Edited version of your written advice

Authorisation Number: 1051488209911

Date of advice: 15 April 2019

Ruling

Subject: Residency and double taxation

Question 1

Are you an Australian resident for taxation purposes while working in Country A?

Answer

Yes

Question 2

Is your income from working in Country A for an Australian company included in your assessable income in Australia?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2018

Year ending 30 June 2019

Year ending 30 June 2020

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You and your spouse are citizens of the Country B.

You and your spouse are permanent residents of Australia.

You began your employment with an Australian company.

Before moving to Country A you and your spouse were in the process of applying for Australian citizenship.

You were seconded for two years to head software development in Country A.

You are a full time employee of Australian Company on the Australian payroll and you are paid Australian dollars into your Australian bank account.

You and your spouse rent an apartment in Country B.

You and your spouse do not have any children.

You and your spouse were sponsored so you could obtain the appropriate Visas.

You have been issued with a work permit and temporary resident card.

Your spouse does not work, they have been issued with a temporary resident card.

You and your spouse intend to return to Australia after your secondment as you consider Australia your home.

You receive an allowance from your employer to help with costs of living abroad.

You opened a bank account in Country A that you use to transfer money from your Australian bank account where your salary is paid into as it allows you to use local ATMs without incurring overseas withdrawal charges.

Your assets in Country A are what you travelled to Country A with; clothes and two laptops and you purchased a second hand scooter in Country A.

Prior to leaving Australia you and your spouse rented a home in Australia for 5 years.

Your household assets in Australia are in storage and you sold your motor vehicle in Australia as it was too expensive to place in storage.

You still have Australian bank accounts with the numerous banks.

You and your spouse have family and friends in Australia.

During your secondment in Country A you and your spouse returned once to Australia to attend to family matter.

You and your spouse cancelled your private health insurance in Australia.

You and your spouse are not entitled to vote in Australia

You and your spouse were not employees of the Commonwealth Government of Australia for superannuation purposes.

You have confirmed with the Country A Tax authorities that they consider you a resident for tax purposes.

Detailed reasoning

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 contains four tests which will help ascertain whether an individual is a resident of Australia for income tax purposes. These tests are:

● resides test

● the domicile and permanent place of abode test

● the 183 day test and

● the Commonwealth superannuation test.

An individual needs only fall within one of these categories to be a resident of Australia and must fall outside all four to be a non-resident.

The main test for deciding a person’s residency status is whether they reside in Australia according to the ordinary meaning of the word resides.

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 Taxation Ruing IT 2650 - Income tax: residency – permanent place of abode outside Australia and Taxation Ruling.

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

In your case, you were seconded to Country A to work and your spouse accompanied you. You and your spouse do not intend to reside overseas permanently and you both consider Australia your home and your intention is to return to Australia after the secondment.

The domicile and permanent place of abode test

If a person’s domicile is Australia they will be an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence.

In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country.

In your case you and your spouse were both born in Country B and you are citizens of Country B; therefore, your domicile of origin is Country B. Your domicile of choice is Australia as you and your spouse became Australian permanent residents and you and your spouse were in the process of applying for Australian citizenship before you were offered the secondment to Country A.

Even if an Australian domicile is established, the individual will not be a resident of Australia for tax purposes if their permanent place of abode is outside Australia.

The Commissioner looks to Taxation Ruling IT 2650 Income tax: residency - permanent place of abode outside Australia in determining an individual's permanent place of abode. The Ruling says that the following factors need to be taken into account:

● the intended and actual length of the individual's stay overseas;

● the continuity of the individual's stay overseas;

● whether the individual intends to return to Australia at some definite point of time;

● whether the individual has established a home overseas; and

● whether any residence exists in Australia or has been abandoned.

You and your spouse are renting accommodation in Country A and you receive a monthly allowance from your employer to help with costs of living. Your only assets in Country A are your clothing, laptops and a second-hand scooter. You were renting in Australia and you placed your household affects in storage in Australia. You and your spouse have no intention of staying in Country A permanently.

Your residency status

Based on the facts provided, you and your wife are residents of Australia for income tax purposes under subsection 6(1) of the ITAA 1936.

Subsection 6-5(2) of the ITAA 1997 provides that assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Salary and wages are ordinary income for the purpose of subsection 6-5(2) of the ITAA 1997.

Double Taxation Agreement

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).

The Convention between the Government of Australia and Country A for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on income and on Capital Gains. The agreement is located on the Austlii website (http://www.austlii.edu.au/) in the Australian Treaties Series database. The agreement operates to avoid the double taxation of income received by residents of Australia and Country A.

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

The Convention’ (also referred to as the Double Tax Agreement) discusses at an Article ‘Residence’ of persons residing in either or both contracting states.

This article is important in 3 scenarios:

1) In determining a conventions personal scope of application,

2) In solving cases where double taxation arises in consequence of double residence,

3) In solving cases where double taxation arises as a consequence of taxation in the State of residence and in the State of source or situs.

In your case you are a resident for tax purposes of Country A and Australia under respective domestic laws. In these situations the Convention provides tie breaker tests at apply.

Taxation Ruling TR 2001/13 Income tax: Interpreting Australia's Double Tax Agreements at paragraphs 101 to 105 explains the Commissioner's view that the OECD Model Tax Convention and Commentaries are relevant to interpreting Australia's tax treaties.

A permanent home according to OECD commentary:

“means a place where the individual owns or possess a home; this home must be permanent, that is to say, the individual must have arranged and retained it for his permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be of short duration.”

In your case you rented a property in Australia that you gave up to rent a property in Country A.

Therefore, in accordance with the Double Taxation Agreement Country A has taxing rights on the salary and wages you receive for the employment you exercise in Country A for your Australian employer.