Edited version of private advice

Authorisation Number: 1052374969247

Date of advice: 28 April 2025

Ruling

Subject: International - non-resident - permanent establishment

Question 1

Is the income from your business assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

No.

Question 2

Are you still required to be registered for GST in Australia?

Answer 2

No.

This ruling applies for the following periods:

•                     Year ended DD MM 20XX

•                     Year ended DD MM 20XX

•                     Year ending DD MM 20XX

The scheme commenced on:

DD MM 20XX

Relevant facts and circumstances

You are a Country A citizen and currently reside in Country A.

You commenced a consulting business in Australia as a sole trader approximately 5 years ago. Your business involves coordinating events.

At the time you started the business, you were living in Australia and were an Australian resident for tax purposes. You moved back to live in Country A approximately one year after starting your business.

You have continued to operate your business from your home in Country A. You still hold an Australian Business Number (ABN) and trade under an Australian registered business name.

You have continued providing services to Australian clients. All of your supplies in Australia are made to Australian entities that are registered for GST. You purchase some products internationally.

You have provided details of your previous and expected turnover for the relevant income years. You have not received any other income sourced from Australia in the relevant income years.

You incur expenditure on hiring and purchasing display materials which are sourced in Australia. Materials that are purchased are typically either thrown away at the end of a project or are sometimes retained by you to use on future projects. Your sales invoices to clients refers to expenditure incurred for materials, for example, as part of services provided, but you do not invoice clients separately for this expenditure.

You have an Australian bank account which you have kept open so that your clients can continue to make payments in Australian dollars, and so that you can pay Australian suppliers in Australian dollars. Australian clients are issued invoices in Australian dollars.

You communicate with clients electronically. Any new contracts for Australian clients are sent and signed digitally. You do not have a business premises in Australia and do not have any storage facilities based in Australia. You have provided a list of the tasks you carry out while operating your business.

You perform most of your work remotely from Country A, although sometimes you have been required to travel back to Australia for short periods to facilitate certain events. Your travel to Australia during the relevant income year was for less than 183 days in total. You do not carry out your work from a fixed place when you visit Australia.

You do not have any family ties to Australia. Your relatives are all Country A residents. Your partner operates a business based entirely in Country A. The only professional ties you have to Australia are your business clients.

You owned a home during the time that you lived in Australia which you sold in before you returned to Country A. You and your family are living in a home in Country A which you own and your assets are located in Country A.

You were issued with an Australian drivers licence and Medicare card when you lived in Australia. You have not used these documents since you returned to Country A and you do not intend to renew them when they expire.

You cancelled your private health insurance when you left Australia. Relevant Australian agencies were notified of your departure when you sold your home in Australia.

You hold a superannuation account with an Australian fund. No contributions have been made since the 20XX income year. You did not realise that you had a balance held in an Australian superannuation fund and intend to make enquiries to transfer the balance to an account based in Country A. You or your spouse are not contributing members of the Public Sector Superannuation Scheme or Commonwealth Superannuation Scheme.

You have submitted Australian income tax returns for the relevant income years to report the profit made from your business during those periods.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

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

Income Tax Assessment Act 1936 subsection 6(1)

Convention Between Australia and Country A for the Avoidance of Double Taxation with Respect to Taxes on Income and Fringe Benefits and the Prevention of Fiscal Evasion [2010] ATS 10

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-25(5)

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-25(7)

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-26(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-26(2)

A New Tax System (Goods and Services Tax) Act 1999 section 9-27

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-10(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-15(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-20(1)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-15(3)(a)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 188-20(3)(a)

Question 1

Reasons for decision

Residency

The rules for when income is assessable based on your residency status are set out under section 6-5 of the ITAA 1997. For Australian residents, your assessable income includes income from all sources, whether in or out of Australia. For foreign residents, your assessable income includes only income derived from an Australian source.

The definition of 'Australian resident' is contained in section 995-1 of the ITAA 1997. An Australian resident for tax purposes is a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936). Subsection 6(1) of the ITAA 1936 provides the definition for 'resident' and 'resident of Australia.'

This definition includes 4 tests to determine whether an individual taxpayer is a resident of Australia for income tax purposes. The tests are:

1.             The resides test,

2.            The domicile test,

3.            The 183-day test, and

4.            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 pass the resides test, they will still be an Australian resident if they meet the conditions of one of the other tests.

Our interpretation of the law in respect of residency is set out in Taxation Ruling TR 2023/1 Income tax: residency tests for individuals (TR 2023/1). Paragraph 15 of TR 2023/1 states that you are a resident if you meet any one of the tests but will not be a resident if you meet none of them. You must consider all applicable tests before concluding you are a non-resident. We consider factors from the entire income year as well as the surrounding income years to determine whether you meet one of the residency tests under paragraph 16 of TR 2023/1.

The resides test

Paragraph 20 of TR 2023/1 provides the factors that commonly inform the relevant association with Australia, which includes:

•                     the period of physical presence in Australia,

•                     intention or purpose of presence,

•                     behaviour while in Australia,

•                     family, and business or employment ties,

•                     maintenance and location of assets, and

•                     social and living arrangements.

No single factor is necessarily decisive, and the weight given to each factor varies depending on individual circumstances.

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. Relevant facts as to whether your permanent place of abode is overseas include:

•                     the length of overseas stay,

•                     the nature of the accommodation, and

•                     durability of association.

These factors should be considered together, as set out under paragraphs 71-72 of TR 2023/1.

The 183-day test

You are a resident if you have been present in Australia for 183 days or more in an income year, unless the Commissioner is satisfied that both:

•                     your usual place of abode is overseas, and

•                     you do not have an intention to take up residency in Australia.

It does not matter whether your presence in Australia is continuous or intermittent, as it is the total number of days in the income year added together used in applying the 183-day test.

The Commonwealth superannuation fund test

The Commonwealth superannuation fund test treats some Australian government employees working at Australian posts abroad and their spouses and children under 16 years old, as Australian residents.

The test only applies to make resident members who are active members (that is, contributing, or are having contributions made on their behalf), to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS).

Source of income

If you are a foreign resident, your assessable income includes only income derived from an Australian source under section 6-5 of the ITAA 1997.

There is no specific definition of the term 'source' in the ITAA 1997 or the ITAA1936. The application of the term 'source' has been addressed by several court cases.

The courts have held that determining the source of an item of income is a matter of the facts and circumstances of each case. Isaacs J stated in Nathan v Federal Commissioner of Taxation [1918] 25 CLR 183 at 189:

The Legislature in using the word 'source' meant, not a legal concept, but something which a practical man would regard as a real source of income... the ascertainment of the actual source of a given income is a practical, hard matter of fact.

Bowen J in Federal Commissioner of Taxation v Efstathakis (1979) 9 ATR 867 (Efstathakis) stated to determine source, weight must be given to various factors based on their relative importance.

In Commissioner of Taxation v Cam & Sons Ltd (1936) 36 SR (NSW) 544 (Cam & Sons Ltd), wages were paid to seaman who 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.

In this case, the wages had to be apportioned based on 'working time' in and out of New South Wales territorial waters.

In Federal Commissioner of Taxation v French (1957) 98 CLR 398 (French), the taxpayer was employed as an engineer by an Australian company which carried on business in New South Wales as well as in 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. In this case, the most important factor was where the services were performed.

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 Efstathakis, 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 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.

In the cases of Cam & Sons Ltd, French, and Efstathakis, the provision of personal services is decided by weighing up the outcomes of the consideration of the following three factors:

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

•                     the place where remuneration is payable, and

•                     the place where the services are performed.

The weighting given to each is determined by their relevance to the individual circumstances of the taxpayer.

Operation of double taxation treaty

In determining tax liability on Australian sourced income, it is necessary to consider not only the income tax laws but also any applicable tax treaty with another country/

The tax treaty between Australia and Country A is the Convention Between Australia and Country A for the Avoidance of Double Taxation with Respect to Taxes on Income and Fringe Benefits and the Prevention of Fiscal Evasion [2010] ATS 10 (the Country A Agreement). The Country A Agreement operates to avoid the double taxation of income received by Australian and Country A residents.

Under Article 7 of the Country A Agreement, the business profits of an enterprise of Country A are taxable in Country A unless the enterprise carries on business in Australia through a 'permanent establishment' situated in Australia.

Permanent establishment

Article 5 of the Country A Agreement states that the term 'permanent establishment' means a fixed place of business through which the business of the enterprise is wholly or partly carried on.

A 'permanent establishment' includes a place of management, a branch, an office, a factory, a workshop, a mine, an oil or gas well, a quarry or any other place of extraction of natural resources, and an agricultural, pastoral or forestry property.

Taxation Ruling TR 2001/13 Income tax: Interpreting Australia's Double Tax Agreements (TR 2001/13) sets out the Commissioner's view on interpreting Australian's double tax agreements. Paragraph 104 of TR 2001/13 states that commentaries on the interpretation and application of the OECD model convention will often need to be considered as a matter of practice in interpreting tax treaties.

Commentaries on the OECD Model Tax Convention on Income and Capital released in 2017 (OECD Commentary) provides guidance on determining permanent establishments. Paragraph 6 of the OECD Commentary provides that the definition of 'permanent establishment' contains the following conditions:

•                     the existence of a 'place of business',

•                     this place of business is 'fixed', i.e., it must be established at a distinct place with a certain degree of permanence, and

•                     the carrying on of the business of the enterprise through this fixed place of business.

The OECD Commentary provides guidance on how these conditions can be satisfied as follows:

•                     the term 'place of business' covers any premises and may exist where 'it simply has a certain amount of space at its disposal' (paragraph 10),

•                     the mere fact that an enterprise has a certain amount of space at its disposal which is used for business activities is sufficient to constitute a place of business. No formal legal rights to use that place is required (paragraph 11), and

•                     where an enterprise has an exclusive legal right to use a particular location which is used only for carrying on that enterprise's own business activities (e.g. where it has legal possession of that location), that location is clearly at the disposal of the enterprise (paragraph 12).

If a non-resident enterprise does not conduct activities itself through a fixed place of business in Australia, it may still be deemed to carry on business through a permanent establishment under Article 5(8) of the Country A Agreement. For a non-resident enterprise to be deemed to have a permanent establishment in Australia, the 4 conditions below must be satisfied:

•                     there is a person acting on behalf of the non-resident enterprise in Australia,

•                     that person is not an agent of independent status to whom a subsequent paragraph of the Article applies,

•                     the person has authority to conclude contracts on behalf of the non-resident enterprise, and

•                     the authority is habitually exercised.

Application to your circumstance

Residency

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

The resides test

•                     You left Australia in October 2021 to move back to Country A. You sold your home in Australia, notified relevant agencies of your departure and cancelled your Australian private health insurance.

•                     Your physical presence in Australia has been limited during the 2023, 2024 and 2025 income years.

•                     Your presence in Australia has been for the purpose of your business activities. You had no intention to reside in Australia during your visits.

•                     You have no family ties to Australia as your family are based in Country A.

•                     Your only professional ties to Australia are your business clients which are Australian entities.

•                     You do not own any property in Australia and your assets are located in Country A. You own your home in Country A.

•                     All of your relatives are Country A residents and your family reside with you in Country A.

In weighing up the above factors, the overall impression is that you reside in Country A. You therefore do not satisfy the resides test.

The domicile test

Since returning to live in Country A, you have only visited Australia for short periods of time. You have a home in Country A which is your permanent place of abode. You sold your Australian home in 2021 to return to Country A. You own your home in Country A. All of your relatives are Country A residents and your family reside with you in Country A. This indicates that your domicile is in Country A, which means that you do not satisfy the domicile test.

The 183-day test

You have not been present in Australia for 183 days or more during the income year ended 30 June 2024. You have a usual place of abode in Country A, and you have no intention to take up residency in Australia. You therefore do not satisfy the 183-day test.

The Commonwealth superannuation fund test

You or your spouse are not active members of the PSS or the CSS. You do not satisfy the Commonwealth superannuation fund test.

As you do not satisfy any of the tests of four tests of residency, you are not a resident of Australia for income tax purposes for the income years ending 30 June 2023 and 30 June 2024.

Source of income

Place where employment contract is entered into

In your situation, you operated a business which was established while you were a resident of Australia and registered under an ABN. You carry out the services remotely from Country A which are then delivered in Australia.

Accordingly, any contracts for services 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 A after you commenced your business, this does not change this outcome.

Place where remuneration is paid

Your business income is paid in Australian dollars from clients based in Australia into an Australian bank account that you hold. Therefore, this factor leans towards the source of the income being Australia.

Place where services are performed

In the Cam & Sons Ltd, French and 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. Your circumstances differ from these cases as the place where you did the work was Country A but the place where your work was given effect to and where the outcome of the work occurred was Australia.

Looking at the physical location of where your duties were performed alone, this means that the source of the work is Country A. Your physical location is not sufficient, and the other factors listed above are also relevant. The third factor leans towards the income being sourced in Australia especially considering that you would be able to physically perform your work in any location in the world. Your employment duties had no relationship with Country A apart from your physical presence.

The income you earned from your Australian business is therefore sourced in Australia.

Permanent establishment

You operate your business from your home in Country A. You do not have any premises located in Australia used for your business purposes. When you travel to Australia for your business, you do not have a fixed place of business which you carry out your business activities. The staff and suppliers you engage to deliver the events do not have the authority to conclude contracts on your behalf.

There is no existence of a fixed place of business in Australia which you use to carrying on your business through. Your business therefore does not have a permanent establishment in Australia under Article 5(1) of the Country A Agreement.

Article 7 of the Country A Agreement applies, and the profits from your business will not be taxable in Australia.

Question 2

Reasons for decision

Requirement to register

Section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity is required to be registered for GST if:

•                     the entity is carrying on an enterprise; and

•                     the entity's GST turnover meets the registration turnover threshold.

Currently, the registration turnover threshold is AUD 75,000 (AUD 150,000 for non-profit organisations).

GST turnover

According to subsection 188-10(1) of the GST Act, an entity has a GST turnover that meets a particular turnover threshold if:

•                     the entity's current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that the entity's projected GST turnover is below the turnover threshold; or

•                     the entity's projected GST turnover is at or above the turnover threshold.

Subsection 188-15(1) of the GST Act provides that an entity's current GST turnover at a time during a particular month is the total value of all the supplies made, or are likely to be made during the 12 months ending at the end of that month.

Subsection 188-20(1) of the GST Act provides that an entity's projected GST turnover at a time during a particular month is the total value of all the supplies made, or are likely to be made during the month and the next 11 months.

Pursuant to paragraphs 188-15(3)(a) and 188-20(3)(a) of the GST Act, supplies that are not connected with the indirect tax zone are disregarded in working out an entity's current GST turnover and projected GST turnover.

Indirect tax zone means Australia, but does not include the external Territories and any offshore area for the purpose of the Offshore Petroleum and Greenhouse Gas Storage Act 2006.

Supplies connected with the indirect tax zone

Generally, supplies of anything other than goods or real property are connected with the indirect tax zone under subsection 9-25(5) of the GST Act if:

(a)  the thing is done in the indirect tax zone; or

(b)  the supplier makes the supply through an enterprise that the supplier carries on in the indirect tax zone; or

(c)   if (a) or (b) does not apply and the thing is a right or option to acquire another thing that would be connected with the indirect tax zone; or

(d)  the recipient of the supply is an Australian consumer.

An Australian consumer of a supply is defined in subsection 9-25(7) of the GST Act as an Australian resident entity that is not registered for GST; or if registered, does not acquire the thing supplied solely or partly for the purpose of an enterprise carried on by the entity.

However, under subsection 9-26(1) of the GST Act, a supply of anything other than goods or real property is not connected with the indirect tax zone if:

(a)  the supplier is a non-resident; and

(b)  the supplier does not make the supply through an enterprise that the supplier carries on in the indirect tax zone; and

(c)   the thing is done in the indirect tax zone, and the recipient of the supply is an Australia-based business recipient of the supply.

An Australian-based business recipient of a supply is defined in subsection 9-26(2) of the GST Act an entity that is registered for GST, is carrying on its enterprise in the indirect tax zone and its acquisition of the thing supplied is not solely of a private or domestic nature.

Enterprise carried on in the indirect tax zone

Section 9-27 of the GST Act states:

(1)    An *enterprise of an entity is carried on in the indirect tax zone if:

(a)       the enterprise is *carried on by one or more individuals covered by subsection (3) who are in the indirect tax zone; and

(b)       any of the following applies:

(i)         the enterprise is carried on through a fixed place in the indirect tax zone;

(ii)        the enterprise has been carried on through one or more places in the indirect tax zone for more than 183 days in a 12 month period;

(iii)       the entity intends to carry on the enterprise through one or more places in the indirect tax zone for more than 183 days in a 12 month period.

(2)    It does not matter whether:

(a)       the entity has exclusive use of a place; or

(b)       the entity owns, leases or has any other claim or interest in relation to a place.

(3)    This subsection covers the following individuals:

(a)       if the entity is an individual - that individual;

(b)       an employee or *officer of the entity;

(c)       and individual who is, or employed by, an agent of the entity that:

(i)         has, and habitually exercises, authority to conclude contracts on behalf of the entity;

(ii)        is not a broker, general commission agent or other agent of independent status that is acting in the ordinary course of the agent's business as such an agent.

Application to your circumstance

You are still operating your business from your home in Country A; as such, you are carrying on an enterprise for the purpose of paragraph 23-5(a) of the GST Act. We must therefore determine if your GST turnover meets the registration turnover threshold to satisfy paragraph 23-5(b).

Your turnover for the 12 months ending 28 February 2025 was $234,469.50 which all relates to the supplies you made to entities in Australia; however, we need to work out if any of those supplies are not connected with the indirect tax zone that should be excluded in calculating your GST turnover.

Your events consulting business involves organising and managing annual Christmas projects and school holiday projects for shopping centres in Western Australia; thus, you are making supplies of services. While you acquire goods in the course of supplying services, you do not make supplies of goods to the shopping centre operators.

You perform most of your work remotely from Country A, although sometimes you travel back to Western Australia for short periods to facilitate certain events. Your travel to Australia during the 2024 income year was for less than 183 days in total. You do not carry out your work from a fixed place when you visit Australia. Paragraph 9-27(1)(b) of the GST Act does not apply; therefore, you do not carry on your enterprise in in the indirect tax zone.

You make all the supplies of your services to Australian entities that are registered for GST. Therefore, the recipients of your supplies are Australian-based business recipients. The entities are not Australian consumers.

Work performed in Country A

When you perform the work in Country A, the thing supplied is not done in the indirect tax zone; therefore, your supply of services is not connected with the indirect tax zone under paragraph 9-25(5)(a) of the GST Act.

You are not carrying on your enterprise in the indirect tax zone; therefore, your supply of services is not connected with the indirect tax zone under paragraph 9-25(5)(b) of the GST Act.

Your supply of services is not connected with the indirect tax zone under paragraph 9-25(5)(c) of the GST Act as the thing supplied is not a right or option to acquire another thing,

Your supply of services is not connected with the indirect tax zone as the recipients of the supply are not Australian consumers.

Accordingly, where the work is performed in Country A, the supply of your services is not connected with the indirect tax zone.

Work performed in Australia

When you perform the work in Australia, the thing supplied is done in the indirect tax zone; thus, the supply of your services is connected with the indirect tax zone under paragraph 9-25(5)(a) of the GST Act. However, the supply is not connected with the indirect tax zone under subsection 9-26(1) because:

•                     you are a non-resident as we determined in our response to the first question on this ruling;

•                     you do not make the supply through an enterprise that you carry on in the indirect tax zone;

•                     the thing supplied is done in the indirect tax zone; and

•                     the recipients of the supply are Australian-based business recipients.

GST turnover

The supplies of your services are not connected with the indirect tax zone; thus, they are excluded by paragraphs 188-15(3)(a) and 188-20(3)(a) of the GST Act in calculating your GST turnover. As all of your turnover for the 12 months ending 28 February 2025 relate to the supplies made to entities in Australia, your GST turnover does not meet the registration turnover threshold. Paragraph 23-5(b) is not satisfied.

Accordingly, you are not required to be registered for GST.

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