Compare documents

1 Are you a resident of Australia for tax purposes?

1 Yes. Question 2 Are you a resident of Country A for the purposes of the Double Taxation Agreement between Country A and Australia? Answer 2 Yes. This ruling applies for the following periods : Year ended DD MM YY Year ending DD MM YY The scheme commenced on: DD MM YY

In the facts below, the expressions 'you' and 'your' refer to Person A and Person B and are used interchangeably throughout. You are married. Person A was born in Australia and Person B was born in Country B. You are both citizens of Australia. In MM YY you both moved to Country A for work purposes: •  Person A as Occupation A, working for Employer A •  Person B as Occupation B, working for Employer B. Both your respective employment contracts end in MM YY and will likely be extended to MM YY. After this time, you plan to return to Australia. You have taken various international holidays in the years prior to moving to Country A and since moving there. Prior to moving to Country A, you both lived and worked in Australia. You are both in Country A on visa type A which expire in MM YY. These are sponsored by your respective employers. You are both residents of Country A for tax purposes. You have no intention of applying for citizenship/permanent residency in Country A. You rented accommodation in Australia and are currently renting in Country A on a X-year lease. You do not own any accommodation in Australia. You both have extended family in Australia but no dependants.

When moving to Country A you sold most of your household effects and the rest you have stored with your parents. Person B has a driver's licence in Australia only and Person A has no driver's licence. You both advised the electoral commission and public health program of Australia that you were leaving. You have suspended your private health insurance policy. You were members of professional and sporting associations when in Australia. You have not joined any such associations in Country A but have gym membership. You both have bank accounts in both Country A and Australia. You both maintain an investment portfolio in Australia. Neither of you are members of the Commonwealth Superannuation Scheme (CSS) or Public Sector Superannuation scheme (PSS).

Income Tax Assessment Act 1936 subsection 6(1) Income Tax Assessment Act 1997 section 995-1

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 . 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 principle or usual place of residence in Australia. Application to your situation You are both residents of Australia under the resides test for the YY and YY income years based on the following: •  you have both only travelled to Country A for short term contracts for work purposes •  you have no intention of settling in Country A and becoming citizens, but are instead intending to return to Australia in MM YY •  you have kept some of your belongings, storing them with family in Australia •  the largest portion of your financial assets are here in Australia •  you have only suspended your health insurance instead of cancelling it

Although the law only requires you to be considered a resident under one test, for completeness the other tests are also considered. 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

For Person A, you were born in Australia and your domicile of origin is Australia. For Person B, your domicile of origin is Country B where you were born. You immigrated to Australia and became a citizen, making Australia your domicile of choice. It is considered that neither of you has abandoned Australia as your domicile. You are not entitled to reside in Country A indefinitely and while living in Country A, you only hold a work permit which is valid until MM YY. Therefore, your domicile is Australia. 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 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 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] FCAFC 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 • ; 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: •  the intended and actual length of the taxpayer's stay in the overseas country •  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 •  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 •  whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence •  the duration and continuity of the taxpayer's presence in the overseas country

•  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. Application to your situation The Commissioner is not satisfied that your permanent place of abode is outside Australia because: •  you are in Country A for work purposes, on a temporary short-term contract. •  you are intending to return to Australia in MM YY •  some of your belongings remain here in Australia •  you had membership in professional and sporting associations in Australia but have not established any such links in Country A •  you have extended family in Australia •  the work permit that allows you to be in Country A is only valid until MM YY Therefore, you are a resident of Australia under the domicile 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 You both will not have been present in Australia for 183 days or more during the YYYY income year. Therefore, you do not meet this residency test for that period. You have both been in Australia for 183 days or more in the YYYY income year. Therefore, you will be residents under this test unless the Commissioner is satisfied that your usual place of abode was outside Australia and you do 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 not satisfied that your usual place of abode was outside Australia for the relevant income years based in the following: •  You both have extended family in Australia. •  You have indicated you have no intention of becoming citizens/residents of Country A and that you will actually be returning to Australia in MM YY. •  You have not obtained driver's licences in Country A. •  You have only suspended your private health insurance, not cancelled it. •  Some of your belongings remain in storage with your parents here in Australia. 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 you do intend to take up residence in Australia because of your stated intention to return to Australia in YYYY. Therefore, you will be a resident of Australia under this test for the YYYY income year. 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 Neither of you are 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, you are not a resident under this test for either income year. Conclusion You both satisfy the resides and domicile tests, as well as the 183-day test (for YY only) of residency and so are a resident of Australia for income tax purposes for the years ended DD MM YY and DD MM YY. Double Taxation Agreement It is possible to be a resident for tax purposes of more than one country at the same time in respect of an income year or part of an income year. If this is the case, in determining your liability to pay tax in Australia it is necessary to consider any applicable double tax agreements. Sections 4 and 5 of the

International Tax Agreements Act 1953 (Agreements Act) incorporate that Act with the ITAA 1936 and the ITAA 1997 and provide that the provisions of a double tax agreement have the force of law. You have advised that you are both residents of Country A for tax purposes. Taxation Ruling TR 2001/13 discusses the Commissioner's views about interpreting double tax agreements. Paragraph 104 provides that the OECD Model Tax Convention and Commentary will often need to be considered in interpreting double tax agreements. Article X(X) of the Country A 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. Article X, paragraph X states: Where by reason of the provisions of paragraph X of this Article and individual is both a Country A resident and an Australian resident - a.  he shall be treated solely as a Country A resident:

i.  If he has a permanent home available to him in Country A and had not a permanent home available to him in Australia; ii.  if sub-paragraph (a)(i) of this paragraph is not applicable but he has an habitual abode in Country A and has not an habitual abode in Australia; iii. if neither sub-paragraph (a)(i) nor sub paragraph (a)(ii) of this paragraph is applicable but the Contracting State with which his personal and economic relations are closest is Country A; b.  he shall be treated solely as an Australian resident - i.  if he has a permanent home available to him in Australia and had not a permanent home available to him in Country A; ii.  if sub-paragraph (a)(i) of this paragraph is not applicable but he has an habitual abode in Australia and has not an habitual abode in Country A; iii.  if neither sub-paragraph (a)(i) nor sub paragraph (a)(ii) of this paragraph is applicable but the Contracting State with which his personal and economic relations are closest is Australia. Permanent home

Permanent home is not defined in the Double Tax Agreement. Therefore, recourse can be made to supplementary materials in order to aid construction. The OECD commentary to the Model Tax Convention provides that in relation to a 'permanent home': a.  for a home to be permanent, an individual must have arranged and retained it for his or her permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be of short duration. The dwelling has to be available at all times continuously and not occasionally for the purposes of a stay, which owing to the reasons for it is necessarily of short duration (e.g. travel for pleasure, business travel, attending a course etc) For instance, a house owned by an individual cannot be considered to be available to that individual during a period when the house has been rented out and effectively handed over to an unrelated party so that the individual no longer has possession of the house and the possibility to stay there. b.  any form of home may be taken into account, including a house or apartment belonging to or rented by the individual and a rented furnished room.

As you have rented accommodation in Country A but no current home available to you for use in Australia, we have concluded that you have a permanent home in Country A. As this first tiebreaker test is met, the other tests of habitual abode and personal and economic ties do not need to be addressed. Conclusion We have concluded that the tiebreaker tests in Article X(X) of the Country A Agreement apply so that you are deemed to be a resident only of Country A for treaty purposes. The provisions of the Country A Agreement will therefore apply on the basis that you are a resident of Country A for tax purposes and not of Australia. This is in respect of the income types detailed in the agreement. Article X of the agreement between Australia and Country A gives Country A the taxing rights over employment income earned in that country. If your only income is employment income you may not need to lodge a tax return in Australia.