australia for the purposes of subparagraph 6(1)(a)(i) of the ITAA 1936?

Answer 3

No.

This ruling applies for the following periods:

Income year ended 30 June 20ww

Income year ended 30 June 20xx

Income year ended 30 June 20yy

Income year ended 30 June 20zz

Relevant facts and circumstances

The taxpayer was born overseas in Country A. At the time of the taxpayer's birth, the domicile of the taxpayer's parent A was Country B. The taxpayer moved to Australia when they were a child.

The taxpayer is a citizen of Country A and holds a Country A passport.. The taxpayer is also an Australian permanent resident.

The taxpayer and their spouse departed Australia sometime in early 20vv for Country A for to fulfil work obligations with Company A. Whilst the taxpayer's contract with Company A is open-ended, the taxpayer expects to be located in Country A for a few years.

In the income years ended 30 June 20ww, 20xx, 20yy and 20zz, the taxpayer was present in Australia for less than 183 days in each of these income years.

The taxpayer is not a member of a superannuation scheme established by deed under the Superannuation Act 1990; or an eligible employee for the purposes of the Superannuation Act 1976.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Reasons for decision

Question 1

The term 'resident of Australia' is relevantly defined in subsection 6(1) to mean:

(a)           a person, other than a company, who resides in Australia and includes a person:

(i)            whose domicile is in Australia, unless the Commissioner is satisfied that the person's permanent place of abode is outside Australia;

(ii)           who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and that the person does not intend to take up residence in Australia; or

(iii)          who is:

(A)          a member of the superannuation scheme established by deed under the Superannuation Act 1990; or

(B)          an eligible employee for the purposes of the Superannuation Act 1976; or

(C)          the spouse, or a child under 16, of a person covered by sub-subparagraph (A) or (B); and

The above definition of resident, in effect, provides 4 tests for determining whether an individual is a resident for taxation purposes. These tests are:

•                     residency under ordinary concepts test in paragraph 6(1)(a) ('ordinary concepts test');

•                     the domicile (and permanent place of abode) test in subparagraph 6(1)(a)(i);

•                     the 183 day test in subparagraph 6(1)(a)(ii); and

•                     the Commonwealth superannuation fund test in subparagraph 6(1)(a)(iii).

A taxpayer will be treated as a resident of Australia for an income year where it satisfies one of these tests.

In the present case, the tests of most relevance are the ordinary concepts test in paragraph 6(1)(a) and the domicile test in subparagraph 6(1)(a)(i).

In relation to the 183 day test in subparagraph 6(1)(a)(ii), one of the requirements to be met to satisfy this test is that an individual must be present in Australia for more than 183 days during an income year continuously or intermittently.

The taxpayer will have been present in Australia for less than 183 days during the 20ww income year. Accordingly, the taxpayer will not be a resident under the 183 day test.

The taxpayer is also not a resident under the Commonwealth Superannuation Fund test in subparagraph 6(1)(a)(iii). The taxpayer is not a member of a superannuation scheme established by deed under the Superannuation Act 1990; or an eligible employee for the purposes of the Superannuation Act 1976.

Ordinary Concepts test

The term 'resides' in paragraph 6(1)(a) is not defined in the income tax provisions either the ITAA 1936 or ITAA 1997, and therefore it takes on its ordinary meaning. Taxation Ruling TR 2023/1 Income Tax: residency tests for individuals (TR 2023/1) provides guidance on the Commissioner's interpretation of the ordinary meaning of the word 'resides'.

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'.

In TR 2023/1, the Commissioner considers the following factors in relation to whether a person 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 ordinary concepts test is whether an individual resides in Australia, the above 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. Nonetheless, continued connections overseas will inform the nature of an individual's connection to Australia.

Further, in determining an individual's residency status, it is appropriate to look beyond the period the period spent in (or out of) Australia. Regard must be given to factors from the entire income year and surrounding income years in determining an individuals' residency status.

In relation to the period of physical presence, TR 2023/1 provides that an individual's period of physical presence or length of time in Australia, although an important factor, is not a determinative factor when considering an individual's residency status. An individual must have some connection to Australia that characterises their presence as 'residing' in it, as opposed to 'staying' in Australia.

Broadly, the Commissioner considers a visit to Australia of less than 6 months is not sufficient time to be regarded as residing here. This is because a person does not usually establish a durable connection to Australia in this time.

This can be contrasted to a situation where a person has previously spent a long time in Australia despite only spending short periods in Australia in the relevant income year. In such a case, the shorter period of physical presence in Australia assumes less relevance if the person has retained a continuity of association with Australia, or a particular place within Australia, together with an intention to return to Australia and an attitude that Australia remains their home.

Paragraphs 31 and 32 of TR 2023/1 states that an individual's intention, purpose or reason for being in Australia assists in determining whether an individual resides here. A resident will usually have an intention to treat Australia, or a place within Australia, as a home at least for the time being, though not necessarily forever.

A settled purpose, for example a pre-arranged long-term employment may support an intention to reside in Australia, particularly when coupled with other connections to Australia that are consistent with residing here (paragraph 33 of TR 2023/1).

Paragraph 41 of TR 2023/1 explains that when looking at an individual's behaviour, their behaviour relevantly includes the way they live as part of the regular order of their life. If the way they live reflects a degree of continuity, routine or habit, coupled with other factors such as intention, it may be consistent with residing in Australia.

Paragraphs 46 to 48 of TR 2023/1 explains that the presence or absence of immediate family and the type and term of an individual's business or employment ties in Australia are relevant indicators in determining an individual's residency status. Additionally, the presence or absence of family and business or employment ties in the overseas country will be relevant in giving context to the individual's connection to Australia.

When considering the maintenance and location of assets, paragraphs 51and 52 of TR 2023/1 provides that occupying a dwelling in Australia that the individual owns or is purchasing, suggests establishment of a home in Australia. The presence of other assets in Australia, such as motor vehicles, superannuation investments and bank accounts also add further weight to the individual having established behaviour consistent with residing here. Both the significance of the assets and the reasons why they were acquired or maintained will be relevant.

An individual's social and living arrangements e.g., joining sporting or community organisations or redirecting mail to Australia, may indicate residency, particularly when combined with other factors. What is important is the routine and habit associated with the social and living arrangements (paragraph 53 to 52 of TR 2023/1).

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 the place remains "home": see Norman v Norman (No 3) (1969)

16 FLR 231 at 235...

[W]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.

On the basis of facts in this case and the factors specified above, the Commissioner considers that, on balance, the taxpayer is a resident of Australia under the 'ordinary concepts test' as they resided in Australia for the period from 1 July 20vv to aa/bb/20ww. The taxpayer had retained a continuity of association with Australia during this period.

Accordingly, the taxpayer will be a resident under subparagraph 6(1)(a) for the period from 1 July 20vv to aa/bb/20ww.

Domicile Test

As it was considered that the taxpayer was a resident of Australia under the ordinary concepts test, it is not necessary to consider the remaining statutory test that is domicile test in subparagraph 6(1)(a)(i).

Question 2

The legislative provisions, case law and the Commissioner's view governing the determination of the taxpayer's residency status for Question 2 is outlined in the Reasons for Decision in respect of Question 1, above. The following considers the matters that have been taken into account in reaching the decision for Question 2.

The expressions 'resident' or 'resident of Australia' for tax purposes are defined in section 6 of the ITAA 1936 and the 4 alternative tests for residency of individuals have been outlined earlier.

As mentioned earlier, the taxpayer was not present in Australia for more than one half of the year of income in the 20ww income year.

In relation to the 20xx, 20yy and 20zz income yeas, as the taxpayer will not be present in Australia for more than one half of the year of income in each of these income years, the 183-day test does not apply to the taxpayer.

Further, the Commonwealth superannuation fund test does not apply to the taxpayer for the reasons provided in Question 1.

The following paragraphs refer to the first 2 tests, namely: the ordinary concepts test and the domicile test.

Ordinary concepts test

The first test of residency is the 'ordinary concepts test'. The following paragraphs considers the application of this test to the taxpayer's circumstances.

The Commissioner's guidelines regarding this test are contained TR 2023/1 and were outlined earlier in this document.

Taking into account the guidelines in TR 2023/1 regarding the ordinary concepts test and the taxpayer's circumstances, including purpose of visits and the severing of some of their ties to Australia, it is considered that the taxpayer is not a resident for the period from aa/bb/20vv to 30 June 20zz.

Domicile Test

Under the domicile test, if a person is considered to have their domicile in Australia they will be considered an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

Whether a person's domicile is in Australia is determined by the Domicile Act 1982 (Cth) and the common law rules on domicile. Under common law rules, a person will acquire a 'domicile of origin' at birth. This is generally the country of his or her father's permanent home. The actual place of birth is generally immaterial: Somerville v Lord Somerville (1801) 5 Ves 750 at 787.

A person's domicile continues until a different one is acquired, either by choice or operation of the law.

In TR 2023/1 at paragraphs 59 to 62, the concept of domicile of choice is discussed where it is stated:

59.          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.

60.          When considering intention, we have regard to objectively observable conduct. While assertions of intention will always be relevant, if there is a difference between that assertion and the conduct, we may rely on the conduct.

61.          ...

62.          If you have an Australian domicile and you are living outside Australia, you will retain your Australian domicile if you intend to return to Australia on a clearly foreseen and reasonably anticipated contingency (for example, at the end of your employment contract), even if you stay overseas for a substantial period. This is because you lack the necessary intention to settle in that country indefinitely. On the other hand, if you only have in mind a vague possibility of returning to Australia, such as making a fortune or some sentiment about dying in the land of your forebears, such a state of mind is consistent with the intention required by law to acquire a domicile of choice in the foreign country.

In Fremlin v Fremlin (1913) 16 CLR 212 at 233, Barton J referred what Lord Westbury said in Udny v Udny(1869) L.R. 1 H.L. (Sc.) 441 at 458 wherein domicile of choice was described as follows:

Domicile of choice is a conclusion or inference which the law derives from the fact of a man fixing voluntarily his sole or chief residence in a particular place, with an intention of continuing to reside there for an unlimited time. This is a description of the circumstances which create or constitute a domicile, and not a definition of the term. There must be a residence freely chosen, and not prescribed or dictated by any external necessity, such as the duties of office, the demands of creditors, or the relief from illness; and it must be residence fixed not for a limited period or particular purpose, but general and indefinite in its future contemplation. It is true that residence originally temporary, or intended for a limited period, may afterwards become general and unlimited, and in such a case so soon as the change of purpose, or animus manendi, can be inferred the fact of domicile is established.

The domicile of the taxpayer's father at the time of the taxpayer's birth was Country B. Accordingly, the taxpayer's domicile of origin is Country B.

The taxpayer is lawfully present in Australia as they are an Australian permanent resident. Further, the facts of this case show that that the taxpayer had intended to make Australia their home for an indefinite period of time. Accordingly, it is considered that the taxpayer had acquired a domicile of choice in Australia, thus displacing their domicile of origin in Country B.

The issue arises whether the taxpayer has abandoned their Australian domicile and acquired a Country A domicile of choice when the taxpayer and their spouse relocated there in early 20vv. Given the taxpayer's circumstances, it is considered that, at this stage, the taxpayer has not abandoned their Australian domicile and acquired a new domicile of choice in Country A.

Accordingly, for the purposes of subparagraph 6(1)(a)(i), the taxpayer's domicile is Australia.

Permanent place of abode

If an individual has an Australian domicile, they are an Australian resident unless the Commissioner is satisfied that their '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.

Whether a taxpayer has permanent place of abode in a foreign country 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 a person lives, 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 stated at 41 that it favoured the construction of the phrase 'permanent place of abode' as used at first instance in Applegate v Commissioner of Taxation [1978] 1 NSWLR 126 at 134:

"place of abode" may mean the house in which a person lives or the country, city or town in which he is for the time being to be found. I am of the view that the latter is the meaning of the expression used in s. 6(1.) of the Act.

The Full Federal Court at 40 summarised its thoughts on 'permanent place of abode' as follows:

•                     the word 'place' in the context of the phrase 'outside Australia' involves a consideration of the town or country in which a person is physically residing 'permanently';

•                     so long as the taxpayer has 'definitely abandoned' his or her residence in Australia, it is not necessary for the taxpayer to be permanently located at a particular house or flat in a particular town within a foreign country or for the person to live in one particular town, suburb or village within a given country;

•                     the word 'place' should accordingly be read as including a reference to a country or state;

•                     moving between foreign countries is not the same as being permanently in one country; and

•                     the words 'permanent place' require the identification of a country in which the taxpayer is living permanently.

Consequently, it is considered that the Full Federal Court in Harding provides two key considerations in determining whether a taxpayer has their permanent place of abode outside Australia. These 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.

In TR 2023/1, the Commissioner consider that the following are relevant factors as to whether an individual's permanent place of abode is overseas:

•                     length of overseas stay

•                     nature of accommodation, and

•                     durability of association.

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.

In relation to a person's length of overseas stay, TR 2023/1 at paragraphs 76 and 77 states that if:

76.          ... you leave Australia for an unspecified or substantial period, pack up your home in Australia, set up a home in a foreign country and live there with your family returning only occasionally such as for cultural events, special celebrations or annual leave, you are likely to meet the description of someone who has abandoned Australia as a place of residency and commenced living permanently overseas. This is despite the fact that you may at some point intend to return to Australia.

77.          For practical purposes, it is convenient to set some 'rule of thumb' on what substantial means. Broadly, 2 years is considered to be a substantial period of time.

Given the taxpayer's circumstances and in line with the Harding case decision, it is considered that on the balance, the taxpayer has established a permanent place of abode outside of Australia.

Therefore, it is concluded that from aa/bb/20ww to 30 June 20zz, the taxpayer is not a resident of Australia under the domicile test.

Question 3

In the discussion regarding Question 2, it was considered that for the purposes of the domicile test in subparagraph 6(1)(a)(i) that the taxpayer had acquired an Australian domicile of choice. Further, it was considered that the taxpayer had established a permanent place of abode outside of Australia.

As such, it was concluded in Question 2 that the taxpayer is not a resident of Australia under the domicile test in subparagraph 6(1)(a)(i).

Therefore, our response to Question 2 regarding the taxpayer's residency remains unchanged.

It is worthwhile to note that in Question 2, it was also concluded that the taxpayer was not a resident of Australia under any other statutory test for residency in subsection 6(1) - the ordinary concepts test, the 183 day test and the Commonwealth superannuation fund test.