Edited version of private advice

Authorisation Number: 1051599301620

Date of advice: 24 October 2019

Ruling

Subject: Residency

Question 1

Are you an Australian resident for taxation purposes during your stay in Australia?

Answer

Yes.

Question 2

Is your employment income derived while working in Australia assessable income in Australia?

Answer

Yes.

This ruling applies for the following periods

Year ending 30 June 2020

Year ending 30 June 2021

The scheme commenced on

1 July 2019

Relevant facts

You are an employee.

You will be working from Australia for one year.

You are here on a temporary skill shortage visa.

Your spouse and child are travelling with you.

You have rented a home where you and your family will live while in Australia.

You will return to country A after you have worked in Australia for a year.

You own a house in country A which you have rented out. The rental income is taxed in country A.

You are still registered as a resident of country A with access to social benefits and rights and tax obligations, as though you were still living there.

You are not an Australian citizen.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Section 6-5

International Tax Agreements Act 1953

Reasons for decision

Residency

Residency status is a question of fact. Your residency status is relevant in determining your liability to Australian income tax.

The term Australian resident is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to mean 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 four tests to determine whether a person 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 Commonwealth superannuation fund 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 satisfy the conditions of one of the other three tests.

The resides test

The Macquarie Dictionary defines reside as to dwell permanently or for a considerable time, have ones abode for a time.

The Shorter Oxford English Dictionary defines reside as to dwell permanently, or for a considerable time, to have ones settled or usual abode, to live in or at a particular place.

Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia provides guidelines. As highlighted in TR 98/17 the quality and character of an individual's behaviour while in Australia assist in determining whether a person resides in Australia. The following factors are relevant:

·        intention or purpose of presence,

·        period of physical presence

·        family and/or employment ties,

·        maintenance and location of assets, and

·        social and living arrangements.

The period of physical presence or length of time in Australia is not by itself decisive when determining whether an individual resides here. Equally important is the quality and character of an individual's behaviour while in Australia. An individual may be regarded as a resident if behaviour consistent with residing here is demonstrated over at least six months.

Results of the resides test

In your case, you have come to Australia to work for approximately 12 months. Your spouse and child travelled with you and you are renting a home in Australia for the 12 months.

Your settled purpose with ongoing employment as well as living with your immediate family shows that you are residing in Australia for this period.

In view of your full circumstances, you are a resident of Australia under the resides test during your stay in Australia.

As you are a resident under this test, it is not necessary to consider the other three tests.

Australian tax liability

In determining liability to tax in Australia, it is necessary to consider not only the income tax laws but also the International Tax Agreements Act 1953 (the Agreements Act) and any applicable double tax agreement contained in the Australian Treaties Series (ATS). The double tax agreements operate to avoid the double taxation of income received by Australian and foreign residents.

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one. Subsection 4(2) of the Agreements Act provides that the Agreements Act overrides the ITAA 1997 where there are inconsistent provisions (apart from Australia's general anti-avoidance rules and certain provisions dealing with limitations of tax credits).

Article 4 of the relevant agreement discusses the term resident and the tie breaker rules if anindividual is a resident of both countries

The tie breaker rules apply for the purposes of the agreement. That is, they do not apply for the purposes of the domestic laws. Thus an individual continues to be treated as a resident of Australia for the purposes of the Australian domestic tax laws and may therefore be subject to tax in Australia.

In your case, we consider that for the purposes of the agreement you are treated as a resident of country A.

Article 14(1) of the agreement provides that income from employment derived by an individual who is a resident of country A is taxable only in country A unless the employment is exercised in Australia. If the employment is exercised in Australia, such remuneration may be taxed in Australia. Article 14(2) of the agreement provides an exception to article 14(1), however the exception does not apply in your case as you will be in Australia for more than 183 days.

Employment income is ordinary assessable income under subsection 6-5(2) of the ITAA 1997.

In your circumstances, your employment income derived while working from Australia is regarded as assessable income and should be included as assessable income on your Australian tax return.

As your income is also taxable in country A, article 23 of the agreement is relevant. Article 23 outlines the methods of elimination of double taxation. As you are a resident of country A under the agreement, article 23 provides that country A shall allow as a deduction from the tax on the income, an amount equal to the income tax paid in Australia on that income. Such deduction shall not, however, exceed that part of the income tax, as computed before the deduction is given, which is attributable to the income which may be taxed in Australia.

Please note, that your rental income from your country A home is not regarded as assessable income in Australia as you are a temporary resident and foreign rental income is not included in the assessable income of a temporary resident of Australia.