Private ruling: Residency
Published: May 2014
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: The scheme has commenced

Ruling: Questions and answers | 1. Are you a resident of Australia for tax purposes? | Yes | 2. Under Country X double tax agreement is the income you receive from Country X assessable in Australia? | No

Relevant facts and circumstances: You are a citizen of Country X and your country of origin is Country X. You and your partner moved to Australia as permanent residents. You have a skilled immigration visa. You are not an Australian citizen. You are not on the Australia electoral roll. You have been renting an apartment in Australia since moving here. You and your partner and your child will be leaving Australia to move back to Country X for approximately one year. When you leave Australia you will cancel your apartment lease, sell your car and other items. You will advise your bank, Centrelink and Medicare that you are moving overseas and cancel your ABN as a sole trader. The purpose of going to Country X is for your child to spend time with their grandparents and you are planning on getting married in Country X and working while you are there. As a citizen of Country X you can stay there permanently. You have a property in Country X and therefore do not pay rent and your living expenses will be lower in Country X than in Australia. You own an apartment in Country X. All of your friends and relatives live in Country X. You plan on re-joining a local sporting group in Country X. You will not visit Australia while you are living back in Country X. Your airline tickets will be one-way. Neither you nor your spouse, have ever been Commonwealth Government employees. You will return to Australia at the conclusion of your stay in Country X.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1936 Subsection 6(1) | International Tax Agreement Act 1953

Reasons for decision: Detailed Reasoning - Residency: The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 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 (ordinary concepts test) • domicile and permanent place of abode test; • 183 day test; and • Commonwealth superannuation fund test. The primary test for deciding the residency status of each individual is whether they reside in Australia according to the ordinary meaning of the word resides. Where it is determined that a taxpayer 'resides in Australia' in accordance with the first test, there is no requirement to consider the other tests. The other three tests operate to broaden the definition of resident beyond the resides test. | Detailed Reasoning - The resides (ordinary concepts) test: The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'. As the word 'reside' is not defined in Australian taxation law, it takes its ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936. The ordinary meaning of the word 'reside', according to the Macquarie Dictionary , 2001, rev. 3 rd edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; having one's abode for a time', and according to the Compact Edition of the Oxford English Dictionary (1987), is 'to dwell permanently, or for a considerable time, to have one's settled or usual abode, to live in or at a particular place.' In considering the definition of 'reside', the court noted in Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 that the term 'reside' should be given a wide meaning for the purposes of section 6(1) of the ITAA 1936. Similarly, in Subrahmanyam v Commissioner of Taxation 2002 ATC 2303, it was stated that the widest meaning should be attributed to the word 'reside'. The question of whether an individual 'resides' in a particular country is a question of fact and degree and not of law. In deciding this question, the courts have consistently referred to and taken into account the following factors as being relevant: (i) Physical presence in Australia (ii) Nationality (iii) History of residence and movements (iv) Habits and "mode of life" (v) Frequency, regularity and duration of visits to Australia (vi) Purpose of visits to or absences from Australia (vii) Family and business ties to different countries (viii) Maintenance of Place of abode. The weight given to each factor varies with individual circumstances and no single factor is necessarily decisive. To determine whether or not you are residing in Australia for taxation purposes, it is necessary for us to examine each of these factors in the context of your circumstances. | Detailed Reasoning - (i) Physical presence in Australia: It is important to note that a person does not necessarily cease to be a resident because he or she is physically absent from Australia. In Joachim v Federal Commissioner of Taxation 2002 ATC 2088 , the Tribunal stated (at 2090): 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 involuntary, 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 the place remains home. As indicated in Iyengar v. Federal Commissioner of Taxation 2011 ATC 10-222, (2011) AATA 856 (Iyengar's case), there is usually a requirement that you be physically present in Australia for at least part of an income year to be considered a resident. You intend to move to Country X and live there for one year or more. In that time you will not return to Australia for any period of time. | Detailed Reasoning - (ii) Nationality: Your country of origin is Country X and you are a citizen of Country X. | Detailed Reasoning - (iii) History of residence: You moved to Australia with your partner on a skilled immigration visa that allows you to live in Australia permanently. You were a resident of Australia for taxation purposes for the years ended 2012 and 2013. | Detailed Reasoning - (iv) Habits and "mode of life": The Commissioner regards a person's habits and daily routines in regard to their domestic and business arrangements as strongly indicative of residency status. This is particularly relevant to determining the residency of a person who enters Australia, but is also relevant in assisting to determine the residency status of a person who leaves Australia. • you are moving back to your country of origin with your partner and child for approximately one year or more • your family members all live in Country X • you own a home in Country X where you will live • you will work in Country X while you are there • you plan on getting married in Country X | Detailed Reasoning - (v) Frequency, regularity and duration of visits to Australia: During the time you are away from Australia you do not intend to return to Australia for any visits. | Detailed Reasoning - (vi) Purpose of visits to or absences from Australia: The purpose of going to Country X is for your child to spend time with their grandparents and you are planning on getting married in Country X and working while you are there. | Detailed Reasoning - Family: Your partner and child are moving to Country X with you. All of your relatives live in Country X. | Detailed Reasoning - Business or economic: You do not have any assets in Australia other than a bank account. Your assets in Country X include an apartment that you own. You intend on working while you are in Country X and earning income. | Detailed Reasoning - (viii) Maintenance of Place of abode: You own an apartment in Country X which you will live in when you return there. You were renting in Australia and will cancel the lease when you move to Country X. | Detailed Reasoning - Summary - resides test: You will be residing in Australia due to the following factors: • you hold a skilled immigration visa that allows you to stay in Australia permanently • you are only going back to your country of origin for a short period of time • you do not intend to move back to Country X permanently • you intend to return to Australia at the end of your visit to Country X In consideration of the factors outlined above, even though you be physically absent from Australia during the years ended 30 June 2015 and 2016, you will be a resident of Australia for tax purposes according to the ordinary meaning of the word 'reside'. | Detailed Reasoning - Conclusion - your residency status: As you have passed the resides test we have determined that you are a resident of Australia for tax purposes. It is therefore not necessary to cover the remaining tests. | Detailed Reasoning - Double tax agreement between Australia and Country X: In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements. Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations). Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country X Agreement is listed in section 5 of the Agreements Act. The Country X agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The Country X agreement operates to avoid the double taxation of income received by residents of Australia and Country X. Article 4 of the Country X 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. You have a permanent home that you own in Country X but will not have a permanent home in Australia. Under Article 4 of the Country X Agreement, you are a resident of Country X only for the purposes of the Country X agreement because you have a permanent home available to you in Country X. In your case, as you are a resident of Country X for the purposes of the Country X /Australia agreement and will exercise the duties of your employment solely in Country X, the income you receive from your employment in Country X is taxable only in Country X under Article 15 of the Country X /Australia Agreement.