Private ruling: Residency of Australia for taxation purposes
Date of advice: 13 May 2019
Published: June 2019
Ruling period: Year ended 30 June 2018 | Year ending 30 June 2019
Date scheme commenced: 1 July 2017

Ruling: Q1: Are you a resident of Australia for taxation purposes while travelling in Country Z? | A1: Yes | Q2: Are you a resident of Australia for taxation purposes according to the Double Tax Agreement (DTA) between Country Z and Australia? | A2: Yes

Relevant facts and circumstances: You were born in Australia. You do not intend to migrate to Country Z. You obtained Permanent Residency status of Country Z. You resigned from your position as you were unable to take leave without pay. You purchased flights to Country Z that departed early 20XX and returned early 20XX. During your time in Country Z you travelled extensively and stayed in hotels and Airbnb. You did not have a fixed address or permanent place of abode in Country Z. You obtained a Country Z drivers licence. You purchased a car in Country Z and it is currently in storage in Country Z. You have a Country Z health card. You have a Country Z bank account and credit card. You do not have any investments or property in Country Z and do not have a source of income in Country Z. You have no social connections in Country Z. You spent time in the Country Y during mid 20XX and another period in other Countries beginning in late 20XX and returning to Country Z later. You flew out of Country Z to return to Australia on the early 20XX. You have properties in Australia, you currently live in the one. While you were in Country Z you rented out your home and stored your personal belongings in a storage facility. You have maintained Australian bank accounts, credit cards, mobile phone accounts, professional membership, investments and private health care while in Country Z. You did not advise Medicare or the Australian Electoral Office to remove you from their records. You did not advise any financial institutions that you are a foreign resident for withholding purposes. You have social connections in Australia.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 995-1(1) | Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source. 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’, in regard to an individual, are defined in subsection 6(1) of the ITAA 1936. The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. The tests are: ● the resides test, ● the domicile test, ● the 183 day test, and ● the superannuation test. If any one of these tests is met, an individual will be a resident of Australia for taxation purposes. | Detailed Reasoning - Residence according to ordinary concepts - the ‘resides’ test: This test considers whether one ‘resides’ in Australia according to ordinary concepts. The word ‘resides’ is not defined in the tax legislation so the ordinary meaning of the word ‘resides’ needs to be considered. The ordinary meaning of the word ‘reside’, according to the Shorter Oxford English Dictionary, 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 Australia, there is no specific time threshold after which a person’s presence in Australia or absence from Australia determines their residency status. The Commissioner has stated that six months can be used as a rough guideline in examining behaviour for residency purposes. This does not mean that an individual needs to be absent from Australia for six months before they can be considered to be a non-resident. This can occur from the day they leave Australia. The courts have held that as a general concept ‘residence’ includes two elements, being firstly a physical presence in a particular place and secondly the intention to treat that place as home, at least for the time being but not necessarily forever. The courts have also held that 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. Where a person is physically absent from a place it needs to be considered whether the person has retained a continuity of association with the place. Although the question of whether a person ‘resides’ in a particular country is a question of fact and degree, the courts over the years have referred to and taken into account various factors considered to be relevant to this question. These factors are: a) Physical presence b) Nationality c) History of residence and movements d) Habits and ‘mode of life’ e) Frequency, regularity and duration of visits f) Purpose of visits to or absences from a country g) Family and business ties with a country h) Maintenance of a place of abode In your case, you were born in Australia, you live with your spouse in Australia in a property that you own, have additional investments and property in Australia, the majority of your time is spent in Australia, your family and friends are in Australia, you have maintained various domestic and professional insurances and registrations. Based on the facts you have provided, it is considered that your current circumstances and day to day activities are consistent with residing in Australia according to ordinary concepts. Accordingly you are a resident of Australia for income tax purposes under section 995-1(1) of the ITAA 1997 and subsection 6(1) of the ITAA 1936. | Detailed Reasoning - The domicile and permanent place of abode test: The ‘domicile’ test only needs to be considered if a taxpayer is not treated as a resident of Australia under the ‘resides’ test. For completeness, this test is considered briefly below. Under the domicile and permanent place of abode test, a person will be a resident of Australia if he or she has an Australian domicile, unless the Commissioner of Taxation is satisfied that the person has established a permanent place of abode outside Australia. Domicile is the place where a person is considered by law to call home. A person would only ever have one domicile at any given time. Even if a person goes overseas, if he or she has always lived here, the domicile will remain in Australia unless he or she migrates to another country. Based on the information you provided you do not intend to migrate to Country Z or make Country Z your domicile of choice. You are an Australian born citizen and your domicile of origin is Australia and therefore you will be a resident of Australia under the domicile test. | Detailed Reasoning - Residency under the DTA between Country Z and Australia: Where a taxpayer is deemed to be resident of both countries, the ‘tie-breaker’ rules under the DTA between Australia and Country Z would determine the country of which the Taxpayer is deemed to be a sole resident for the purpose of applying the DTA. As you are considered to be a resident for taxation purposes of both Country Z and Australia it is necessary to apply the tie-breaker test as set out in Paragraph 3 of Article 4 of the DTA as follows: Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined in accordance with the following rules: (a) he shall be deemed to be a resident solely of the Contracting State in which he has a permanent home available to him; (b) if he has a permanent home available to him in both Contracting States, or if he does not have a permanent home available to him in either of them, he shall be deemed to be a resident solely of the Contracting State with which his personal and economic relations are the closer. The first issue is to determine whether you have a permanent home available to you in either country. Under this test, 'permanent home' is given its 'international' meaning rather than any established meaning that it might carry under domestic law. The individual must have arranged and retained a dwelling for his permanent use and arranged to have the dwelling available to them continuously at all times, and not occasionally for the purpose of a stay. As you rented out your home while overseas you did not have a permanent home available to you at all times and therefore are not a resident under paragraph 3(a). Because you are not a resident under paragraph 3(a) it is then necessary to consider to which country your personal and economic ties are closer. In determining where a taxpayer’s interests lie, paragraph 15 of the OECD commentary on this issue states the following: “If the individual has a permanent home in both Contracting States, it is necessary to look at the facts in order to ascertain with which of the two States his personal and economic relations are closer. Thus, regard will be had to his family and social relations, his occupations, his political, cultural or other activities, his place of business, the place from which he administers his property, etc. The circumstances must be examined as a whole, but it is nevertheless obvious that considerations based on the personal acts of the individual must receive special attention. If a person who has a home in one State sets up a second in the other State while retaining the first, the fact that he retains the first in the environment where he has always lived, where he has worked, and where he has his family and possessions, can, together with other elements, go to demonstrate that he has retained his centre of vital interests in the first State”. Based on the information provided, your economic and personal ties such as family and social relations, financial investment and property are closer to Australia. Accordingly, you are a resident of Australia for the purpose of the tie break test under paragraph 3(b) of the DTA between Country Z and Australia. | Detailed Reasoning - Conclusion: You are resident of Australia for taxation purposes, as you are treated as a resident of both Australia and the Country Z under the respective domestic laws, the ‘tie-breaker’ rules under the DTA between Country Z and Australia must be considered. In this case paragraph 3(b) of the DTA applies to treat you as a resident of Australia for the purposes of the DTA in respect of the period spent in Country Z as your personal and economic relations are closer with Australia than with Australia.