Edited version of private advice

Authorisation Number: 1052009393117

Date of advice: 20 July 2022

Ruling

Subject: Residency and source of income

Question 1

Are you an Australian resident for taxation purposes?

Answer

No.

Question 2

Will your employment income related to services performed in Australia be assessable in Australia?

Answer

Yes.

Question 3

Will your employment income related to services performed overseas be assessable in Australia?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were born in Australia and you are an Australian citizen.

You are also a permanent resident of an overseas country.

For many years, you have resided overseas and intend to continue to reside overseas for the foreseeable future. You are also a tax resident of the overseas country.

You have no intention of residing in Australia permanently for the foreseeable future. You will be in Australia on a temporary basis solely for business purposes.

You have never lodged an Australian income tax return.

You do not have any assets in Australia other than a bank account.

You own an apartment overseas which is your main residence. It is furnished with household effects.

You have immediate family, a de-facto spouse and a pet who all reside overseas.

You accepted a role as an executive with an Australian based company (your employer).

The employment contract with your employer was made and physically signed in Australia.

The employment contract with your employer states the role is based in Australia. However, where your duties require, you may reasonable be required to travel to other locations (domestic and international) in the course of your employment.

You will undertake substantial activities overseas in excess of 6 months per year.

Your role requires you to be at the Australian headquarters for three to four months per income year. You expect to be present in Australia one week per month.

In your role as an executive for your employer, you are responsible for leading the distributor channels to accelerate growth, drive revenue and profitability. This role includes all aspects of commercial sales with a focus on activation and results in each territory.

In Australia, you will be attending sales conferences, management meetings, annual forecasting and budgeting processes and business reviews related your Australian employer.

Your renumeration from your employer is deposited into an Australian bank account for practical administration purposes. The funds are immediately transferred into your bank account overseas.

You will also continue to carry out duties for a management consulting company you own based overseas.

Business activities for the management consulting company are conducted overseas and have no connection to Australia. Renumeration from the management consulting company is deposited into a bank account overseas.

You are currently house-sitting for a friend. However, you will be staying in hotels and serviced apartments in the future for the necessary period of the trip.

You are not a Commonwealth Government employee for superannuation purposes.

There is no double tax agreement in force between Australia and the overseas country you live in.

Relevant legislative provisions

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

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

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

Summary

Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides where you are an Australia resident for taxation purposes, your assessable income includes ordinary income you derived directly or indirectly from all sources whether in or outside of Australia during the income year.

Where you are a non-resident of Australia for taxation purposes, your assessable income includes income derived directly or indirectly from an Australian source only.

You are considered to be a non-resident of Australia for taxation purposes. Only employment income derived from services performed in Australia is considered to have an Australian source. Therefore, you are only required to declare any Australian sourced income in your Australian income tax return.

Detailed reasoning

Question 1

Overview of the law

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', as applied 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 resides test (also referred to as the ordinary concepts test)

•         the domicile test

•         the 183-day test, and

•         the Commonwealth superannuation fund test.

The resides test is the primary test for deciding the residency status of an individual. This test considers whether an individual resides in Australia according to the ordinary meaning of the word 'resides'.

Where an individual does not reside in Australia according to ordinary concepts, they will still be an Australian resident if they meet the conditions of one of the other tests (the domicile test, 183-day test and Commonwealth superannuation fund test).

Our interpretation of the law in respect of residency is set out in Taxation Ruling IT 2650 Income tax: residency - permanent place of abode and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.

We have considered the statutory tests listed above in relation to your situation as follows:

The resides test

The ordinary meaning of the word 'reside' has been expressed 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': See Commissioner of Taxation v Miller (1946) 73 CLR 93 at 99 per Latham CJ, citing Viscount Cave LC in Levene v Inland Revenue Commissioners [1928] AC 217 at 222, citing the Oxford English Dictionary. Likewise, the Macquarie Dictionary defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

The observations contained in the case of Hafza v Director-General of Social Security (1985) 6 FCR 444 are also important:

Physical presence and intention will coincide for most of the time. But few people are always at home. Once a person has established a home in a particular place - even involuntarily: see Commissioners of Inland Revenue v Lysaght [1928] AC 234 at 248; and Keil v Keil [1947] VLR 383 - a person does not necessarily cease to be resident there because he or she is physically absent. The test is whether the person has retained a continuity of association with the place - Levene v Inland Revenue Commissioners [1928] AC 217 at 225 and Judd v Judd (1957) 75 WN (NSW) 147 at 149 - together with an intention to return to that place and an attitude that that place remains "home": see Norman v Norman (No 3) (1969) 16 FLR 231 at 235... [W]here the general concept is applicable, it is obvious that, as residence of a place in which a person is not physically present depends upon an intention to return and to continue to treat that place as "home", a change of intention may be decisive of the question whether residence in a particular place has been maintained.

The Commissioner considers the following factors in relation to whether a taxpayer is a resident under the 'resides' test:

•         period of physical presence in Australia

•         intention or purpose of presence

•         behaviour while in Australia

•         family and business/employment ties

•         maintenance and location of assets

•         social and living arrangements.

It is important to note that no one single factor is decisive, and the weight given to each factor depends on each individual's circumstances.

Because the ordinary concepts test is whether an individual resides in Australia, the factors focus on the individual's connection to Australia. Having a connection with another country, or being a resident of another country, does not diminish any connection to Australia: Logan J in Pike v Commissioner of Taxation [2019] FCA 2185 at 57 reminds us that 'it is no part of the ordinary meaning of reside in the 1936 Act that there be a "principal" or even "usual" place of residence. ... It is important that ... "resident" not be construed and applied as if there were such adjectival qualifications.' For this reason, the test is not about dominance or exclusivity.

Application to your situation

We have taken the following into consideration when determining whether you meet the resides test:

•         You will be physically present in Australia for less than six months in the income year.

•         You do not intend to live in Australia permanently. You intend to reside overseas for the foreseeable future.

•         You will be Australia solely for business purposes related to your role as an executive for an Australian based company.

•         You will only be staying in accommodation that is temporary in nature during your stay in Australia including your friend's house, hotels and serviced apartments.

•         You have minimal assets in Australia. The majority of your assets including your main residence are located overseas.

•         You have minimal social connection to Australia. Most of your social connections including your immediate family and pets are located overseas.

You are not a resident of Australia under the resides test for the ruling period.

Domicile test

Under the domicile test, you are a resident of Australia if your domicile is in Australia unless the Commissioner is satisfied that your permanent place of abode is outside Australia.

Domicile

Whether your domicile is in Australia is determined by the Domicile Act 1982 and the common law rules on domicile.

Your domicile is your domicile of origin (usually the domicile of your father at the time of your birth) unless you have a domicile of dependence or have acquired a domicile of choice elsewhere. To acquire a domicile of choice of a particular country you must be lawfully present there and hold the positive intention to make that country your home indefinitely. Your domicile continues until you acquire a different domicile. Whether your domicile has changed depends on an objective consideration of all relevant facts.

Application to your situation

In your case, you were born in Australia and your domicile of origin is Australia. You migrated overseas in a long time ago and are a permanent resident of overseas country.

It is considered that you abandoned your domicile of origin in Australia and acquired a domicile of choice in the overseas country. You hold permanent residency in the overseas country and you intend to live there indefinitely.

Therefore, your domicile is the overseas country and you are not a resident of Australia under the domicile test.

183-day test

Where a person is present in Australia for 183 days or more during the year of income the person will be a resident, unless the Commissioner is satisfied that both:

•         the person's usual place of abode is outside Australia, and

•         the person does not intend to take up residence in Australia.

Application to your situation

You will not been present in Australia for 183 days or more during the ruling period. Therefore, you are not a resident under this test.

Superannuation Test

An individual is a resident of Australia if they are either 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 they are the spouse, or the child under 16, of such a person.

Application to your situation

You are not a member on behalf of whom contributions are being made to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS) or a spouse of such a person, or a child under 16 of such a person. Therefore, you are not a resident under this test.

Conclusion

As you do not satisfy any of the four tests of residency, you are not a resident of Australia for income tax purposes for the ruling period.

Question 2 and 3

Source of income

Subsection 6-5(3) of ITAA 1997 provides where you are an Australia resident for taxation purposes, your assessable income includes ordinary income you derived directly or indirectly from all sources whether in or outside of Australia during the income year.

Where you are a non-resident of Australia for taxation purposes, your assessable income includes income derived directly or indirectly from an Australian source only.

The courts have consistently held that determining the source of an item of income is a matter of fact to be determined having regard to the facts and circumstances of each case.

In Nathan v. Federal Commissioner of Taxation 25 CLR 183 at 189-190 it was recognised that the ascertainment of the actual source of a given income is a practical, hard matter of fact.

As stated by Bowen J in Federal Commissioner of Taxation v. Efstathakis (1979) 9 ATR 867; 79 ATC 4256 (the Efstathakis Case) at ATR 870; ATC 4259, to determine source:

... the answer is not to be found in the cases, but the weighing of the relative importance of the various factors which the cases have shown to be relevant.

Commissioner of Taxation v Cam & Sons Ltd (1936) 36 SR (NSW) 544 (the Cam Case) concerned wages paid to seamen employed to work on trawlers. They were engaged and paid in New South Wales, but most of their services were provided outside state territorial waters. Jordan CJ, with whom Street and Bavin JJ agreed in the Cam Case at 548, held that:

Where income is derived from wages or salary, again the source has several factors. Personal exertion may be involved in negotiating and obtaining the contract of employment, in performing the stipulated services, and obtaining payment for them. ... [I]n the ordinary case of the employment of a seaman ... where there is nothing special, either in the circumstances of the contract of employment or in the payment, and where the work is both done and paid for in the ordinary course, the all-important factor is the doing of the work; and the contract of employment and the payment are relatively insignificant and formal elements. But this is not necessarily the case with respect to all wages or salary. In the case of an appointment to a sinecure, the engagement and the payment may be the only significant factors.

Accordingly, the wages had to be apportioned based on 'working time in and out of New South Wales territorial waters (see the Cam Case at 553).

In Federal Commissioner of Taxation v French (1957) 98 CLR 398 (the French Case) the taxpayer was employed as an engineer by the Australian company CSR which carried on business in New South Wales and, relevantly, New Zealand. Each year, the taxpayer spent two or three weeks in New Zealand as inspecting engineer for the company in its New Zealand business. At all other times, the taxpayer performed services for the company in New South Wales. A majority of the High Court held that the wages paid in respect of the period in New Zealand were sourced in New Zealand, because this is where the services were performed, this being the most important factor in Mr French's situation (see French Case at 411, 417 and 422).

In the Efstathakis Case the taxpayer was a Greek National resident in Australia who was employed by the Greek Government as a secretary/typist in the Greek embassy. She had applied for the job in Greece, and the post had been gazetted there. She performed the services in Australia. Her net pay was compiled in Greece, a cheque was drawn on a bank in Greece and then received in Australia. A condition of her employment was that she could be posted anywhere in the world, but she would probably have resigned, as she had put down roots in Sydney, having child there, buying a unit, and marrying a naturalised Greek Australian. Bowen CJ, with whom Brennan and Deane JJ agreed, held that the wages paid to the taxpayer had an Australian source. His Honour considered the above factors, but gave most weight to 'the residence of the taxpayer in Australia and the facts that the services were performed and payment received [in Australia] ... The payment of remuneration depended upon actual performance of the services (the Efstatakis Case at ATR 871; ATC at 4260). As per the court cases source cases concerning the provision of personal services are 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.

In your case,

•         The contract with your employer was made and signed in Australia.

•         The renumeration (salary) earned with your employer is deposited into an Australian bank account.

•         You will be physically carrying out your duties in Australia for your employer for part of the income year.

In the Cam, the French and the Efstathakis Cases it was held that the source of the income was where the taxpayer performed the services. 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.

As per the Cam Case, any employment income should be apportioned based on where the services are performed where any employment income is sourced in both Australia and overseas.

Conclusion

Having considered the relevant facts and case law, it is considered that any employment income earned for services provided in Australia will have an Australian source. Any employment income earned from providing services overseas will not be considered to have an Australian source.

Therefore, as a non-resident for taxation purposes, you are only required to declare any Australian sourced income in your Australian income tax return.

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