Private ruling: Residency
Date of advice: 27 March 2023
Published: 22 May 2023
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are we residents of Australia for income tax purposes for the financial year 20XX, 20XX and 20XX? | A1: Yes.

Relevant facts and circumstances: Individual A is a citizen by birth of Country R Individual B is a citizen by birth of Country S and a Country T citizen (19XX) You are both Australian residents, Individual A from MM 19XX, Individual B since MM 20XX. Individual A receives an overseas Pension which is declared and is fully taxed in Australia (they have no other income). Individual B owns a business, which is registered in Australia. They pay income tax in Australia. They also receive a small overseas pension which is declared. Individual A has family in Australia and Country R. Individual B has family in Country U and Country T. Individual A owns a unit in Australia, which they plan to rent out. Individual A owns a townhouse in Country R, which they use every time they visit family and friends. Individual B owns a townhouse in Country T which is rented out. They pay rental taxes in that country and then it's reported in Australia taxes. On XX January 20XX they moved to Country R for the next X years for up to X months per year. Individual A will be completing study. The course has a XX week break every year. They have only taken personal effects overseas. They will keep their furniture and all other belongings (including car) in storage in Australia until they return. They will keep their Australia bank accounts active and fully operational. Whilst in overseas Individual A will not be working. Individual B may derive a casual income from business. Individual A is a member of a Strata executive committee and is directly involved in all its day-by-day management matters. Individual A is a registered volunteer with the charity organisation. Whilst overseas, they will keep in touch with the organisation and participate in discussions online. They intend to resume their participation in full whenever they are in Australia. Individual B is a registered Cultural Ambassador with a local council group and intends to keep this role through online participations to meetings and training. They have cancelled their private health insurance. They will be coming back to Australia every year up to XX days. At the end of the X-year period they want to return to Australia and resume their life here. They are still registered on the electoral role. Individual A has a Super account with XXX. Individual B savings are invested in XX Super.

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

Reasons for decision: Summary: Section 995-1 of the Income Tax Assessment Act 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 contains four tests to ascertain whether an individual taxpayer is a resident of Australia for income tax purposes. These tests are: • the resides 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 the 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 Draft Taxation Ruling TR 2022/D2 Income tax: residency tests for individuals . We have considered the statutory tests listed above in relation to your situation as follows: | Detailed Reasoning - The resides test: The ordinary meaning of the word 'reside', according to the Macquarie Dictionary , 2001, rev. 3rd 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'. These definitions have been highlighted in cases as being definitive observations of the meaning of resides (see Viscount LC in Levene v Commissioners of Inland Revenue [1928] AC 217 and Logan J in Stockton v Federal Commissioner of Taxation [2019] FCA 1679). 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... [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. 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, and • 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 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: Logan J in Pike v Commissioner of Taxation [2019] FCA 2185 at 57 reminds us that 'it is no part of the ordinary meaning of reside in the 1936 Act that there be a "principal" or even "usual" place of residence. ... It is important that ... "resident" not be construed and applied as if there were such adjectival qualifications.' For this reason, the test is not about dominance or exclusivity. | Detailed Reasoning - Application to your circumstances: We consider that your circumstances are consistent with residing in Australia for the financial year 20XX. This is because: a. you left Australia on DD MM 20XX b. your physical presence in Australia for the 20XX income year was for XXX days and the conduct of your visit was consistent with residing in Australia. Therefore, you are a resident of Australia under this test. We consider that your circumstances are not consistent with residing in Australia for the financial years 20XX and 20XX. This is because: a. you both left Australia on DD MM 20XX b. you have rented out the property in Australia, your furniture and all other belongings (including car) are in storage. c. You both are established within the community and want to stay active in these community groups. d. Individual B pays rental tax in Country T for a property they own. e. Individual B can work on a casual basis but has no ongoing commitments with any one business in Australia and can work for other agencies in other countries. f. Prior to your departure you advised your private health insurer to cancel your policy. g. your physical presence in Australia for the 20XX and 20XX income years is estimated to be a total of XX days each year this will be to catch up with family and friends during this period. The conduct of your visit will not be consistent with residing in Australia Therefore, you are not a resident of Australia under this test. | Detailed Reasoning - The 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. | Detailed Reasoning - 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 the 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. | Detailed Reasoning - Application to your circumstances: In your case, Individual A was born in Country R and this is your domicile of origin. You became a citizen of Australia in MM 19XX. It is considered that you did not abandon your domicile of origin in Country R and acquired a domicile of choice in Australia. Therefore, your domicile is Australia. In your case, Individual B was born in Country S and this is your domicile of origin. You also became a resident of Country T in 19XX. You became a citizen of Australia in MM 20XX. It is considered that you did not abandon your domicile of origin in Country S and acquire a domicile of choice in Australia. Therefore, your domicile is Australia. | Detailed Reasoning - 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 based on 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, and • 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: (a) the intended and actual length of the taxpayer's stay in the overseas country; (b) 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; (c) 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; (d) whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence; (e) the duration and continuity of the taxpayer's presence in the overseas country; and (f) 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. | Detailed Reasoning - Application to your circumstances: We have taken the following into consideration when deciding whether your permanent place of abode is outside Australia: • You both left Australia on DD MM 20XX. • You both intend to be outside of Australia temporarily for just under X years. • You both estimate to come back to Australia for a total of XX days in 20XX and 20XX financial years this will be to catch up with family and friends during this period • All household and personal effects were moved into storage prior to departing Australia. • You made your Australian home into an investment property from MM 20XX. • Prior to your departure you advised your private health insurer to cancel your policy • When in Country R you will resided in a townhouse, that is owned by Individual A. • You both have family members in Australia and overseas. The Commissioner is not satisfied that your permanent place of abode is outside Australia. Therefore, you are a resident of Australia under the domicile test | Detailed Reasoning - 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. | Detailed Reasoning - Application to your circumstances: During the 20XX income year you were in Australia for a total of XX days. You have been present in Australia for 183 days or more during the 20XX income year. Therefore, for 20XX you are a resident under this test. During the 20XX and 20XX you intend to be present in Australia for a total of XX days. You will not been present in Australia for 183 days or more during those income years. Therefore, for 20XX and 20XX you are not a resident under this test. | Detailed Reasoning - 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. | Detailed Reasoning - Application to your circumstances: You are not a contributing member of 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. | Detailed Reasoning - Conclusion: You satisfy the 2 tests of residency and so are a resident of Australia for income tax purposes for the years ended 30 June 20XX to 30 June 20XX.