Edited version of your private ruling

Authorisation Number: 1012580841598

Ruling

Subject: residency for taxation purposes

Questions and answers:

1. Are you a resident of Australia for taxation purposes?

Yes.

2. Is the income from your consulting work with an overseas based company assessable in Australia?

Yes.

This ruling applies for the following period:

1 July 2012 to 30 June 2015.

The scheme commenced on:

1 July 2012.

Relevant facts and circumstances:

You were born in another country.

You are a citizen of another country.

You are entitled to reside permanently in another country.

You are a resident of another country for taxation purposes.

You are not a citizen of Australia.

You arrived in Australia in 20XX and will leave Australia in 20YY.

You do not intend to remain in Australia beyond 20YY.

You have entered Australia under a temporary visa issued under the Migration Act 1958.

You have not left Australia since you arrived.

Your partner has accompanied you to Australia.

With the exception of the time you will spend in Australia, you and your partner usually reside in another country.

Prior to coming to Australia you were living with your partner in another country.

Since coming to Australia you and your partner have resided in rental accommodation. Both your names are on the lease of this property.

You have made friends in Australia.

You have an Australian bank account.

You have a bank account and retirement investment in another country.

Prior to coming to Australia you were employed in another country by a company (your foreign employer) that is based in another country.

Since coming to Australia you have continued to work for your foreign employer.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Subdivision 768-R

Income Tax Assessment Act 1997 Section 768-910

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1936 Subsection 6(1)

International Tax Agreements Act 1953 Section 4

Reasons for decision

Residency and liability to Australian income tax - general

You are a citizen of another country and a resident of that country for taxation purposes. You have been living in Australia since 20XX under the authority of a temporary visa issued under the Migration Act 1958 (the Migration Act). You will remain in Australia for two years. Since arriving in Australia you have continued work for your foreign employer.

For the purpose of Australia's income tax laws, amounts that are paid to you in the form of salary or wages or amounts of a similar nature are classed as ordinary income.

The assessability of ordinary income (such as salary or wages and similar amounts) falls for consideration under the provisions of section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

Broadly, section 6-5 of the ITAA 1997 provides that:

· if you are an Australian resident, your assessable income includes the ordinary income you derive directly or indirectly from all sources, whether in or out of Australia in an income year (subsection 6-5(2) of the ITAA 1997), and

· if you are a foreign resident (and therefore a non-resident of Australia for taxation purposes), your assessable income in Australia includes the ordinary income you derive directly or indirectly from all Australian sources (subsection 6-5(3) of the ITAA 1997).

Under the provisions of Australia's tax law, you can be both a resident or non-resident of Australia for taxation purposes, as well as a temporary resident. Generally, an individual will be a temporary resident if he or she is living in Australia under a temporary visa issued under the Migration Act and certain other requirements are met.

The temporary resident provisions are contained in Subdivision 768-R of the ITAA 1997 and essentially provide that individuals who qualify as temporary residents are exempt from Australian tax on certain foreign source income, but not on income that has an Australian source.

Therefore, there are two main things to be considered when determining any liability you might have to Australian income tax on the income you are receiving from the work you do for your foreign employer: the source of that income and your residency status for taxation purposes. If the income in question is found to have an Australian source, there is no need to determine whether or not the temporary resident provisions apply to you because as stated above, the exemption from assessability of certain income under the temporary resident provisions does not extend to income from an Australian source.

Because you are a resident another country for taxation purposes, if you are also considered a resident of Australia for taxation purposes the application of any double tax agreement (DTA) between Australia and that other country must be considered when determining whether or not the income from the work you do for your foreign employer is assessable in Australia.

The 'source' of your income

Australian courts have generally 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).

You are employed by your foreign employer to do work which you carry out in Australia. The fact that you are carrying out the work in Australia means that the income you earn from that work has an Australian 'source'.

Residency for taxation purposes

Section 995-1 of the 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', in regard to an individual, are defined in subsection 6(1) of the ITAA 1936. The definition provides the following four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes:

· the resides test,

· the domicile test,

· the 183 day test, and

· the superannuation test.

If any one of these tests is met, you will be a resident of Australia for taxation purposes.

The resides test is the primary test for determining the residency status of an individual for taxation purposes. If residency is established under the resides test, the remaining three tests do not need to be considered. However, if residency is not established under the resides test, you will still be a resident of Australia for taxation purposes if you meet the conditions of one of the other three tests.

The resides test

The resides test considers whether you are residing in Australia according to the ordinary meaning of the word 'reside'. The word 'reside' is not defined in Australian tax law so the ordinary meaning of the word must be considered for the purposes of subsection 6(1) of the ITAA 1936.

The Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01 defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

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 particular country is a question of fact and degree and not of law. In deciding this question, the courts have consistently referred to and taken into account the following factors as being relevant (Case 5/2013 (2013) AATA 394, paragraph 49):

(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 to Australia and the other country, and

(viii) maintenance of a place of abode.

No single factor is necessarily decisive in determining residency for taxation purposes and this is particularly the case with respect to an individual's nationality. Also, many of the factors are interrelated with the weight given to each varying depending on individual circumstances.

Although you are a citizen of another country, we consider the facts of your case as they relate to the above factors support the conclusion that you are residing in Australia according to the ordinary meaning of the word 'reside'. Specifically:

· Your partner has accompanied you to Australia and you are living with your partner in rental accommodation in Australia which is leased in both your names.

· You intend to remain in Australia for a period of two years.

· You have no permanent place to live outside of Australia.

In view of the above, we consider that you are a resident of Australia for taxation purposes under the 'resides' test. As we have determined you are a resident under the resides test there is no need for us to consider the application of the remaining three tests to your circumstances.

Conclusion - your residency status for taxation purposes in Australia

You are a resident of Australia for taxation purposes.

Temporary residence provisions - no application to your circumstances

Having concluded (as discussed above) that the source of your income from the consulting work you are doing for your foreign employer is Australian, the temporary residence provisions have no application to you in respect of that income. The fact is that under the provisions of 768-910 of the ITAA 1997, the exemption that is available to temporary residents on some types of income does not extend to income that is from Australian sources.

Accordingly, in determining the assessability of the income you receive from the work you do for your foreign employer, even though you are in Australia under a temporary visa issued under the Migration Act, there is no need for us to consider whether or not you meet the other requirements of being a temporary resident.

Double tax agreements - general

DTAs exist to avoid the double taxation of income received by individuals who are residents of Australia and another country for taxation purposes.

Pursuant to section 4 of the International Tax Agreements Act 1953 (the Agreements Act), DTAs generally prevail over domestic law in the case of any inconsistency and can operate to restrict the imposition of tax under domestic law.

In most cases, an individual who is a resident for taxation purposes of one of the parties to a DTA is also a resident of that country for the purposes of that DTA. In cases where an individual is a resident for taxation purposes of both parties to a DTA, the agreements contain a tie-breaker test to establish sole residence in one of the countries for the purpose of the agreement.

Regardless of the result of a tie-breaker test in a DTA, residency status for taxation purposes under Australia's domestic law is not lost. This means that an individual who is a resident of Australia for taxation purposes under Australia's domestic tax law continues to be eligible, for example, for the tax-free threshold in respect of his or her income which remains assessable to Australian tax under the provisions of a DTA, even if they are found to be solely a resident of the treaty partner country for the purposes of the relevant DTA.

DTAs generally contain specific provisions (Articles) covering residency (for the purpose of the agreements), specific types of income and which country has taxing rights over that income, and relief from double taxation.

The application of the DTA with the other country to your circumstances

Article X of the DTA with the other country deals with residency.

Article XX of the DTA with the other country specifies which country has taxing rights over income in the form of salary, wages and similar payments in different situations.

Article XX of the DTA with the other country provides relief from double taxation in cases where income may be taxable in both Australia and the other country under the provisions of the DTA with the other country.

Residency for the purposes of the DTA with the other country

The DTA with the other country specifies the circumstances in which an individual will be considered a resident of Australia or the other country under the agreement.

You are considered to be a dual resident for the purposes of the DTA with the other country because:

· you are a resident of Australia for taxation purposes in receipt of income from an Australian source, and

· you are a resident of the other country for taxation purposes.

Therefore we must consider the tie breaker to determine which country you are a sole resident of for the purposes of the DTA with the other country.

Applying the tie-breaker test to your circumstances we can see that for the purposes of the DTA with the other country, you are considered to be a resident solely of that other country because you are a citizen of that country. As stated previously, this does not negate your Australian residency status for taxation purposes under the domestic tax law of Australia.

Assessability of salary and wages and similar payments under the provisions of the DTA with the other country

The DTA with the other country specifies that salaries, wages and other similar remuneration derived by a resident of the other country shall be taxable only in the other country unless the employment is exercised in Australia and that if the employment is exercised in Australia then the income may also be taxed in Australia.

As stated above, you are considered to be a resident solely of the other country for the purposes of the DTA with the other country but this does not negate your Australian residency status for taxation purposes under the domestic tax law of Australia.

You are employed by your foreign employer to do work which you carry out in Australia and we have determined the income you derive from that employment has an Australian source. Accordingly, you are exercising that employment in Australia and the income you receive from that employment is assessable in Australia because of your status as an Australian resident for taxation purposes.

Note: It is important to note that the taxation authorities in the other country may have a different opinion about where you are conducting this work and may consider that the income from the work is taxable in the other country. This is a matter entirely between yourself and the taxation authorities of the other country and is not something the ATO can provide any advice or guidance on.

Relief from double taxation

The DTA with the other country provides that the other country shall allow to a resident or citizen of that country a tax credit against that country's income tax equal to the amount of tax paid in Australia on any income that is taxable in Australia and is also taxed in the other country under the provisions of the DTA with the other country.

Conclusion

You are a resident of Australia for taxation purposes.

The income from your consulting work with the overseas company is assessable in Australia.