Edited version of private advice

Authorisation Number: 1052232432967

Date of advice: 15 March 2024

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for taxation purposes from the relevant date?

Answer

No.

Question 2

Is the source of your income received from Employer Z between the relevant dates Australian sourced?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2022

The scheme commenced on:

1 July 2021

Relevant facts and circumstances

You were born in Australia.

You are a citizen of Australia.

You are a permanent resident of Country Z.

You and your family went to Country Z to live a few years ago.

You entered Country Z on standard type visa.

Your spouse and child accompanied you to Country Z.

At this stage you have left Australia indefinitely.

You work for Employer Z.

You signed the contract with Employer Z in Australia prior to leaving the country.

You worked remotely for Employer Z in Australia as they do not have a physical office.

You continued to work for Employer Z in Country Z.

You were paid in Australian dollars into your Australian bank account.

Australian laws governed your contract with Employer Z.

Employer Z withheld tax from your income.

You signed a new contract with Employer Y while living overseas which took effect a few weeks later.

From the time the new contract took effect you ceased being paid by Employer Z and commenced being paid by Employer Y.

You can perform your duties anywhere in the world.

You had no break in your employment when you moved to Country Z, and you were employed with Employer Y.

You took all your belongings to Country Z having them shipped to Country Z.

You rent a property in Country Z which is for your sole use.

Your employer does not contribute to the cost of the rental property.

You have purchased items for this property since being in Country Z.

Your child attends a school in Country Z.

Your spouse works in Country Z.

Your spouse is a citizen of Country Z and Australia.

You have removed your name from the Australian Electoral Roll.

You have indefinitely suspended your Australian health insurance.

Your parents and siblings live in Australia.

You did not return to Australia in a recent income year.

Neither you nor your spouse are eligible to contribute to the PSS or the CSS super funds.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 6-5

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

Reasons for decision

For tax purposes, you are a resident of Australia if you meet at least one of the following tests. You are not a resident of Australia if you do not meet any of the tests.

•         The resides test (otherwise known as the ordinary concepts test)

•         The domicile test

•         The 183 day test

•         The Commonwealth superannuation fund test

We have considered your circumstances, and conclude that you are not a resident of Australia for tax purposes for the relevant as follows:

•         You are not a resident of Australia according to the resides test.

•         You do not meet the domicile test. Although your domicile is in Australia, the Commissioner is satisfied that your permanent place of abode is outside Australia.

•         You do not meet the 183-day test.

•         You do not intend on being in Australia for more than 183 days in any of the financial years.

•         You do not fulfil the requirements of the Commonwealth superannuation fund test.

In summary, you are not a resident of Australia for tax purposes for the relevant period.

For more information about residency, see Taxation Ruling TR 2023/1 Income tax: residency tests for individuals.

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.

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...were 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 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).

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.

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 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,

•         the place where remuneration is payable, and

•         the place where the services are performed.

In your situation, you were employed and had a contract by Employer Z carry out the services in Country Z for the relevant period.

The contracts of engagement were formulated, prepared, and is governed by the laws that apply in Australia. Therefore, this factor significantly leans towards the source of the income being Australia.

Your remuneration was paid by Employer Z into a bank account located in Australia in Australian dollars. Therefore, this factor 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 Z.

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 Z apart from your physical presence.

Therefore, the income you earned from Employer Z for the relevant period is regarded as being sourced in Australia.

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