Edited version of private advice

Authorisation Number: 1012646313211

Ruling

Subject: Residency and assessability of employment income

Questions and answers

1. Will you be a resident of Australia for tax purposes from when you relocate to country X?

No.

2. Will that part of your salary you derive from services performed for your Australian employer in Australia be assessable in Australia?

Yes.

3. Will that part of your salary you derive from services performed for your Australian employer in country X be assessable in Australia?

No.

This ruling applies for the following periods:

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

The scheme commences on:

1 July 2014

Relevant facts and circumstances

Your country of origin is the country Y and you are a citizen of country Y.

You migrated to Australia and are a permanent resident of Australia.

You have been employed by your current Australian employer in Australia for the last two years.

Your employer does not have a business presence of any type in country X.

You have lived in employer provided housing with your spouse during your period of employment.

You have decided to relocate to country X with your spouse for an indefinite period of time.

You have purchased a house in country X.

You are relocating personal effects and household furniture to country X.

You will be a tax resident of country X from when you relocate there.

You will continue to work for your employer in your current role on an indefinite basis on a new employment agreement.

You will be performing your normal duties in Australia when required; however, parts of your role do not require you to be physically present in Australia so some of these duties can be done in country X.

Your employment agreement does not specify how many hours of work are to be performed in Australia and how many hours of work are to be performed in country X.

Over the period of a year, it is estimated that you will be working in Australia for a minimum of four months but it could be as much as eight months per year.

You will stay in employer provided accommodation on your return trips to Australia.

You own a residential investment property in Australia which you intend to sell.

Your spouse is not employed by the Australian Commonwealth government.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

International Tax Agreements Act 1953

Reasons for decision

Residency

The terms 'resident' and 'resident of Australia', in regard to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are: 

• the 'resides' test;

• the 'domicile' and 'permanent place of abode' test;

• the 183 day test; and

• the superannuation test.

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word 'resides'. However, where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.

The resides test

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3^rd edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; having one's abode for a time'.

In your case, you and your spouse are moving to country X to live for an indefinite period of time and you have purchased a residence in that country. Based on the information you have provided, you will no longer be residing in Australia from when you relocate to country X.

Therefore, you are not a resident of Australia under this test.

The domicile and permanent place of abode test

Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia, unless the Commissioner is satisfied that their permanent place of abode is outside of Australia.

Domicile

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. A person may acquire a domicile of choice in another country if they have the intention of making their home indefinitely in that country. The intention needs to be demonstrated in a legal sense, for example, by way of obtaining a migration visa, becoming a permanent resident or becoming a citizen of the country concerned.

In your case, your domicile of origin was country Y and you subsequently acquired a new domicile in Australia when you gained permanent residency here. Although you are now relocating to country X, there is no evidence at this time to show that you have taken any legal steps to change your domicile to country X.

Therefore, your domicile is still Australia.

Permanent place of abode

The expression 'place of abode' refers to a person's residence, where they live with their family and sleep at night. In essence, a person's place of abode is that person's dwelling place or the physical surroundings in which a person lives

As previously mentioned, you and your spouse are moving to country X to live for an indefinite period of time and you have purchased a residence in that country. Based on the information you have provided, the Commissioner is satisfied that you will have a permanent place of abode outside of Australia from when you relocate to country X.

Therefore, you are not a resident of Australia under this test.

The 183 day test

Under the 183 day test, a person is a resident of Australia if they are physically present in Australia for more than 183 days in an income year unless the Commissioner is satisfied that their usual place of abode is outside of Australia and they have no intention of taking up residence here.

Although it is possible that you may be physically present in Australia for more than 183 days in an income year, you will be residing in country X and the Commissioner is satisfied that your usual place of abode will be outside of Australia.

Therefore, you are not a resident of Australia under this test.

The superannuation test

A person will be considered a resident under this test if they are currently eligible to contribute to certain superannuation funds for Australian Commonwealth government employees.

You are not a resident under this test as neither you, nor your spouse, are Australian Commonwealth government employees who are eligible to contribute to the relevant Commonwealth government superannuation schemes.

Your residency status

As you do not meet any of the above tests, you will not be a resident of Australia for tax purposes from when you relocate to country X.

Assessability of income

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a foreign or non-resident includes the income derived directly or indirectly from all Australian sources during the income year.

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The agreement with country X is listed in section 5 of the Agreements Act.

The agreement between Australia and country X operates to avoid the double taxation of income received by residents of Australia and country X.

Article X(1) of the agreement provides that salaries, wages and other similar remuneration derived by a resident of country X in respect of an employment shall be taxable only in country X unless the employment is exercised in Australia. If the employment is exercised in Australia, the remuneration derived from that employment may also be taxed in Australia.

However, there is an exception to the above in Article X(2) of the agreement which provides that remuneration derived by a resident of country X in respect of employment exercised in Australia, will be taxable only in country X if:

• the recipient is present in Australia for a period or periods not exceeding in total 183 days in any 12 month period, and

• the remuneration is paid by an employer who is not a resident of Australia or is borne by or deductible in determining the profits attributable to a permanent establishment (a fixed place of business through which the business of an enterprise is wholly or partly carried on) which the employer has in country X, and

• the remuneration is neither borne by nor deductible in determining the profits attributable to a permanent establishment which the employer has in Australia.

In your case, you will be a resident of country X who performs work duties for your Australian employer both in country X and in Australia.

As such, Article X(2) will not apply to you as the remuneration you derive from work performed in Australia will be paid by an employer who is a resident of Australia and does not have a permanent establishment in country X.

Consequently, under Article X(1) of the agreement, country X will have the right to tax the entire amount of your employment income, whether your employment is exercised in country X or in Australia. However, Australia will have the right to tax the portion of your employment income that relates to work you physically perform in Australia.

Therefore, the remuneration you receive for work performed for your employer in Australia will be assessable in Australia and your employer will need to withhold tax at non-resident rates from the payments it makes to you.

However, when you perform your employment duties in country X, your employer will not need to withhold Australian tax from the payments it makes to you as this income is not assessable in Australia.