Edited version of private advice

Authorisation Number: 1051837630099

Date of advice: 14 May 2021

Ruling

Subject: Residency for tax purposes

Question 1

Are you a resident of Australia for income tax purposes from DDMMYYYY?

Answer

No.

Question 2

Is your employment income paid by your Australian employer assessable in Australia?

Answer

No.

Question 3

Was your Australian employer required to withhold pay as you go (PAYG) amounts on your employment income from DDMMYYYY?

Answer

No.

Question 4

Can you amend the XXXX income tax return as an Australian resident for tax purposes?

Answer

No. However as you are not a resident of Australia for tax purposes in the year beginning DDMMYYYY, you may amend your tax return to exclude the exempt income.

Question 5

Are you allowed to lodge the XXXX income tax return as an Australian resident for tax purposes?

Answer

No. However as you are not a resident of Australia for tax purposes in the year beginning DDMMYYYY, you may exclude the exempt income from your Australian tax return.

This ruling applies for the following period periods:

Year beginning 1 July XXXX

Year beginning 1 July XXXX

The scheme commences on:

XXXX

Relevant facts and circumstances

You are a citizen of Country A.

From XXXX to XXXX you lived in Australia and held a temporary work visa and considered yourself a temporary resident of Australia.

Between XXXX and XXXX you lodged your Australian tax returns as an Australian resident for tax purposes.

From XXXX to XXXX you lived in Country B.

Since XXXX you lived alone in Country A in a rented apartment.

You do not rent or own any other residences in Country A.

You lease a car in Country A until XXXX.

You have a bank account and a superannuation fund account in Country A.

In XXXX you were offered a 3 year fixed term full time employment contract with your Australian employer effective from XXXX.

As per the terms of you employment contract which ends in XXXX, your employer is under no obligation to offer further employment. An extension will depend on your work performance.

You do not have any other employment positions being held for you in Country A.

You have not received any income from Country A since XXXX.

You are not receiving any other income from non-Australian sources.

Your Australian employer sponsored your temporary work visa which is valid for 4 years.

Your intended arrival date in Australia to commence this position was XXXX however due to COVID-19 border and travel restrictions you have not been permitted to enter Australia to relocate from Country A.

As you have not yet entered Australia, you have no firm plans regarding when you plan to leave Australia in the future and you have not applied to extend your visa beyond the 4 year validity.

You have not applied for permanent residency in Australia.

You are currently working remotely for your Australian employer from Country A due to these circumstances.

Your Australian employer has withheld PAYG withholding amounts from your income as an Australian resident for tax purposes.

Your spouse is an Australian citizen and currently resides in Australia.

You do not own property in Australia however your intention was to rent a home and live with your spouse once you arrived in Australia.

None of your other family members will be accompanying you to live in Australia.

You have an Australian bank account and Australian superannuation fund account.

You are not enrolled in a course of study in Australia.

You and your spouse are not Commonwealth Government employees.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 6-5

International Tax Agreements Act 1953 section 4

International Tax Agreements Act 1953 section 5

Taxation Administration Act 1953 Section 12-35 of Schedule 1

Convention between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income [1983] ATS 16

Reasons for decision

Question 1

Summary

Having considered your circumstances as a whole and the residency tests, the Commissioner is satisfied that you are not a resident of Australia for income tax purposes from XXXX.

Detailed reasoning

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that if you are an Australia resident, your assessable income includes income gained from all sources, whether in or out of Australia. However, subsection 6-5(3) of the ITAA 1997 states if 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) as:

(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 tests are otherwise known as:

•         the resides test

•         the domicile test

•         the 183-day test, and

•         the superannuation test.

The resides 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.

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

In considering the definition of 'reside', the High Court of Australia, in Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 at page 99-100, per Latham CJ, noted the term 'reside' should be given a wide meaning for the purposes of section 6(1) of the ITAA 1936. Similarly, in Subrahmanyam v Commissioner of Taxation 2002 ATC 2303, Deputy President Forgie said at paragraphs 43 and 44 that the widest meaning should be attributed to the word 'reside'.

The question of whether an individual 'resides' in a country is a question of fact and degree and not of law. In deciding this question, the courts have consistently referred to and considered the following factors as being relevant:

(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 with Australia compared to the foreign country concerned; and

(viii)       maintenance of a place of abode.

The weight given to each factor varies with individual circumstances and no single factor is necessarily decisive. In Shand v Federal Commissioner of Taxation 2003 ATC 2080, the Tribunal stated (at 35):

Questions of residence, domicile, permanent place of abode, have frequently been found by the courts and tribunals to be difficult to assess on a factual level and not easy to define in concrete legal terms.

You applied for a temporary work visa and intended to relocate to Australia for work purposes however you have not yet done so due to COVID-19 travel restrictions. You currently live in Country A. Based on the information you have provided, the Commissioner is satisfied that you are not residing in Australia according to ordinary concepts.

You are therefore not a tax resident of Australia under the resides test.

The domicile test

If a person's domicile is Australia, they will be an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia. In order to show that a new domicile of choice in a country outside of Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country.

The concept of Domicile was discussed in the Marriage of Emson (1980) 5 Fam LR 662:

A person may abandon his domicile of origin and acquire a domicile of choice but in order to establish a change of domicile there must be clear evidence of an intention to abandon the domicile of origin and to make a new permanent home in the country to which the person has removed. In my view a person cannot be said to acquire a new domicile until there has been a firm intention of establishing a permanent residence in another country and also the confirmation of that intention by actual residence in that country.

Declarations as to intention are rightly regarded in determining the question of a change of domicile, but they must be examined by considering the person to whom, the purposes for which, and the circumstances in which they are made and they must further be fortified and carried into effect by conduct and action consistent with the declared expression:

Ross v Ross [1930] AC 1 at 6-7 per Lord Buckmaster:

Where the court finds that at a relevant point of time there is a conflict between the actual conduct of the party concerned and the verbal expression of his intention doubtless the court will in most cases prefer the act to the word - as an ancient proverb puts it: "what you do speaks so loudly that I cannot hear what you say.

Further, in Fremlin v Fremlin (1913) 16 CLR 212; [1913] HCA 25 Per Barton J:

In Winans v. Attorney-General, Lord Halsbury L.C. said:-"Now the law is plain, that where a domicile of origin is proved it lies upon the person who asserts a change of domicile to establish it, and it is necessary to prove that the person who is alleged to have changed his domicile had a fixed and determined purpose to make the place of his new domicile his permanent home." In the much older case of Udny v. Udny Lord Westbury said: -"Domicile of choice is a conclusion or inference which the law derives from the fact of a man fixing voluntarily his sole or chief residence in a particular place, with an intention of continuing to reside there for an unlimited time. This is a description of the circumstances which create or constitute a domicile, and not a definition of the term. There must be a residence freely chosen, and not prescribed or dictated by any external necessity, such as the duties of office, the demands of creditors, or the relief from illness; and it must be residence fixed not for a limited period or particular purpose, but general and indefinite in its future contemplation. It is true that residence originally temporary, or intended for a limited period, may afterwards become general and unlimited, and in such a case so soon as the change of purpose, or animus manendi, can be inferred the fact of domicile is established." Lord Curriehill in the case of Donaldson v. M'Clure says: -"To abandon one domicile for another means something far more than a mere change of residence. It imports an intention not only to relinquish those peculiar rights, privileges and immunities which the law and constitution of the domicile confer on the denizens of the country in their domestic relations, in their business transactions, in their political and municipal status, and in the daily affairs of common life, but also the laws by which the succession to property is regulated after death. The abandonment or change of a domicile is therefore a proceeding of a very serious nature, and an intention to make such an abandonment requires to be proved by satisfactory evidence." Lord Halsbury, in Marchioness of Huntly v. Gaskell, expressed strong approval of Lord Curriehill's judgment, quoting this passage.

Your domicile is Country A as you are a citizen of Country A. You hold a four-year visa to live and work in Australia that is valid until XXXX. However, as you have not yet entered Australia, or have permanent Australian residency, your domicile is therefore Country A.

Permanent place of abode

The expression permanent place of abode refers to a person's residence, where they live with their family and sleep at night. In essence, a person's place of abode is that persons dwelling place or the physical surroundings in which a person lives.

A permanent place of abode does not have to be everlasting or forever. It does not mean an abode in which the person intends to live for the rest of his or her life. It should be contrasted with a temporary or transitory place of abode outside of Australia.

Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia outlines some of the factors considered relevant in determining a person's place of abode. These are summarised at paragraph 23 in the ruling as:

•         the intended and actual length of the individuals stay in the overseas country (a period of two years or more in a country would generally be regarded as a substantial period)

•         any intention either to return to Australia at some definite point in time or to travel to another country

•         the establishment of a home outside of Australia

•         the abandonment of any residence of place of abode the individual may have had in Australia

•         the duration and continuity of the individual's presence in the overseas country, and

•         the durability of association that the individual has with a place in Australia.

You reside in Country A in a rented apartment. You do not own any property in Australia and you intend to rent a home and live with your Australian spouse if you are able to relocate to Australia. As you have not yet entered Australia, the Commissioner is satisfied that you have a permanent place of abode outside of Australia in Country A. The words 'permanent place' require the identification of a country in which the taxpayer is living permanently. As you are living permanently in Country A, you are not a resident of resident of Australia for tax purposes under this test.

The 183-day test

Under this test, a person who is present in Australia, whether continuously or intermittently, for more than half the income year may be said to have a constructive residence in Australia unless it can be established that:

•         their usual place of abode is outside Australia

•         they have no intention to take up residence in Australia.

The term 'usual place of abode' is not the same as 'permanent place of abode'. Whilst the question of a usual place of abode is a question of fact, generally the phrase is interpreted as the abode customarily or commonly used be a person when they are physically present in a country.

As you have not yet entered Australia, you were not present for more than 183 days in the in the relevant income years.

You are therefore not a resident of Australia for tax purposes under the 183-day test.

The superannuation test

A person is a resident under this test if they are:

•         a member of the superannuation scheme established by deed under the Superannuation Act 1990; or

•         an eligible employee for the purposes of the Superannuation Act 1976; or

•         the spouse, or a child under 16, of a person covered by either of the above.

You and your spouse are not eligible to contribute to the relevant Commonwealth superannuation funds.

Therefore, the superannuation test does not apply to you.

Your residency status

You are not a resident of Australia for tax purposes in the relevant financial year as you permanently live in Country A and do not meet any of the residency tests.

This private ruling cannot be relied upon if your circumstances change. You will need to reconsider your residency status for tax purposes in each relevant income year. Further information on residency can be found by searching 'QC 33232' on ato.gov.au or ato.gov.au/residency

Question 2

Is your employment income paid by your Australian employer assessable in Australia?

Summary

Your employment income paid by your Australian employer while you are not an Australian resident for tax purposes is not assessable in Australia. It may however be assessable in Country A.

Detailed reasoning

Assessable income

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a foreign resident taxpayer includes ordinary income that is sourced directly or indirectly from all Australian sources during the income year.

Employment income is ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

Generally, Australian courts have held that the source of employment income is where the employee performs their duties (C of T (NSW) v. Cam and Sons Ltd (1936) 36 SR (NSW) 544; 4 ATD 32 and FC of T v. French (1957) 98 CLR 398; (1957) 7 AITR 76; 11 ATD 288). The courts also confirmed that it is appropriate to apportion income earned to reflect the source of income.

Thus, any employment income earned while carrying out duties while physically present in Australia is sourced in Australia.

In your case, you are not a resident of Australia for income tax purposes. Your employment duties were exercised exclusively in Country A from XXXX.

Therefore consistent with the principals established in C of T (NSW) v. Cam and Sons Ltd (1936) and FC of T v. French (1957), the employment income derived by you for duties exercised in Country A is not assessable in Australia under subsection 6-5(3) of the ITAA 1997.

Double Tax Agreement

In determining the employee's 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 lists the Country A agreement as having the force of law.

Article X, Residence, of the Country A Agreement defines the term "resident of a Contracting State".

As you have been determined to not be a resident of Australia, and your residence is Country A, under their Agreement with Australia you are a resident of Country A.

Article XX, Dependent personal services, of the Country A Agreement states:

Subject to the provisions of Articles XX and XX, 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.

As you exercised your employment in Country A, your employment income from your Australian employer is not assessable in Australia as it is only taxable in Country A.

Question 3

Summary

Your Australian employer is not required to withhold pay as you go (PAYG) amounts on your employment income.

Detailed reasoning

Section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee.

However, subsection 12-1(1) of Schedule 1 to the TAA provides that an entity need not withhold an amount under this section from a payment if the whole of the payment is exempt income of the entity receiving the payment.

In your employer's case, the employment income that was being paid to you as a foreign resident for employment services which were exercised outside of Australia was exempt income.

Accordingly, your employer was not required to withhold any amounts from payments of salary and wages made to you as a foreign resident employee where the employment services were performed overseas under subsection 12-1(1) of Schedule 1 to the TAA.

If you are not an Australian resident for tax purposes, you will be assessable only on income from an Australian source subject to the application of any applicable Australian double tax agreements.

Question 4

Can you amend the XXXX income tax return as an Australian resident for tax purposes?

Answer

No. However as you are not a resident of Australia for tax purposes in the year beginning DDMMYYYY, you may amend your tax return to exclude exempt income.

Question 5

Are you allowed to lodge the XXXX income tax return as an Australian resident for tax purposes?

Answer

No. However as you are not a resident of Australia for tax purposes in the year beginning DDMMYYYY, you may exclude the exempt income from your Australian tax return.

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