The recent AAT case of Schiele v. Commissioner of Taxation [2020] AATA 286 (24 February 2020) illustrates when 183 days presence in Australia in an income year is not enough to make someone a resident for tax purposes.

A good illustration of where presence in Australia for more than 183 days in an income year won’t be enough to make someone a resident if they are a visitor – their usual place of abode is and is to remain outside of Australia #austax #taxresidence https://t.co/x4OVvjUmGu

— TheTaxObjection (@TheTaxObjection) February 27, 2020

Background

Mr Schiele:

• is a German citizen;
• lived with his parents prior to coming to Australia;
• obtained a working holiday visa for the year ended 30 June 2016;
• arrived in Australia on 30 October 2015 and departed Australia on 18 July 2016;
• left his personal belongings and furniture with his parents in Germany while in Australia;
• did not leave Australia between 30 October 2015 and 18 July 2016;
• stayed on a farm between 1 December 2015 and 5 June 2016 where he did farm work between 22 March 2016 and 4 June 2016, and travelled to visit friends and to see the country in his remaining time while in Australia;
• did not become a member of any community groups, churches, clubs or organisations while in Australia; and
• returned to live with his parents in Germany after departing Australia.

Before the AAT the taxpayer contended he was an Australian tax resident for the 2016 income year. The taxpayer was looking for the tax free threshold that applies to an Australian tax resident’s taxable income.

A visitor

From the above facts the AAT found that the taxpayer was a visitor to Australia.

What makes an individual an Australian tax resident?

The relevant passages of the taxation legislation in the case are from the definition “resident” or “resident of Australia”:

  (a)  a person, other than a company, who resides in Australia and includes a person:

    (i)  whose domicile is in Australia, unless the Commissioner is satisfied that the person’s permanent place of abode is outside Australia; or

    (ii)  who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that the person’s usual place of abode is outside Australia and that the person does not intend to take up residence in Australia;

from sub-section 6(1) of the Income Tax Assessment Act 1936

If the taxpayer could satisfy any of the phrase in paragraph (a), or either of sub-paragraphs (i) or (ii), then the taxpayer would be a tax resident. It is to be noted that both sub-paragraphs (i) and (ii) have prominent conditions (after the word “unless”).

paragraph (a) resides – resident according to ordinary concepts

The term resides in Australia in paragraph (a) is the legal parameter of residence (in Australia) according to ordinary concepts. Residence according to ordinary concepts has been developed in the common law in tax court cases each typically involving a controversy about where a person resides. The AAT approved of a summary of case authority on residence according to ordinary concepts submitted by the Commissioner. To keep this extract brief I extract the Australian High Court cases so summarised in paragraph 24 of the AAT decision:

…. Determination of a person’s residence is a “question of degree and …fact”; ….

Federal Commissioner of Taxation v Miller [1946] HCA 23; (1946) 73 CLR 93, 103

… “a person does not necessarily cease to be a 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””; ….

Koitaki Para Rubber Estates Limited v The Federal Commissioner of Taxation [1941] HCA 13; (1941) 64 C.L.R. 241 at p.249

The AAT found that the taxpayer did not reside in Australia and was not a resident according to ordinary concepts as a matter of fact and degree. The AAT found no persuasive evidence that the taxpayer intended to dwell permanently or for a considerable time in Australia. His presence in Australia for 7 months did not make him a resident on its own.

sub-paragraph (i) – the domicile test

Domicile is another technical legal test governed by the Domicile Act (C’th) 1992. Shortly stated a domicile is most often in the country where a person is born, or based on the nationality the person is born with which is taken to be where he or she intends to live indefinitely (domicile of origin) . Domicile of origin is intractable but can be changed: where the person can demonstrate his or her intention to make his or her home in another place indefinitely. Without a quest for a permanent right to live in a country no change to that country as a domicile of choice is evident. Clearly in the taxpayer’s case, the taxpayer has a domicile which remains his domicile of origin in Germany.

The condition to domicile in Australia concerning the permanent place of abode of the taxpayer is not enlivened because the taxpayer does not have a domicile in Australia.

sub-paragraph (ii) – the 183 day (half year) test

The 183 day test was the test on which the taxpayer sought to qualify as an Australian resident. The taxpayer was present in Australia for over 183 days and sought to correct immigration records that suggested to the contrary through the course of the case.

However the taxpayer’s difficulty in the case was not with his presence in Australia for more than 183 days, which the AAT accepted, but with the condition to the 183 day test of residence. The Commissioner and the AAT were satisfied that the taxpayer’s usual place of abode was in Germany so the condition to sub-paragraph (ii) was both enlivened and satisfied. The taxpayer was not an Australian tax resident because his usual place of abode was not in Australia despite his presence in Australia of more than 183 days.