Australian tax residency can be deceptively complicated. If a person is living and working overseas, but continues to have connections or a continued association with a place in Australia, are they a tax resident of Australia?
To help answer this question, we need to determine the person’s intention. Their intention is relevant to both the ordinary meaning of the word ‘resides’ test, and the domicile and permanent place of abode test.
To complicate matters further, the type of intention is different under the different residency tests.
Intention for the ordinary meaning of the word ‘resides’ test
The first residency test looks at whether a person ‘resides’ in Australia, based on the ordinary meaning of the word ‘resides’.
The case law explains that a person ‘resides’ where they ‘dwell permanently or for a considerable time’, have a ‘settled or usual abode’ and ‘live in or at a particular place’. A person can ‘reside’ in two places at the same time. The concept of ‘resides’ has two elements: physical presence in a particular place and an intention to treat that place as home – at least for the time being.
Importantly, the relevant intention for residing in a particular place is not to treat that place as home ‘permanently or indefinitely’.
The Administrative Appeals Tribunal made this error, which was identified in the appeal to the Federal Court in Quy v Commissioner of Taxation (No 3) [2024] FCA 726. Mr Quy had lived in Perth in his family home for a number of years before relocating to Dubai for work. The family home remained available to Mr Quy, and he stayed at the family home when he visited Australia. The Tribunal had relied on evidence that Mr Quy intended to retire in Australia and did not form a definite plan to abandon Australia completely. Mr Quy’s appeal to the Federal Court was successful, as the Tribunal had a ‘confusion of thought’ between the intention that was relevant to whether Mr Quy was ‘residing’ in a particular place in Australia and the intention that was relevant to whether Mr Quy maintained an Australian domicile.
For individuals departing Australia to start living and working overseas, the relevant test is whether the person has a continuity of association with a particular place in Australia, an intention to return to that place and an attitude that it remains home.
Intention and the domicile and permanent place of abode test
A person whose domicile is in Australia is a resident of Australia, unless the Commissioner is satisfied that their permanent place of abode is outside Australia.
Domicile has a number of rules, but relevantly, a person can acquire a domicile by choice. The relevant intention to acquire an Australian domicile is for the person to have the intention to make their home indefinitely in Australia. Conversely, for a person to cease to have an Australian domicile, the person must have an intention to make their home in another country indefinitely.
An Australian-domiciled person will not be a resident under this test where their ‘permanent place of abode’ is outside Australia.
The meaning of ‘permanent place of abode’ was considered by the Full Court of the Federal Court in Harding v Commissioner of Taxation [2019] FCAFC 29. The Full Court noted that ‘permanent’ in ‘permanent place of abode’ does not require an intention to live outside Australia indefinitely. It means to have an intention to abandon residence in Australia, an intention to reside outside Australia and in fact reside outside Australia. This is then contrasted with having only a ‘temporary or transitory’ place of abode outside Australia.
Evidence of intention
So how do you evidence your intention?
Each person’s circumstances will be different, and the relevant evidence to substantiate a person’s intention will be different.
In Commissioner of Taxation v Addy [2020] FCAFC 135, Derrington J explained:
the more cogent evidence of a person’s prior intention as to where they resided are the objective facts which reflect the person’s then intention. In ascertaining whether a person intended to make a particular place their residence or to terminate their residency in a place, the facts and circumstances surrounding their mode of living will be a strong indicator of their presence in or continued association with a particular place and the intention accompanying that presence.
As the taxpayer has the burden of proof in any dispute with the ATO, it is important that the taxpayer keeps evidence relevant to their residency position, which includes evidence of their intention.
Need help?
If you would like assistance identifying the evidence you should keep, or in relation to your residency position, please contact a member of our team or send us a confidential enquiry.
