Edited version of your written advice

Authorisation Number: 1051441581227

Date of advice: 27 November 2018

Ruling

Subject: Residency and Medicare levy

Question 1

Are you a resident of Australia for taxation purposes?

Answer

Yes.

Question 2

Will your income paid in foreign country A be subject to the Australian income tax?

Answer

Yes.

Question 3

Are you liable to pay the Medicare levy?

Answer

Yes

This ruling applies for the following period

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on

1 July 20XX

Relevant facts and circumstances

You are citizen of foreign country B. Your country of origin is foreign country A.

You currently work for foreign country A based employer whose headquarters are in foreign country B.

You followed your spouse to Australia. Your spouse had previously relocated from foreign country A to Australia by their employer.

Both you and your spouse entered Australia on a visa which does not allow you or your spouse to stay permanently.

You have not applied to have the end date of your visa extended.

Your employer is proposing that you remain on their foreign country A payroll while working remotely for them during the next several years. They do not have an office in Australia. Your main role would be to provide remote support to the foreign country A work teams.

You will not apply for permanent residency once arriving in Australia.

You plan to leave Australia after several years.

You do not hold a return airline ticket.

You have not left Australia for any purpose since arriving in Australia. Prior to this, you had entered Australia for several short trips; for holidays and business.

You will have a permanent place to live in Australia:

● You will not be staying with relatives or friends.

● Your home in Australia will be rented.

The only asset you will have in Australia will be a bank account which you will open on arrival.

In your country of origin prior to departure you lived in a rented flat. You will not maintain a permanent place to live in your country of origin after your arrival in Australia.

Your only asset in your country of origin is a bank account.

While you are in Australia, you will receive income from your foreign country A based employer.

You will not have employment in Australia; you will remain under your current foreign country A based employment contract.

Your spouse is the only family who will accompany you to Australia. You will live together in Australia.

You will maintain no social or sporting connections with Australia or with your country of origin.

You will not be a resident of another country for tax purposes during your stay in Australia.

Your spouse is neither an Australian citizen nor a permanent resident of Australia.

Neither you nor your spouse is a Commonwealth of Australia Government employee for superannuation purposes.

You are not enrolled in a course of study in Australia that is more than six months long.

Your spouse will be a resident of Australia for income tax purposes.

You and your spouse are covered by a health insurance policy that provides private patent hospital cover for the relevant income years and is a health fund registered under the Private Health Insurance Act 2007.

Your spouse is not exempt from the Medicare levy.

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

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.

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 test

● the 183 day test

● the superannuation test.

The first two tests are examined in detail in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650).

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 a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.

The resides (ordinary concepts) test

The outcomes of several Administrative Appeals Tribunal (AAT) cases have determined that the word 'resides' should be given the widest meaning and there have been a number of factors identified which can assist in determining if a particular taxpayer is a resident of Australia under this test.

Recent case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the ‘resides’ test:

(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 different countries

(viii) Maintenance of place of abode.

These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in IT 2650 and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.

It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances.

There are several factors outlined above which indicate that you have not ceased to be a resident of Australia, specifically:

● You followed your spouse to Australia and will live with your spouse here for several years.

● You and your spouse have a permanent place to live in Australia in rented accommodation.

● You and your spouse have not retained your rented accommodation in foreign country A.

Based on a consideration of all of the factors outlined above, you are a resident of Australia according to ordinary concepts as you will maintain a continuity of association with Australia for the relevant period.

Whilst it is not necessary to meet more than one test to determine residency for tax purposes (we have already established that you are a resident under the resides test), we will also include a discussion of the ‘domicile and permanent place of abode’ test as an alternative argument.

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, you were born in foreign country A but are citizen of France. As you are still a citizen of France while living in Australia, your domicile is France and remains unchanged.

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.

A permanent place of abode does not have to be 'everlasting' or 'forever'. It does not mean an abode in which you intend to live for the rest your life. An intention to return to Australia in the foreseeable future to live does not prevent you in the meantime setting up a permanent place of abode elsewhere.

It is clear from the case law that a person’s permanent place of abode cannot be ascertained by the application of any hard and fast rules. It is a question of fact to be determined in the light of all the circumstances of each case.

You no longer have a permanent place of abode in foreign country A as you gave up your rented accommodation there when you moved to Australia live here with your spouse

The Commissioner is satisfied you do not have a permanent place of abode outside of Australia.

Therefore, you will be a resident of Australia under the ‘domicile and permanent place of abode’ test of residency.

Your residency status

As you are a resident of Australia under two of the tests of residency outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, you are an Australian resident for taxation purposes for the period of the ruling.

Assessable income

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that your assessable income includes income from ordinary concepts derived from all sources whether in or out of Australia.

The income you received from your foreign country A based employer for the period of the ruling is ordinary income and so is assessable under section 6-5 of the ITAA 1997.

Residency and Double Tax Agreement (DTA)

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 foreign country A Agreement is listed in section 5 of the Agreements Act.

The foreign country A agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The foreign country A agreement operates to avoid the double taxation of income received by residents of Australia and foreign country A.

An article of the foreign country A agreement advises that salary, wages and other similar remuneration derived by a resident of Australia shall be taxable only in Australia unless the employment is exercised in foreign country A. If the employment is exercised in foreign country A then the income may also be taxed in foreign country A.

In your case, you are a resident of Australia and you will perform personal services in Australia for your foreign country A based employer. Therefore, that relevant article applies and you will be taxed in Australia for the income you receive from foreign country A.

Medicare levy and surcharge

Medicare is the scheme that gives Australian residents access to health care. To help fund the scheme, most taxpayers pay a Medicare levy of 2.0% of their taxable income. As a resident of Australia you are required to pay the Medicare levy.

We will work out your Medicare levy, including any Medicare levy reduction if applicable, from the information you provide on your tax return. For more information and the Medicare levy calculator, please go to www.ato.gov.au and search QC 16846.

You have to pay the Medicare levy surcharge (MLS) if your income for MLS purposes is above a certain threshold and you (or any of your dependents) don’t have appropriate private patient hospital cover. The MLS is in addition to the Medicare levy.

As you and your spouse have an appropriate level of private patient hospital cover, you are not required to pay MLS for the period you have this cover.