Edited version of private advice

Authorisation Number: 1051793777822

Date of advice: 10 February 2021

Ruling

Subject: Australian residency status

Question 1

Are you a "resident of Australia" according to the definition of "resident or resident of Australia" under section 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No.

Question 2

Is the remuneration (including salary and bonuses) received from your Country A employer assessable in accordance with section 6-5 and section 6-10 of the Income Tax Assessable Act 1997 (ITAA 1997) for the financial year 20XX?

Answer

No.

The ruling applies for the following period:

Financial year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are an Australian citizen. Your wife and children are also Australian citizens.

You and your family were relocated from Australian to Country A more than XX years ago and, you have been a non-resident of Australia since then. You intended to reside in Country A indefinitely.

When you left Australia more than XX years ago, you sold your property and vehicle in Australia and you relocated all your personal belongings to Country A.

You also removed your name from the Australian electoral roll upon your departure.

A few years ago, your wife and children were relocated back to Australia. They have been living in a property purchased by you and your wife a few years prior.

The primary reason for their relocation was to support your mother due to her ailing health.

You also purchased a vehicle in your name for your wife to drive.

You have held long term leases in Country A residential properties over the past 10 years. You currently hold a lease with the lease term ending July 20XX.

You have not maintained any social ties in Australia.

In Country A, you hold various memberships to clubs and are a member of a church.

You intend to reside in Country A indefinitely.

You are currently employed on a full-time permanent contract in Country A. Your employer is a Country A company; it does not have a permanent establishment or fixed base in Australia, and does not have business in, or connection with, Australia.

For the financial year 20XX, you spent more than XXX days in Australia. You would not have spent more than XXX days in Australia if not for the COVID-19 travel restrictions.

You are a tax resident of Country A and subject to Country A tax on all of your employment income.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 6(1)

Income Tax Assessment Act 1997 subsection 6-5(3)

Income Tax Assessment Act 1997 subsection 6-10(5)

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Question 1

Are you a "resident of Australia" according to the definition of "resident or resident of Australia" under section 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Summary

You are not a "resident of Australia" according to the definition of "resident or resident of Australia" under section 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

Detailed reasoning

The terms 'resident' and 'resident of Australia' are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition provides four tests for determining the residency status of an individual taxpayer:

(1)  the 'resides' test;

(2)  the domicile test;

(3)  the 183-day test; and

(4)  the superannuation test.

The subsection 6(1) definition provides:

"resident or resident of Australia means:

(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;

(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; or

(iii) who is:

(A) a member of the superannuation scheme established by deed under the Superannuation Act 1990; or

(B) an eligible employee for the purposes of the Superannuation Act 1976; or

(C) the spouse, or a child under 16, of a person covered by sub-subparagraph (A) or (B)"

The 'resides' test is the primary test. Whether an individual resides in Australia is a question to be determined according to the ordinary meaning of the word 'resides'. Where an individual does not reside in Australia according to ordinary concepts, they may still be a resident of Australia for tax purposes if they meet the conditions of any of the other three tests.

1.    The 'resides' test

The interpretation of the word 'resides' is explained in Taxation Ruling 98/17 Income Tax: residency status of individuals entering Australia (TR 98/17).

Paragraph 13 & 14 of TR 98/17 states:

"13. As there is no definition of the word 'reside' in Australian income tax law, the ordinary meaning of the word needs to be ascertained from a dictionary."

14. For example, The Macquarie Dictionary defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time' and the Shorter Oxford English Dictionary defines it 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'."

Paragraph 17,18, 19 and 20 further explains:

"17. When an individual arrives in Australia not intending to reside here permanently, all the facts about his or her presence must be considered in determining residency status.

18. The period of physical presence or length of time in Australia is not, by itself, decisive when determining whether an individual resides here. However, an individual's behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here.

19. The quality and character of an individual's behaviour while in Australia assist in determining whether the individual resides here.

20. All the facts and circumstances that describe an individual's behaviour in Australia are relevant. In particular, the following factors are useful in describing the quality and character of an individual's behaviour:

•         intention or purpose of presence;

•         family and business/employment ties;

•         maintenance and location of assets; and

•         social and living arrangements.

21. No single factor is necessarily decisive and many are interrelated. The weight given to each factor varies depending on individual circumstances."

The period of physical presence in Australia is another important factor to be considered. This is explained in paragraphs 61 to 63:

"61. Time is not necessarily determinative of residency but it is an important factor when considering whether an individual resides here.

62. When determining whether individuals are residing here, if their visit is for six months or more, the Commissioner considers their behaviour while in Australia.

63. This six months of behaviour is not confined to one income year. Individuals who enter Australia on 1 April intending to reside here until 31 October, may be regarded as residents from their arrival despite only being in Australia for three months during the earlier income year, as long as they expect to exhibit the characteristics of an individual residing here over the entire period."

As stated in paragraphs 61 to 63, the length of stay is an important factor when making a determination under the "resides" test but it is not determinative. Although you spent over XXX days in Australia for the financial year 20XX, the following facts indicate that you did not establish 'a degree of continuity, routine or habit that is consistent with residing here':

•         Your days spent in Australia were for a mixture of purposes including business trips, visiting families, caring for your mother, and holidaying in Australia. During this time, you lived in hotels, your mother's residence and your house where your wife and children live.

•         Your intention was not to continue to stay in Australia but due to COVID-19 travel restrictions you had to remain in Australia post March 20XX.

•         Further, your business, employment and social ties are in Country A.

Taking into consideration of the above facts, you are not an Australian resident for tax purposes under the "resides" test.

2.    The domicile test

Under the domicile test, a person is a resident of Australia if their domicile is in Australia unless the Commissioner is satisfied that they have a permanent place of abode outside of Australia.

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. A person may acquire a domicile of choice in another country if they have the intention of making their home indefinitely in that country. The 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.

This is explained in paragraphs 9 & 21 of Taxation Ruling IT 2650 Income tax: residency - permanent place of abode outside Australia (IT 2650):

"9. The common law test of domicile of choice has now been restated in section 10 of the Domicile Act which provides:

The intention that a person must have in order to acquire a domicile of choice in a country is the intention to make his home indefinitely in that country."

"21. Generally speaking, persons leaving Australia temporarily would be considered to have maintained their Australian domicile unless it is established that they have acquired a different domicile of choice or by operation of law. In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country e.g., through having obtained a migration visa. A working visa, even for a substantial period of time such as 2 years, would not be sufficient evidence of an intention to acquire a new domicile of choice."

In your case, before you relocated to Country A, you had an Australian domicile because of your Australian citizenship. Since that time, you have been living in Country A with an employment pass which needs to be renewed on a periodic basis. It is not the same as legally changing your domicile. Consequently, you have not legally changed your domicile to Country A and have retained your Australian domicile.

However, you may still be a non-resident if the Commissioner is satisfied that you have a permanent place of abode outside of Australia.

Permanent place of abode

Paragraphs 23 and 24 of IT 2650 states:

"23. It is clear from Applegate and Jenkins 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. Some of the factors which have been considered relevant by the Courts and Boards of Review/Administrative Appeals Tribunal and which are used by this Office in reaching a state of satisfaction as to a taxpayer's permanent place of abode include:

(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.

24. The weight to be given to each factor will vary with the individual circumstances of each particular case and no single factor will be decisive. Applegate seems to indicate, however, that greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant. The fact that a taxpayer knows that he or she will return to Australia at a definite point in time (factor (b)) does not, of itself, mean that he or she does not have a permanent place of abode outside Australia."

In your case, you have been living in Country A for over XX years. You have a permanent employment in Country A.

You relocated all of your personal belongings, including clothes and furniture to Country A when you left Australia.

You have held long term leases in Country A over the past XX years.

You currently hold private health insurance in Country A.

In Country A, you hold memberships to various associations.

You removed your name from the electoral roll upon departure from Australia.

Although you return to Australia every year for a period of time, these visits are only for purposes such as business trips, visiting family and short vacations. They are not of not enough significance to change the fact that your permanent place of abode is in Country A.

Consequently, the Commissioner is satisfied that your permanent place of abode is outside Australia and you have not satisfied the domicile test.

Therefore, you are not a resident for tax purposes under this test.

3.    The 183 days test

Where a person is present in Australia for 183 days during the year of income the person will be a resident, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

The prescribed exception has two conditions, and both must be satisfied in order for the 183-day test not to apply. Namely, the person must have:

•         a usual place of abode outside Australia, and

•         an intention not to reside in Australia.

For the financial year ending 30 June 20XX, you were in Australia for over XXX days.

However, as outlined in the above domicile test, you have established that your usual place of abode is in Country A. In addition, you have indicated that you intend to return to Country A as soon as it is clear that you will be able to travel to Australia from Country A at short notice. You have also indicated that you intend to stay in Country A indefinitely.

Consequently, the Commissioner is satisfied that your usual place of abode is outside Australia and you do not intend to take up residence in Australia during this period.

Therefore, you are not a resident for tax purposes under this test.

4.    The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person.

Neither you nor your wife have been employed by the Australian Commonwealth government and neither of you belong to any Commonwealth superannuation scheme such as CSS or PSS.

Thus, you are not a resident for tax purposes under this test.

As you do not satisfy any of the four tests as outlined in subsection 6(1) of the ITAA 1936, you are not a resident of Australia for income tax purposes for the financial year ending 30 June 20XX.

Question 2

Is the remuneration (including salary and bonuses) received from your Country A employer assessable in accordance with section 6-5 and section 6-10 of the Income Tax Assessable Act 1997 (ITAA 1997) for the financial year 20XX?

Summary

Since you are a non-resident of Australia, your remuneration (including salary and bonuses) received from your Country A employer is not assessable in accordance with section 6-5 and section 6-10 of the Income Tax Assessable Act 1997 (ITAA 1997) for the financial year 2020.

Detailed reasoning

As a non-resident for tax purposes, only your Australian sourced income is taxable. Subsection 6-5(3) of the Income Tax Assessment Act 1997 provides:

"If you are a foreign resident, your assessable income includes:

(a)  The *ordinary income you *derived directly or indirectly from all *Australian sources during the income year; and

(b)  Other *ordinary income that a provision includes in your assessable income for the income year on some basis other than having an Australian source."

Further, subsection 6-10(5) provides:

"If you are a foreign resident, your assessable income includes:

(a)  Your *statutory income from all *Australian sources; and

(b)  Other *statutory income that a provision includes in your assessable income on some basis other than having an *Australian source."

"Australian source" is defined in section 995-1 of the ITAA 1997 as:

"Australian source: without limiting when *ordinary income or *statutory income has an Australian source, it has an Australian source if it is ^*derived from a source in Australia for the purposes of the Income Tax Assessment Act 1936."

Remuneration (including salary and bonuses) you receive as employee from your employment contract with your Country A employer is not 'Australian source' income as it is not derived from a source in Australia. This is because your employer is a company located in Country A, it does not have a permanent establishment or fixed base in Australia, and does not have business in, or connection with Australia. Your employment contract was executed in Country A.

In addition, the circumstances of your employment remained unchanged apart from the fact that you remained in Australia and worked remotely from Australia through a combination of video conferencing, email and, phone, from March 20XX until 30 June 20XX, due to COVID-19 travel restrictions.

As your remuneration is not Australian-sourced, it is not assessable income to you as a foreign resident.

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