Edited version of private advice

Authorisation Number: 1051657080973

Date of advice: 29 April 2020

Ruling

Subject: Residency and foreign source income

Question 1

Did you cease to be an Australian resident for taxation purposes from XX December 20XX?

Answer

Yes.

Question 2

Is your employment income assessable in Australia whilst you were an Australian resident for tax purposes?

Answer

Yes.

Question 3

Is your employment income assessable in Australia following you becoming a non-resident for tax purposes from XX December 20XX?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

General

You were born in Australia and you are an Australian citizen.

On XX October 20XX you moved to Country Y to spend time with your partner (who you are now in a relationship with), a citizen of Country Y who you met whilst travelling in Country X in just over a year prior.

Upon your arrival in Country Y you moved in with your partner, however as the visa you held at that time (a tourist visa) only allowed you to stay in Country Y for six months at a time, you were required to leave Country Y frequently to re-set your tourist visa.

Your intention at that stage was to establish your new relationship for a trial period, and to ensure that things would work out before making any further commitments in regards to living in Country Y on a permanent basis.

At the time you both believed that if things went well, you would apply for permanent residency in Country Y, which would be expected to take between two to three years.

After a year of living together, you and your partner knew that your relationship would continue, and that you both wanted to make it more permanent.

As such and after some investigation you determined that you met the criteria to apply for permanent residency in Country Y via Spousal (common law) sponsorship. You applied for permanent residency in Country Y on XX December 20XX as your intention had changed from that point, whereby you were looking to remain living in Country Y until you at least became a citizen of Country Y (which you estimated to be mid-20XX).

The Country Y Immigration Department confirmed receipt of the application a few days after it was lodged, where they provided a 'Temporary Residency status', Social Insurance Number (SIN) and work permit on XX March 20XX.

However you were unable to find work in Country Y before 30 June 20XX.

From the date Country Y Immigration Department confirmed receipt of your application for permanent residency you were able to remain in Country Y for as long as required for the Country Y Government to either grant or reject your application.

Your Country Y permanent residency was eventually granted in March 20XX.

You spent the majority of the 20XX-XX financial year in Country Y, apart from the following periods:

-       A couple of weeks spent in Australia to visit your family (from late December 20XX to early January 20XX).

-       Just over a week spent holidaying in Country Z (In mid- 20XX)

When completing incoming and outgoing passenger cards you stated that you were an Australian resident returning home on incoming cards, and as an Australian resident departing temporarily on departure cards. On Country Y declaration cards, you declare yourself as a tourist visiting for personal reasons.

Your name is on the Australian Electoral roll.

You have not informed Medicare that you have departed Australia.

You maintained your Australian private health insurance until late February 20XX, when you cancelled this due to the ongoing costs.

You submitted your 20XX-XX Australian income tax return as an Australian resident for taxation purposes.

Accommodation

Prior to moving to Country Y in October 20XX you rented out your Australian residential property (a couple of weeks before departing Australia) and you placed all of your furniture and belongings into storage.

You live with your partner in their apartment in Country Y, which they rent, and the lease agreement is in their name. Given your limited income and initial uncertainty as to how long you would be living in Country Y for, you did not contribute to the rent or bills, however you did contribute to groceries, eating out, and leisure and travel costs.

Assets

You took clothes and some personal belongings to Country Y.

You have a home loan with an Australian Financial Institution, along with a credit card account and multiple bank accounts.

You primarily use your Australian credit card account in Country Y.

You have retained an Australian mobile phone plan, however your partner took out another mobile phone plan in Country Y under their name for your own use.

You owned a car in Australia until early in 20XX when you sold it, however you have not purchased a car in Country Y, nor have you obtained a Country Y drivers licence.

You hold life insurance (Income protection, Trauma, Life and TPD) in Australia.

You have a superannuation account in Australia.

You hold an Australian drivers licence.

You have a joint Country Y bank account with your partner, however this has not been used.

You hold no insurance in Country Y, and you are not entitled to any health care in Country Y (via the Government or privately owned).

You have not advised any Australian financial institutions including any Australian companies with whom you have investments with that you are a foreign resident so that non-resident withholding tax can be deducted.

Whilst you have not lodged any foreign income tax returns since living overseas, you will soon need to lodge an income tax return in Country Y for the 20XX year.

Family and social connections

You have family and friends in Australia.

You have not maintained any professional, social or sporting connections with Australia apart from social links to family and friends.

Employment

You are employed with an Australian Company on a full-time basis, and since moving to Country Y you have maintained your Australian employment, however as you are living in Country Y your role has since changed to being on a 'casual remote employee', on an 'as needed' basis.

Whilst you were living in Country Y on a tourist visa, you were unable to work in Country Y. As such the entirety of your income at that time was the income you received from your Australian employer plus your rental income from your Australian rental property.

You have now secured employment in Country Y which will take effect from September 20XX.

Neither you nor your spouse has ever been employed by the Commonwealth of Australia.

You are not a member of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990.

You are not an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS) which was established under the Superannuation Act 1976.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 subsection 995-1(1).

Reasons for decision

Question 1

Summary

Based on the information provided you remained a resident of Australia for tax purposes until XX December 20XX when you intention changed to stay in Country Y on a more permanent basis, which is evidenced by you submitting your application for permanent residency in Country Y.

As such you will be a non-resident of Australia for tax purposes from XX December 20XX.

Detailed reasoning

Section 995-1 of the Income tax Assessment Act 1997 (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 offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the:

·         the resides test,

·         the domicile test,

·         the 183 day test, and

·         the superannuation test.

The primary test for deciding the residency status of each individual is whether they reside in Australia according to the ordinary meaning of the word resides. If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established.

Where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be an Australian resident if they meet the conditions of one of the other tests.

The resides (ordinary concepts) 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', and according to the Compact Edition of the Oxford English Dictionary (1987), is 'to dwell permanently, or for a considerable time, to have one's settled or usual abode, to live in or at a particular place'.

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.

In your case:

·         On XX October 20XX you moved to Country Y to spend more time with your partner (who you are currently in a relationship with), a citizen of Country Y who you met whilst travelling in Country X in 20XX.

·         Upon your arrival in Country Y you moved in with your partner in their Country Y apartment which they rent (the lease agreement is in their name). However, as the visa you held at that time (a tourist visa) only allowed you to stay in Country Y for six months at a time, you were required to leave Country Y frequently to re-set your tourist visa.

·         Your initial intention was to establish your new relationship with your partner for a trial period, and to ensure that things would work out before making any further commitments in regards to living in Country Y on a permanent basis.

·         At that time both you and your partner believed that if things went well, you would eventually apply for permanent residency in Country Y.

·         After a year of living together, you and your partner knew that your relationship would continue, and that you both wanted to make it a more permanent arrangement. As such and after some investigation you determined that you met the criteria to apply for permanent residency in Country Y via Spousal (common law) sponsorship.

·         You then applied for permanent residency in Country Y on XX December 20XX as your intention had changed from that point, whereby you were looking to remain living in Country Y until you at least became a citizen of that Country (which you estimate to be mid-20XX).

·         The Country Y Immigration Department confirmed receipt of your application for permanent residency a few days after you lodged the application, and they subsequently provided a 'Temporary Residency status', Social Insurance Number (SIN) and work permit on XX March 20XX.

·         From the date that the Country Y Immigration Department confirmed receipt of your permanent residency application you were able to remain in Country Y for as long as required for the Country Y Government to either grant or reject your application for permanent residency, which was eventually granted in March 20XX.

·         You spent the majority of the 20XX-XX financial year in Country Y, apart from a couple of weeks spent in Australia visiting family and just over a week spent holidaying in Country Z.

·         You own an Australian rental property which has been rented out to tenants since October 20XX.

·         You have family and friends in Australia.

·         Whilst you have not lodged any income tax returns in Country Y since you have been living there, you intend on lodging a Country Y income tax return shortly for the 20XX year.

·         You have not maintained any professional, social or sporting connections with Australia.

·         You are employed by an Australian Company working remotely in Country Y on a casual basis.

You have strong personal ties to Country Y by way of your partner (a citizen of Country Y), and from XX December 20XX you made your intention clear that you wanted to live in Country Y on a more permanent basis, which was evidenced by you applying for permanent residency in Country Y.

You have some connections to Australia by way of family and friends, your rental property and your Australian employment. However these connections are outweighed by your abovementioned connections to Country Y along with your intention to remain living there until at least mid-20XX.

Based on these facts, you are not residing in Australia according to the ordinary meaning of the word from XX December 20XX. Therefore, you are a non-resident of Australia under this test.

The domicile 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

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.

This 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, although you applied for permanent residency of Country Y during the year in question (XX December 20XX), the outcome of your application was not decided in that year (it was eventually granted in March 20XX) and it is therefore considered that there is not enough evidence to say that you had proven an intention to change your domicile to Country Y at that time (XX December 20XX).

Therefore, as you have not taken sufficient legal steps which would have proven an intention to change your domicile to Country Y, you have retained your Australian domicile.

Therefore, you will be a resident of Australia unless the Commissioner considers you have established a permanent place of abode outside of Australia.

Permanent place of abode

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.

The courts have considered a person's 'place of abode' is where they consider 'home'. In R v Hammond (1982) ER 1477, Lord Campbell CJ stated that "a man's residence, where he lives with his family and sleeps at night, is always his place of abode in the full sense of that expression."

A place of abode must exhibit the attributes of a place of residence or a place to live, as contrasted with the overnight, weekly or monthly accommodation of a traveller.

Paragraph 23 of Taxation Ruling IT 2650 Residency - Permanent place of abode outside Australia sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode:

(a)   the intended and actual length of the taxpayer's stay in the overseas country;

(b)   whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time;

(c)   whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia;

(d)   whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;

(e)   the duration and continuity of the taxpayer's presence in the overseas country; and

(f)    the durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

Clearly, the longer an individual stays in any one particular place, the more permanent in nature is likely to be the stay in that place of abode. An individual's intention regarding the duration of the overseas stay and the length of the actual stay are significant factors in deciding whether they have set up a permanent place of abode.

Where a taxpayer leaves Australia for an unspecified or a substantial period and establishes a home in another country, that home may represent a permanent place of abode of the taxpayer outside Australia. However, a taxpayer who leaves Australia with an intention of returning to Australia at the end of a 'transitory' stay overseas would remain a resident of Australia for income tax purposes.

It is the Commissioner's view that an overseas stay in excess of two years may indicate that an individual can be considered to have a permanent place of abode overseas, subject to a consideration of all the other relevant circumstances applying to the taxpayer (paragraphs 23, 25 and 27 of IT 2650).

In Harding v Commissioner of Taxation (2019) FCAFC 29 (Harding), Davies and Stewart JJ stated at paragraph 40 that in reference to the term "permanent place of abode", the word "place" should accordingly be read as only including a reference to a particular country or state.

Further, the Full Court found in Harding at paragraphs 36 and 40 that "permanent place of abode outside Australia" involves two considerations as follows:

1)    Whether a taxpayer has definitely abandoned, in a permanent way, their Australian residence, and

2)    Whether the taxpayer is living permanently in a specific country rather than moving between foreign countries.

In your case it is considered that you have established a permanent place of abode outside of Australia from XX December 20XX because:

·         After moving to Country Y on XX October 20XX on what was considered to be a trial basis of living with your new partner, your intention subsequently changed from XX December 20XX to making it a more permanent arrangement which was evidenced by you lodging an application for permanent residency in Country on this date (which was eventually granted in March 20XX).

·         You now intend on remaining living in Country Y with your partner until you at least become a citizen of that Country (which you estimate to be mid-20XX).

·         You live with your partner in their apartment in Country Y (the lease agreement is currently their name).

·         Prior to moving to Country Y you rented out your Australian residential property and you placed all of your furniture and belongings into storage.

·         Since XX December 20XX you have only spent a couple of weeks in total visiting your family in Australia.

Therefore, you are a non-resident of Australia under this test from XX December 20XX.

The 183 day test

Under the 183 day test, a person is a resident of Australia if they are actually 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.

As you were not physically present in Australia for more than 183 days during the specified period you are not a resident of Australia under this test.

The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person.

You will not be treated as a resident under this test as you are not a contributing member of the PSS or the CSS, a spouse of such a person, or a child under 16 of such a person.

Your residency status

As you do not meet any of the above tests from XX December 20XX, you are not a resident of Australia for tax purposes from this date under subsection 6(1) of the ITAA 1936.

Questions 2 and 3

Summary

Although your salary and wage income was being paid from an Australian employer, as you were performing the work from Country Y, the income had a foreign source.

As such, your salary and wage income is only assessable in Australia during the period in which you were an Australian resident for tax purposes as you were assessable on your worldwide income.

Detailed reasoning

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 source of a taxpayer's income (derivation) is the place where the services are performed: French v. FC of T (1957) 98 CLR 398.

In your case, the income you earn while carrying out the duties of your employment with the Australian company has a Country Y source as you are physically present in Country Y when you carry out your duties.

As the income is sourced (derived) in Country Y, along with the fact that you are a non-resident of Australia for taxation purposes from XX December 20XX, the income earned from your employment with the Australian company whilst living in Country Y is not assessable under section 6-5 of the ITAA 1997 from XX December 20XX.

However, in line with section 6-5 of the ITAA 1997, this income is assessable in Australia up until the date you become a non-resident of Australia for taxation purposes.