Edited version of private advice

Authorisation Number: 1052367450268

Date of advice: 25 March 2025

Ruling

Subject: Residency

Question 1

Was the deceased a resident of Australia for taxation purposes as defined by subsection 6(1) of the Income Tax Assessment Act 1936(ITAA 1936) from their arrival in Australia until their death?

Answer

No.

Question 2

Was the deceased a foreign resident just before they died for the purposes of item 3A of the table in subsection 128-15(4) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer:

Yes.

Relevant facts and circumstances

The deceased's life history and events prior to arrival in Australia

The deceased was a citizen of Country B by birth, however they emigrated to Country A in their youth and had lived in Country A for the duration of their adult life until they came to Australia.

The deceased had two children who had moved from Country A to live in Australia as adults.

Prior to their death, the deceased decided to visit their children in Australia for a holiday.

The remainder of the deceased's extended family remained in Country A.

The deceased intended to return to their home in Country A after the holiday to Australia.

The deceased did not intend to remain in Australia for any duration beyond the holiday.

After the deceased's arrival in Australia

When embarking upon their holiday to Australia the deceased brought a single suitcase of clothes and travel accessories with them.

The deceased's own house in Country A remained vacant in the expectation that they would resume residing there upon returning home from their holiday in Australia.

When they arrived in Australia the deceased initially stayed with one of their children in a spare room in their house.

The deceased suffered a rapid decline in health shortly after arriving in Australia.

A medical professional performed a comprehensive mental and physical health evaluation and provided written advice that the deceased would require supervised care and recommended a respite referral be sought as they would not be able to remain in the home. The advice also stated that the repatriation of the deceased to Country A would not be possible due to the significant deterioration of their health.

The deceased was committed to the secure ward of an aged care facility under full-time supervision from healthcare professionals where their health continued to decline until they died.

The deceased did not transfer any assets to Australia, nor did they have any household goods or possessions transported to Australia.

The deceased was physically present in Australia for more than 183 days for the relevant income years.

The deceased was 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.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 128

Income Tax Assessment Act 1997 section 128-15

Income Tax Assessment Act 1997 subsection 128-15(4)

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1936 subsection 6(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 (TR 2023/1).

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 principal or usual place of residence in Australia.

Application to your situation

Based on the following, the deceased was not a resident of Australia under the resides test from their arrival in Australia until their death:

Period of physical presence in Australia

The deceased arrived in Australia with the sole intention of taking a holiday to visit their children, both of whom resided in Australia. Initially the deceased stayed with one of their children, however, shortly after arriving in Australia the deceased's health declined rapidly. Medical advice confirmed that the deceased would be unable to return to Country A in their condition, and that instructed that the deceased would require supervision by professional healthcare providers. As the deceased required full-time access to healthcare professionals they were committed to a secure aged care facility, remaining there as their health continued to decline until they died.

TR 2023/1 states:

26. The period of physical presence or length of time in Australia is an important factor when considering whether you reside here, but it is not a determinative factor. Importantly, there is a distinction between 'staying' in Australia and residing in it. Merely staying in Australia is normally insufficient. You must have some connection to Australia that characterises your presence as 'residing' in it.

The deceased formed no personal connection to Australia, nor did they form habits or make lifestyle choices to characterise their presence as residing in Australia. The deceased maintained an intention to return to live Country A at all times, but they were prevented from traveling due to their rapidly deteriorating health which concluded with their death in the care facility. Therefore, while the deceased's period of physical presence in Australia extended beyond the intended duration of their holiday, it is nevertheless not illustrative of the deceased residing in Australia.

Intention or purpose of presence

The deceased had no intention to remain in Australia for any reason other than a holiday to visit their children.

Although the deceased's deteriorating health prevented their intended return to Country A from eventuating, it was always their intention that they return to their home in Country A, as evidenced by their home remaining vacant awaiting their return.

TR 2023/1 provides:

39. Where your intention changes, and you stay longer in Australia than initially intended, the facts surrounding the entire stay in Australia must be considered, not merely the original intended length of stay. For example, if during your stay in Australia you decide to migrate to Australia, you are regarded as resident from the time that your behaviour becomes consistent with residing here.

40. Similarly, if you stay in Australia because you cannot or do not depart when you initially planned, you may continue to be a resident, or become a resident, while your behaviour is consistent with residing here.

As the deceased's intention to return to Country A did not change at any point until their death, their intention or purpose of presence does not indicate that they were residing in Australia.

Behaviour while in Australia

The deceased did not display a settled routine in their time in Australia other than that element of regularity imposed upon them as a result of being committed to a secure aged care facility, nor did they exhibit behaviours one would expect from a person intending to take up residency in Australia.

TR 2023/1 at paragraph 43 states:

"if you usually live overseas and, while in Australia, you travel around or display no settled routine or behaviour, or you have only a short period, or short periods, of settled routine or behaviour coupled with an intention to holiday in Australia before returning home to another country, you will likely not be regarded as a resident under the ordinary concepts test."

As such, their behaviour while in Australia does not support a finding of Australian residency under the resides test.

Family and business/employment ties

The deceased had two children who lived in Australia with their spouses and children (the deceased's grandchildren).

The remainder of the deceased's family along with their professional and business affiliations were in Country A. The deceased had no professional or business affiliations in Australia.

TR 2023/1 provides at paragraph 46:

The presence of immediate family in Australia is often accompanied by increased connections to Australia (including period of physical presence, assets such as a family home and motor vehicles, and an intention to return to a place you consider to be your home) and a settled routine consistent with residing in Australia.

The deceased formed no independent connections to Australia and stayed with their own family for only a brief duration before being committed to a secure care facility, none of which is indicative of residing in Australia under ordinary concepts.

Maintenance and location of assets

The deceased arrived in Australia with a single suitcase of clothing and travel accessories for their holiday. They did not transfer any assets or transport household goods or personal possessions to Australia.

All of the deceased's assets including their financial and economic interests, residence, and personal belongings remained in Country A.

TR 2023/1 at paragraph 52 states:

The relevance and weight given to assets must be considered in your individual context. Both the significance of the assets to you and the reasons why they were acquired or maintained will be relevant. For example, opening a bank account in Australia may be no more than a mere convenience in which to deposit locally acquired earnings to fund a holiday.

As such, this is no indication of Australian residency.

Social and living arrangements.

The deceased stayed with one of their children for a brief duration before being placed into full-time care under the medical advice that they would require supervision from healthcare professionals.

TR 2023/1 at paragraph 53 provides:

"Social and living arrangements are the way you interact with your surroundings during your stay in Australia. These arrangements may include joining sporting or community organisations, enrolling children in school, redirecting mail to Australia or committing to a residential lease."

The deceased formed no social connections in Australia beyond the pre-existing connection to her own family, and they did not participate in any social activities or establish living arrangements which demonstrated an intention to reside in Australia.

The deceased's social and living arrangements are therefore not consistent with those described in in paragraph 53 of TR 2023/1, as such they do not indicate that the deceased was taking up residency in Australia.

Conclusion

The facts and circumstances surrounding the deceased's stay in Australia support a finding of non-resident under each of the relevant factors of the resides test.

Therefore, the deceased was not a resident of Australia under the resides test from the time they arrived in Australia until they died.

Since the deceased is a non-resident under the resides test, we are required to analyse the subsequent tests for Australian residency.

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

The deceased was born in Country B and their domicile of origin is Country B. The deceased emigrated to Country A many years ago and became a permanent resident of Country A at that time.

It is considered that the deceased abandoned their domicile of origin in Country B and acquired a domicile of choice in Country A where they lived and worked for most of their life. The deceased travelled to Australia with the intention to take a holiday to visit family. The deceased had no intention to, nor did they undertake any actions to change their domicile from Country A to Australia.

Therefore, the deceased's domicile is Country A, and they were not a resident of Australia under this 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

The deceased was present in Australia for more than 183 days in the relevant income years. Therefore, they will be a resident under this test unless the Commissioner is satisfied that their usual place of abode was outside Australia and they did 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 satisfied that the deceased's usual place of abode was outside Australia for the relevant income years based on the following:

•                     The deceased's own home in Country A remained vacant in the expectation that the deceased would return to live in their home after the holiday to Australia

•                     The deceased was prevented from returning to Country A on the professional medical advice to be placed into full-time care in Australia.

•                     The deceased's deteriorating health imposed the requirement for them to remain under the supervision of healthcare professionals in the secure care facility where the deceased's health continued to decline until they died.

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 residency' 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 the deceased did not intend to take up residence in Australia for the ruling period because:

•                     The deceased came to Australia with a single suitcase of clothing and travel accessories with the intention to visit family for a holiday and then return to their home in Country A

•                     The deceased retained the intention to return to Country A at all times until their death

•                     Medical advice prevented the deceased from being repatriated to Country A due to the rapidly deteriorating condition of their health

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

The deceased was 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, they were not a resident under this test.

Conclusion

As the deceased did not satisfy any of the four tests of residency, they were not a resident of Australia for income tax purposes from their arrival in Australia until their death.

Question 2

Detailed reasoning

Division 128 of the ITAA 1997 contains the capital gains tax (CGT) provisions which apply when a person dies and their assets are transferred to the legal personal representative (LPR) or a beneficiary of the deceased's estate. The Division broadly operates to disregard the capital gain or loss from the CGT event which occurs to the deceased's assets at the time of their death when they are taken to have been acquired by the LPR or a beneficiary of the deceased's estate.

However, subject to the cost base modifications listed in subsection 128-15(4) if the ITAA 1997, the LPR or beneficiary of the deceased's estate may inherit some or all of the capital gain or loss in the cost base and reduced cost base when they acquire the asset.

Where the deceased was a foreign resident just before they died, item 3A of the table in subsection 128-15(4) of the ITAA 1997 will apply such that that the first element of an asset's (that is not taxable Australian property) cost base and reduced cost base for the LPR or beneficiary of the deceased's estate will be the market value of the asset on the day the deceased died.

The term "foreign resident" for the purposes of subsection 128-15(4) of the ITAA 1997 takes on the definition provided in section 995-1 of the ITAA 1997, under which a foreign resident is a person who is not a resident of Australia for the purposes of the ITAA 1936.

As such, a person will be a foreign resident if they do not meet any of the four statutory tests for Australian residency provided in subsection 6(1) of the ITAA 1936.

Application to your circumstances

The deceased was not a resident of Australia under any of the four tests in subsection 6(1) of the ITAA 1936 at any time from their arrival in Australia until their death. Therefore, they were a foreign resident just before they died for the purposes of subsection 128-15(4) of the ITAA 1997.