Edited version of private advice

Authorisation Number: 1052090093268

Date of advice: 3 April 2023

Ruling

Subject: Residency

Question 1

Are you a non-resident for Australian income tax purposes from XX/XX/XXXX?

Answer

Yes.

Question 2

Is the salary and wages income you received from an Australian employer, for services performed/exercised overseas from XX/XX/XXXX to XX/XX/XXXX assessable in Australia?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June XXXX

The scheme commenced on:

1 July XXXX

Relevant facts and circumstances

You were born in Country A, and are a citizen of Country A.

Your spouse is also a citizen of Country A.

You have worked and resided in Australia since the 20XX calendar year.

You became an Australian citizen by decent on XX/XX/XXXX.

You travel on a Country A passport.

In the early half of XXXX, your spouse was offered a relocation to Country B by her employer for a XX-year assignment period. It was at this time the decision was made to move the whole family to Country B.

Prior to departure to Country B, you disposed of your principal place of residence with the net sale proceeds invested with an Australian financial institution.

Your family's household and personal effects were packed up and shipped to Country B.

In the second half of XXXX, you, your spouse and your children departed Australia to travel to Country B.

You initially entered Country B under a tourist visa, which has now been converted to a family residency permit. The permit allows you to stay in Country B for the duration of your spouse's employment and you are required to renew the permit annually.

Your spouse entered into a 12-month lease agreement for a semi furnished apartment, where you all reside. The lease agreement is renewable annually.

Since arriving in Country B, your spouse opened a bank account solely in her name and you both intend to purchase a motor vehicle in the near future. You have also become a member of a local sporting association.

You expect to live in Country B for the next 4 years. After this period, you intend to take a year off to travel, then you will either move back to Country A, to be closer to extended family or relocate again to another country if a suitable work opportunity is available.

It is not your intention to return to Australia on a permanent basis, although you will likely visit for short term periods from time to time for holidays or business trips.

You and your family have no current plans to return to Australia and you do not hold a return airline ticket.

When you left Australia, you informed the Australian Electoral Commission that you are now residing overseas indefinitely. You received written confirmation that your name had been removed from the electoral role.

On XX/XX/XXXX, your private health insurer confirmed by letter that they had cancelled your family's private health insurance policy, which had covered all members of your family while you were in Australia.

You and your spouse are not members of the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS).

You and your spouse own an investment property. This property is leased out to a long-term tenant and is managed by a real estate.

You have notified all relevant Australian financial institutions that you have moved overseas and are a non-resident client, so that the non-resident withholding tax rate can be applied to the interest/investment income earned on your accounts.

In the XXXX income tax year you were employed by an Australian employer. You gave notice and ceased employment with them on XX/XX/XXXX.

Between XX/XX/XXXX (when you departed Australia) and XX/XX/XXXX (when your employment ceased) you worked remotely from Country B for your Australian employer to close out some of your work/jobs and you were renumerated during this period into your Australian bank account.

You will lodge an Australian tax return in the XXXX income tax year.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

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

Income Tax Assessment Act 1997 section 6-5

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

Income Tax Assessment Act 1997 subsection 6-15(1)

Reasons for decision

Detailed reasoning

Question 1

Overview of the law

For tax purposes, whether you are a resident of Australia is defined by subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

The definition has four tests to determine your residency for income tax purposes. These tests are:

•         the resides test

•         the domicile test

•         the 183 day test, and

•         the Commonwealth superannuation fund test.

It is sufficient for you to be a resident under one of these tests to be a resident for tax purposes.

Our interpretation of the law in respect of residency is set out in Draft Taxation Ruling TR 2022/D2 Income tax: residency tests for individuals.

The resides test

The resides test is the primary test of tax residency for an individual. If you reside in Australia according to the ordinary meaning of the word resides, you are considered an Australian resident for tax purposes.

Some of the factors that can be used to determine whether you reside in Australia include:

•         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.

No single factor is decisive, and the weight given to each factor depends on your specific circumstances.

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

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

Whether your domicile is Australia is determined by the Domicile Act 1982 and the common law rules on domicile. For example, you may have a domicile by origin (where you were born) or by choice (where you have changed your home with the intent of making it permanent).

Whether your permanent place of abode is outside Australia is a question of fact to be determined in light of all the facts and circumstances of each case. Key considerations in determining whether you have your permanent place of abode outside Australia are:

•         whether you have definitely abandoned, in a permanent way, living in Australia

•         length of overseas stay

•         nature of accommodation, and

•         durability of association.

The 183-day test

Under the 183 day test, if you are present in Australia for 183 days or more during the income year, you will be a resident, unless the Commissioner is satisfied that both:

•         your usual place of abode is outside Australia, and

•         you do not intend to take up residence in Australia.

The question of usual place of abode is a question of fact and generally means the abode customarily or commonly used by you when are physically in a country.

The Commonwealth 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 circumstances:

We have considered each of the statutory tests listed above in relation to your particular facts and circumstances. We conclude that, from XX/XX/XXXX, you are not a resident of Australia as follows.

Taking into account your individual circumstances, we have concluded that you are not a resident of Australia according to ordinary concepts.

We considered the following factors in forming our conclusion:

•         Physical presence - you departed Australia with your family on XX/XX/XXXX as your spouse has taken up employment in Country B. You have not returned to Australia since this date.

•         Intention - You have no intention to return to Australia on a permanent basis, although you will likely visit for short term periods from time to time for holidays or a business trip. You expect to live in Country B for the next 4 years and after this period, you intend to take a year off to travel, then you will either move back to country A, to be closer to extended family or relocate again to another country if a suitable work opportunity is available.

•         Family ties - Your whole family has relocated to Country B and your extended family is located in Country A.

•         Business and employment ties - You gave notice and ceased employment with your Australian employer on XX/XX/XXXX. You are currently unemployed.

•         Social arrangements - You are not a member of any Australian associations. Conversely, you are a member of sporting association in Country B.

•         Living arrangements - You disposed of your jointly held principal place of residence prior to your departure and your family's household and personal effects were packed up and shipped to Country B. You have been issued with a family residency permit which allows you to stay in Country B for the duration of your spouse's employment, renewed annually. Your family resides in a 3-bedroom semi-furnished apartment in Country B under a 12-month lease agreement executed by your spouse and renewable annually. You are currently in the process of purchasing a vehicle with your spouse in Country B.

•         Maintenance and location of assets - You own a jointly held investment property with your spouse, which is leased out to a long-term tenant and managed by a real estate. You have notified all relevant Australian financial institutions that you have moved overseas and are a non-resident client, so that the non-resident withholding tax rate can be applied to the interest/investment income earned on your accounts. You have cancelled your family's private health insurance policy and you contacted the Australian Electoral Commission to have yourself removed from the electoral roll.

We consider that your domicile is in Australia, however the Commissioner is satisfied that your permanent place of abode is outside of Australia. We considered the following factors in forming our conclusion:

•         In your case you were born in Country A and your domicile of origin is Country A. You moved to Australia in 2007 and became an Australian citizen by decent on XX/XX/XX, where you acquired a domicile of choice in Australia.

•         You have relocated to Country B as a result of your spouse's employment where you expect to live for the next 4 years. You have been issued with a family residency permit which allows you to stay in Country B for the duration of your spouse's employment, renewed annually. Your family resides in a 3-bedroom semi-furnished apartment in Town C in Country B under a 12-month lease agreement executed by your spouse and renewable annually.

•         You have no intention of returning to Australia to live and after your spouse's employment ceases in Country B, you intend to travel for a period of time and then either move back to Country A or relocate again to another country if a suitable work opportunity is available.

•         You have notified all relevant Australian financial institutions that you have moved overseas and are a non-resident client, so that the non-resident withholding tax rate can be applied to the interest/investment income earned on your accounts.

Based on all the facts, the Commissioner is satisfied that your permanent place of abode is outside Australia.

You will not be present in Australia for 183 days or more during the income year ending 30 June XXXX and you have advised that you do not intend to return to Australia to live. Therefore, you do no satisfy the 183-day test.

You do not fulfil the requirements of the Commonwealth Superannuation test and are therefore not a resident under this test.

Conclusion

You do not satisfy any of the residency tests and so are a non-resident of Australia for income tax purposes from XX/XX/XXXX.

Question 2

Source of Income

The relevant parts of section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) state:

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

...

(3) 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.

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.

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

•         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.

•                     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 2 or 3 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).

However, the Court also made comments to the effect that this decision did not necessarily determine what would be most important in every personal services contract. For example, Dixon CJ in the French Case at 405 in relation to a director and at 406 in relation to an accountant procured to achieve a specified result, and Kitto J at 417-418 refers to a situation where remuneration was payable regardless of service, and to a person who worked sometimes overseas who was paid while on sick leave, and to where a period of overseas service might in substance be merely incidental to Australian service.

And

•                     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, including having a 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 above cases, cases concerning the provision of personal services are decided by weighing up the outcomes of the consideration 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 situation, you were employed by an Australian employer and between XX/XX/XXXX and XX/XX/XXXX you worked remotely from Country B for your employer to close out some of your work/jobs.

You were employed by an Australian employer and as such any contracts of employment are formulated, prepared and governed by the laws that apply in Australia. Therefore, this factor significantly leans towards the source of the income being Australia. While you were located in Country B sometime after you commenced employment this does not change this outcome.

Your remuneration was paid by the employer, into a bank account located in Australia in Australian dollars. This factor also leans towards the source of the income being Australia.

As mentioned above, in the Cam, French and Efstathakis 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.

Your case is distinguished from these cases as the place where your work was given effect to and where the outcome of the work occurred was with your employer in Australia.

On the physical location of where your duties were performed alone, this would lean towards the source of the work being in Country B. However, your physical location is not sufficient, the other factors listed above are also relevant. Considering this, the third factor leans towards the income being sourced in Australia. This is even more so, considering that you were able to physically perform your work in any location in the world. Your employment duties had no relationship with Country B apart from your physical presence.

Therefore, the income you earned from the Australian employer is regarded as being sourced in Australia and is to be included in your assessable income within Australia.

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