Edited version of private advice

Authorisation Number: 1051818712336

Date of advice: 16 April 2021

Ruling

Subject: Residency

Question

Are you a resident of Australia for taxation purposes in the 2020 and 2021 financial years?

Answer

Yes

Question

Is my income from my Country A based employer from an Australian source in the 2020 and 2021 financial years?

Answer

No

This ruling applies for the following period:

Year ending 30 June 2020

Year ending 30 June 2021

The scheme commenced on:

1 July 2019

Relevant facts and circumstances

You are an Australian citizen who departed Australia in 20XX with your spouse and children to live and work overseas. You initially lived in Country B before moving to Country A in June 20XX.

You are employed in Country A and have a full-time position. You are employed by Company A.

Company A is a global business with its headquarters in Australia.

You are now an executive of Company A, and an executive of its overseas businesses. You oversee business development and the day-to-day functional operations of the business in a specific geographic region.

Your salary is approximately $XXX in local currency. You also have the potential to earn an annual bonus of up to $YYY although this may be reduced to zero in adverse years.

Your work is subject to strict regulatory conditions and is usually only permitted to be undertaken in Country A. However, you are temporarily working from Australia during the current Covid pandemic by remote working.

You rent a home in Country A which has a X-year lease agreement which was signed recently. The current home in Country A remains occupied by the housekeeper and your pets. You furnished this home with furniture and household effects purchased from local stores.

You intend to return to Country A as soon as this becomes logistically possible. You have booked a return flight to Country A for Autumn 2021 and are currently negotiating the various travel exemptions for this flight.

You intend to live and work on a permanent full-time basis in Country A indefinitely.

You have joined various local social, sporting and professional clubs and associations based in Country A.

In 20XX you acquired permanent residency and a right of abode in Country A.

Since 20XX your visits to Australia were on an ad hoc basis for short business trips and family holidays. This pattern of travel changed when the Covid pandemic emerged when you travelled to Australia and found return to Country A difficult. You returned to Country A on a few occasions in early 2020, but the quarantine measures made such travel difficult.

While living in Country A your children were enrolled in a local International School.

Your oldest child completed primary school locally before moving to a boarding school in Australia.

Your second child also completed primary school locally and is now enrolled in a boarding school in Australia.

Your youngest child is enrolled in a local International School in Country A but is currently completing grade X at a primary school in Australia. Country A schools were closed in early 2020 due to the Covid pandemic.

In early 2020 the family travelled to Australia to settle your children into their boarding school. At that time your intention was that your youngest child would return with his parents to Country A and resume school there. However, this became untenable due to the Covid crisis and this child was enrolled in a local primary school to complete the balance of grade X.

Since the commencement of 2020 you and your family have been staying in a variety of housing including -

1)    Initially a small apartment owned by your spouse in Australia which was too small to accommodate the entire family and has now been rented to third-party tenants.

2)    A family beach house outside City A which is owned by yourself and other family members. Again, this was unsuitable as it is occupied by various family members.

3)    A rental house in City A which you leased for X months on a temporary lease. You and your family now occupy this rental property.

At this stage, your spouse has no set date to return to Country A.

In Country A you have your main assets including bank accounts and credit cards, private health insurance, 2 vehicles, a local driver's license and your personal possessions, furnishings and personal effects.

You maintain an Australian bank account and an inactive Australian superannuation account. You do not directly own any Australian property but do own Australian shares with an aggregate value of less than $XXX.

You are also a beneficiary and shareholder of a family trust that owns farmland in Australia with a value of perhaps $XXX. Your spouse is also a beneficiary and shareholder of this trust.

Your spouse owns an investment property in Australia worth perhaps $XXX and is also a beneficiary of a family trust that has an interest in another property with a value of approximately $YYY.

You perform your employment duties in Country A. However, during the Covid pandemic your employer allowed all employees to work remotely from any location they found to be safe.

If Covid travel restrictions continue to apply in future years you plan to travel to Australia infrequently, perhaps X times per year for Y to Z weeks per trip.

If Covid travel restrictions are lifted or relaxed somewhat, you plan to travel to Australia more frequently, potentially X times per year, for Y to Z weeks per trip.

You lodge local Country A tax returns as a permanent resident of Country A.

Neither you nor your spouse has ever been employed by the Australian Commonwealth government and neither belongs to any Commonwealth superannuation scheme such as CSS or PSS.

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', regarding an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are:

•         the resides test,

•         the domicile test,

•         the 183-day test, and

•         the superannuation test.

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides. However, 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 one of the other three tests.

Resides Test

When considering the resides test the following factors are normally considered:

•         physical presence

•         intention or purpose

•         family or business ties

•         maintenance and location of assets

•         social and living arrangements

In your case, you are a citizen of Australia who departed Australia with your family in 20XX to live and work in Country A.

This subject is addressed in Taxation Ruling 98/17 (TR98/17) Income tax: residency status of individuals entering Australia. At paragraphs 20 and 21 it states -

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.

Your intention upon departure was to work in Country A on a permanent and indefinite basis.

However, since you and your family moved back to Australia, you have maintained strong family ties with Australia as your family now resides here, as do you.

You relocated all personal belongings to Country A when you departed in 20XX and furnished your rented house from local stores.

You have established what could be described as a permanent presence in Country A where you stay in rental accommodation but have become a permanent resident.

You have also established professional, social or sporting connections in Country A and have withdrawn from those in Australia - apart from your family relationships. Your living arrangements in Country A are rental accommodation with personal effects.

However, since your family moved back to Australia, you have maintained strong family ties with Australia.

You and your family now occupy a rented home in Australia where you reside after two other, temporary accommodations, were found to be unsuitable. You were forced to move from these other properties as they were unsuitable for you and your family. Accordingly, you rented a home in City A where your family could live comfortably. You occupy this home with your family.

During the ruling year, you have re-established a strong association with Australia since the start of the Covid pandemic by electing to stay in Australia and not returning to Country A as soon as you were able to do so.

•         Your family are in Australia and you have stayed with them during their time in Australia, in the ruling year.

•         Your family intend to remain in Australia for the foreseeable future with no current plans to re-join you permanently in Country A

•         Your pattern of travel shows you have been visiting Australia for family reunions and short business trips, until recently. However, with the unexpected Covid pandemic travel restrictions you have elected to remain in Australia with your family longer than anticipated and because you are able to work remotely.

•         You have been in Australia for more than 183 days in the 2021 year which is a considerable period of time in the year.

•         You have elected to stay in Australia due to the inconvenience of quarantine and to assist your family transition to living in Australia. In doing so you have established a new pattern of travel where you have effectively relocated your life to Australia during the ruling year.

Taken together, the facts show that you are residing in Australia under ordinary concepts during the ruling year.

Therefore, you are a resident for taxation purposes under this test until you depart, which you aim to do in Autumn 2021.

After departure for your family will remain in Australia, you will support them financially and you have an intention of returning to Australia on a regular basis to maintain family connections.

Taken together, the facts show that you will continue as a resident in Australia under ordinary concepts during the ruling year after you depart Australia.

Therefore, you will remain a resident for taxation purposes under this test after you depart for Country A until the end of the current financial year.

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 they have a permanent place of abode outside of Australia.

Domicile

"Domicile" is a legal concept to be determined according to the Domicile Act 1982 and common law rules. A person's domicile is in their country of origin unless they acquire a different domicile of choice or operation of law. To obtain a different domicile of choice, a person must have the intention to make their home indefinitely in another country, usually done by obtaining a migration visa. The domicile of choice which a person has at any time continues until that person acquires a different domicile of choice.

In your case, you are a citizen of Australia. You have left Australia and have chosen to live in Country A. You are a permanent resident of Country A. The Commissioner accepts that you have not returned to Australia indefinitely. You have been living in Country A since 20XX and have established a permanent presence there. Your domicile of choice will be Country A and will not be Australia during the income year.

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.

You have been in Australia for 183 or more days in this financial year however, the Commissioner accepts that your usual place of abode is outside Australia and you have no intention of returning to Australia to take up residence.

Your usual place of abode is outside Australia and you have a declared intention that you will not take up residence in Australia. You intend to return to Country A shortly to resume your residency there. The Commissioner is satisfied that your usual place of abode is outside Australia.

You are not a resident for tax purposes under this test.

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.

You are not a contributing member of the PSS or the CSS or a spouse of such a person, or a child under 16 of such a person.

You are not a resident for tax purposes under this test.

Residency status

As you satisfy one of the four tests of residency outlined in subsection 6(1) of the ITAA 1936, you are a resident of Australia for income tax purposes in the 2021 financial year.

Source of Income

The relevant parts of section 6-5 of the ITAA 1997 state:

(1)  Your assessable income includes income according to ordinary concepts, which is called ordinary income.

(2)  If you are an Australian resident, your assessable income includes the * ordinary income you * derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Since the 2009 income year you have been employed by a Country A company, Company A.

The salary you received in return for performing your duties are salary and wages and therefore ordinary income (as per Mutual Acceptance Company Ltd v FCT (1944) 69 CLR 389; Murdoch v Commissioner of Pay-roll Tax (Vic) (1980) 143 CLR 629).

You have undertaken the work and subsequently been paid for it by your employer. Therefore, you have derived that salary.

If you are an Australian resident, the salary received is assessable income if it was sourced in or outside Australia.

Your employment income is sourced outside Australia. However, you are a tax resident of Australia.

The provision of personal services is decided by weighing up the outcomes of the considerations of the following three factors (with the weighting given to each determined by their relevance to the case):

-       the place where the contract of employment is entered into,

-       the place where remuneration is payable,

and

-       the place where the services are performed.

Your contract of employment was formulated, prepared and is governed by, the laws that apply in Country A. Therefore, this factor significantly leans towards the source of your income being non-Australian. While the fact that you were in Country A when you signed the contract is also relevant, it is not conclusive.

Your remuneration is paid by your Country A employer, located in Country A into a bank account located in Country A in local currency. Therefore, this factor leans towards the source of the taxpayer's income being Country A.

In the Commissioner of Taxation v Cam & Sons Ltd (1936) 36 SR (NSW) 544, Federal Commissioner of Taxation v French (1957) 98 CLR 398 and Federal Commissioner of Taxation v. Efstathakis (1979) 9 ATR 867; 79 ATC 4256 cases it was held that the source of the income was where the taxpayer performed the services. However, in those cases the place where the taxpayer was located was the same as where the taxpayer did the work, where it was given effect to and where the outcome of the work occurred:

-       the Cam Case - the fishermen undertook fishing activities putting nets into the water and fished obtaining fish from the sea which all occurred where the boat on which he was working on at the time was located,

-       the French Case - the professional services the taxpayer provided in undertaking inspections were in relation to things he inspected in the locations that he was in at the time he conducted his inspections and which he subsequently reported on,

and

-       the Efstathakis Case - the taxpayer undertook secretarial duties and typing work. The effect of those secretarial, her typed work and the outcome of the other work always occurred at the same location as she was in at that time.

Your situation is distinguished from these cases in one material aspect - the fact that your physical location is Country A.

On physical location of the taxpayer alone this factor would lean towards the source of the work being in Country A. However, the physical location of the taxpayer is not sufficient, the other factors concerning the performance of the services are also relevant. Once this is done then this factor would also lean towards the income being sourced in Country A.

On balance, the factors suggesting a Country A source of income are more persuasive than other factors as shown by the many links back to Country A and the ultimate benefit to a Country A entity. In totality the factors weighted together show a stronger Country A connection than with other countries.

Therefore, considering the both the overall outcome and consideration of the factors, the income that you earn is regarded as being sourced in Country A.

However, as you are an Australian resident, this income is assessable in Australia.

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