Edited version of your written advice

Authorisation Number: 1051200112542

Date of advice: 9 March 2017

Ruling

Subject: Foreign source income

Questions and answers

1. Are you a resident of Australia for taxation purposes?

Yes.


2. Are you a resident of Australia for taxation purposes under the Double tax Agreement (DTA) between Australia and Country Y?

No.


3. Is your income derived in Australia during the 20XX income year assessable in Australia under article XX of the DTA between Australia and Country Y?

No.


Is your income derived in Australia during the 20YY income year assessable in Australia under article XX of the DTA between Australia and Country Y?

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20YY

The scheme commenced on:

1 April 20XX

Relevant facts and circumstances

You are a resident of Country Y for taxation purposes.

You are a Country Y national.

You have a home in Country Y.

You have a partner in Country Y.

You are employed in Country Y.

You will come to Australia in the 20XX income year to carry out work for the Australian subsidiary of your foreign employer.

You will enter Australia on a 457 visa.

You will not be concluding contracts on behalf of any entity whilst in Australia and your role is internally focused (administration /IT focused).

During your time in Australia you will remain an employee of the foreign parent company this foreign company will continue to pay your salary.

You will continue to 'report' to your foreign employer.

The local Australian subsidiary, will not reimburse the parent company for your salary costs.

During the approximate XX months that you will be physically present in Australia, you will spend reasonable working hours at the office of the Australian company.

Your foreign employer does not have a business presence in Australia.

You will be supplied accommodation for the duration of your stay in Australia.

This accommodation will be for your sole use.

You will make a couple of short trips back to Country Y while you are working in Australia for personal reasons.

You will make week long business trips overseas while you are in Australia.

You will not be present in Australia for more than 183 days in the 20XX income year.

You will be present in Australia for more than 183 days in the 20YY income year.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Subsection 995-1(1)

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

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. 

The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 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

● domicile and permanent place of abode test

● 183 day test and

● Commonwealth superannuation fund 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.

The resides (ordinary concepts) test

The outcomes of several Administrative Appeals Tribunal (AAT) cases have determined that the word 'resides' should be given the widest meaning and there have been a number of factors identified which can assist in determining if a particular taxpayer is a resident of Australia under this test.

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.

You will come to Australia in the 20XX income year for approximately 11 months for work purposes.

Your employer will provide you with accommodation in Australia for the duration of your time in Australia.

You will work from the Australian office of the foreign company while in Australia.

Your partner will visit you in Australia.

Based on the facts above your situation is as per Example 11 in TR 98/17 and you will be residing in Australia according to ordinary concepts for the period you are working in Australia.

You are a resident under this test.

Your residency status

You will be a resident of Australia for taxation purposes for the period you are working in Australia.

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 Income Tax Assessment Act 1936 (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 y Agreement is listed in section 5 of the Agreements Act.

The agreement operates to avoid the double taxation of income received by residents of Australia and Country Y.

In your case, you are a resident of both Australia and Country Y for tax purposes, according to each country's domestic law.

Paragraph 2 of Article X of the double tax agreement, sets out the factors to be considered when determining a person's residence for the purpose of the agreement, where the person is a resident of both Australia and Country Y under domestic law.

(a) he shall be deemed to be a resident solely of the Contracting State in which he has a permanent home available to him;

(b) if he has a permanent home available to him in both Contracting States, or if he does not have a permanent home available to him in either of them, he shall be deemed to be a resident solely of the Contracting State with which his personal and economic relations are the closer.

You only have a permanent home in Country Y as you will maintain your rental property in Country Y while you are working in Australia.

You will be supplied accommodation for the duration of your work in Australia.

You are therefore a resident of Country Y for the purposes of the DTA.

Article XX of the DTA between Australia and Country Y considers dependent personal services:

1. Subject to the provisions of Articles 16, 18 and 19 salaries, wages and other similar remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in that other State.

2. Notwithstanding the provisions of paragraph 1, remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if -

(a) the recipient is present in that other State for a period or periods not exceeding in the aggregate 183 days in the year of income or the fiscal year as the case may be, of that other State; and

(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of that other State; and

(c) the remuneration is not deductible in determining taxable profits of a permanent establishment or a fixed base which the employer has in that other State.

In the 20XX income year you will not be in Australia working for more than 183 days and your foreign employer will be paying your salary and your foreign employer does not have a permanent establishment or fixed base in Australia and your salary is not deductible to the subsiduary.

Your income derived in the 20XX income year in Australia will not be assessable in Australia.

You will be in Australia for more than 183 days in the 20YY income year and this income will be assessable in Australia.

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