Edited version of your written advice

Authorisation Number: 1013037525580

Date of advice: 23 June 2016

Ruling

Subject: Residency and leaving Australia

Question 1

Are you an Australian resident for income tax purposes for the relevant period?

Answer

Yes

Question 2

Is the income you earned whilst carrying out the duties of your work for an Australian company whilst living in Country X assessable in Australia?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 20xx

Year ending 30 June 2017

The scheme commences on

1 July 2015

Relevant facts and circumstances

You are an Australian citizen by birth.

You left Australia to live and complete your employment work duties with an Australian company on line in Country X on a specific date in 20xx, with the intention of returning to Australia within one to two years.

The main reason for moving was for a change of scene.

During the time you will be in Country X, you will remain working for an Australian company, and you were not sent to Country X by that company to work there.

You will be working for the Australian company on line whilst you are in Country X, and you will be telecommuting with your employer via the internet on a daily basis to perform your duties.

You will be speaking to the Australian company in relation to work matters on a weekly basis.

During the time you will be in Country X you will be a resident of that country for tax purposes.

Your spouse and children have joined you in Country X for the period you intend on staying there.

You own a house in Australia which has been your usual residence and you have rented this property out whilst you will be staying in Country X.

You and your family intend on living in this house on your return to Australia.

You have personal property stored at your Australian residence.

You maintain an Australian mobile number, email address and postal address.

Whilst you are staying in Country X you are renting a house.

Your children will be going to school in Country X.

You intend on returning to Australia from time to time to meet with your Australian employer and to also visit family and friends.

Your spouse is not currently working.

You have no investments, employment or income sources in Country X.

You have a bank account in Country X solely for the purpose of managing day to day expenses.

Your employment income is paid into Australian bank accounts, and you also manage your financial affairs via these accounts.

You maintain several Australian credit cards.

You have no lasting connection with Country X.

Your spouse was previously employed by the Commonwealth of Australia and they took voluntary redundancy a few years back.

Your spouse is a member of PSS and receives a pension income stream, but no longer contributes to the fund.

You are not a member of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990.

You are not an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS) which was established under the Superannuation Act 1976.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 subsection 995-1(1).

International Tax Agreements Act 1953

Reasons for decision

Question 1

Are you an Australian resident for income tax purposes for the relevant period?

Yes

Detailed reasoning

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 offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the:

• the resides test,

• the domicile test,

• the 183 day test, and

• the superannuation test.

The primary test for deciding the residency status of each individual is whether they reside in Australia according to the ordinary meaning of the word resides.  If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established.

Where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be an Australian resident if they meet the conditions of one of the other tests.

The resides (ordinary concepts) test

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3^rd 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'.

Recent case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the 'resides' test:

(i) Physical presence in Australia

(ii) Nationality

(iii) History of residence and movements

(iv) Habits and "mode of life"

(v) Frequency, regularity and duration of visits to Australia

(vi) Purpose of visits to or absences from Australia

(vii) Family and business ties to different countries )

(viii) Maintenance of place of abode

These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in IT 2650 and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.

It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances.

In deciding cases of residency, the courts and tribunals have noted that a person does not necessarily cease to be a resident because he or she is physically absent from a place. Instead, the test is whether the person has retained a continuity of association with a place, together with an intention to return to that place and an attitude that the place remains home (Joachim v Federal Commissioner of Taxation [2002] ATC 2088).

In your case:

• You have been living and working in Country X since January 20xx, with the intention of returning to Australia after a period of one to two years, as the main reason for moving there was for a change of scene.

• You will be carrying out the duties of your employment with an Australian company whilst living in Country X via an on line channel.

• You will be speaking with the Australian company on a weekly basis.

• You plan on returning to Australia from time to time to meet with your Australian employer and to also visit family and friends.

• You have a property in Australia which you have rented out whilst you will be in Country X, and you and your family plan on residing in the same property upon your return to Australia.

• You have personal property stored at your Australian residence.

You have economic ties to Australia by way of your employment with the Australian company, for which you will be undertaking the relevant duties on line whilst staying in Country X. Your ties to Australia also include your property, your personal property stored at your Australian residence, and other family and friends, who you plan to visit.

You also left for Country X with the definite intention of returning to Australia within one to two years.

Based on these facts, you are residing in Australia according to the ordinary meaning of the word. Therefore, you meet the 'resides test' and are a resident of Australia for tax purposes.

Whilst it is not necessary to meet more than one test to determine residency for tax purposes (we have already established that you are a resident under the 'resides' test), we will also include a discussion of the 'domicile and permanent place of abode' test as an alternative argument.

The domicile test

Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia, unless the Commissioner is satisfied that their permanent place of abode is outside of Australia.

Domicile

Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence.

In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country.

This intention needs to be demonstrated in a legal sense, for example, by way of obtaining a migration visa, becoming a permanent resident or becoming a citizen of the country concerned.

Therefore, as you have not taken any legal steps which would have proven an intention to change your domicile to Country X, you have retained your Australian domicile.

Therefore, you will be a resident of Australia unless the Commissioner considers you have established a permanent place of abode outside of Australia.

Permanent place of abode

It is clear from the case law that a person's permanent place of abode cannot be ascertained by the application of any hard and fast rules. It is a question of fact to be determined in the light of all the circumstances of each case.

The courts have considered a person's 'place of abode' is where they consider 'home'. In R v Hammond (1982) ER 1477, Lord Campbell CJ stated that "a man's residence, where he lives with his family and sleeps at night, is always his place of abode in the full sense of that expression."

A place of abode must exhibit the attributes of a place of residence or a place to live, as contrasted with the overnight, weekly or monthly accommodation of a traveller.

Paragraph 23 of Taxation Ruling IT 2650 Residency - Permanent place of abode outside Australia sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode:

(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 bank accounts 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.

Clearly, the longer an individual stays in any one particular place, the more permanent in nature is likely to be the stay in that place of abode. An individual's intention regarding the duration of the overseas stay and the length of the actual stay are significant factors in deciding whether they have set up a permanent place of abode.

Where a taxpayer leaves Australia for an unspecified or a substantial period and establishes a home in another country, that home may represent a permanent place of abode of the taxpayer outside Australia. However, a taxpayer who leaves Australia with an intention of returning to Australia at the end of a 'transitory' stay overseas would remain a resident of Australia for income tax purposes.

It is the Commissioner's view that an overseas stay in excess of two years may indicate that an individual can be considered to have a permanent place of abode overseas, subject to a consideration of all the other relevant circumstances applying to the taxpayer (paragraphs 23, 25 and 27 of IT 2650).

In your case it is considered that you have not established a permanent place of abode outside of Australia because:

• Whilst you have been living in Country X since January 20xx, you went with the definite intention of returning after a one to two year period.

• The main reason for moving there was for a change of scene rather than a permanent move.

• You plan on returning to Australia from time to time to meet with the Australian company that employs you and to also visit family and friends.

• You have a property in Australia which you have rented out whilst you will be in Country X, and you and your family plan on residing in the same property upon your return to Australia.

• You have personal property stored at your Australian residence.

Therefore, you are a resident of Australia under this test.

Your residency status

As you meet the resides and domicile test of residency, you are a resident of Australia for income tax purposes under subsection 6(1) of the ITAA 1936.

Question 2

Is the income you earned whilst carrying out the duties of your work for an Australian company whilst living in Country X assessable in Australia?

No

Detailed reasoning

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. 

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country X Agreement is listed in section 5 of the Agreements Act.

The Country X agreement is located on the Austlii website (http://www.austlii.edu.au/) in the Australian Treaties Series database. The Country X agreement operates to avoid the double taxation of income received by residents of Australia and Country X.

In your situation, you are a resident of both Country X and Australia for tax purposes under the domestic laws of each country. Therefore, it is necessary to refer to the 'tiebreaker' rules contained in the Country X Agreement to determine whether you will be treated solely as a Country X resident or an Australian resident.

Article 4(2) of the Country X Agreement states that where an individual is both a Country X resident and an Australian resident, then their status shall be determined as follows

a) the individual shall be deemed to be a resident only of the State in which a permanent home is available to that individual; but if a permanent home is available in both States, or in neither of them, that individual shall be deemed to be a resident only of the State with which the individual's personal and economic relations are closer (centre of vital interests);

b) if the State in which the centre of vital interests is situated cannot be determined, the individual shall be deemed to be a resident only of the State in which that individual has an habitual abode;

c) if the individual has an habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which that individual is a national.

In Taxation Ruling TR 2001/13 Income tax: Interpreting Australia's Double Tax Agreements, the Commissioner accepts that it is appropriate to have reference to the OECD Model Tax Convention and Commentary (OECD Commentary) which provides guidance on the interpretation of the terms used in double tax agreements.

In relation to a 'permanent home', the OECD Commentary states that:

….this home must be permanent, that is to say, the individual must have arranged and retained it for his 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.

In your situation, you have leased a house in Country X in which you and your family will live while you are based in that country. You have also rented out your residence in Australia and consequently no longer have a home available to you in Australia.

Based on the above, it is evident that you have a permanent home available to you in Country X and do not have a permanent home available to you in Australia.

Therefore, you will be treated solely as resident of Country X under Article 4 of the Country X Agreement.

Article 14 of the Country X agreement advises that salary, wages and other similar remuneration derived by a resident of Country X shall be taxable only in Country X unless the employment is exercised in Australia. If the employment is exercised in Australia then the income may also be taxed in Australia.

The source of a taxpayer's income (derivation) is the place where the services are performed: French v. FC of T (1957) 98 CLR 398.

In your case, the income you earn while carrying out the duties of your employment with the Australian company has a Country X source as you are physically present in Country X when you carry out your duties.

As the income is sourced (derived) in Country X, along with the fact that you will be treated solely as resident of Country X under Article 4 of the Country X Agreement, the income earned from your employment with the Australian company whilst living in Country X is not assessable under section 6-5 of the ITAA 1997.

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