Edited version of private advice

Authorisation Number: 1051749069324

Date of advice: 3 September 2020

Ruling

Subject: Residency and foreign income

Question 1

Are you a resident of Australia for income tax purposes?

Answer

No.

Question 2

If the answer to question 1 is no, is the salary and wage income nevertheless assessable here under section 6-5 of the ITAA 1997 on the basis that it is sourced in Australia?

Answer

No.

Question 3

If the answer to question 1 is no, does the Australia-Country A DTA change any part of the outcome to question 2?

Answer

Not applicable - the salary income is foreign sourced, and non-residents are only assessable on their Australian sourced income under section 6-5(3) of the ITAA 1997. Accordingly the income will not be taxed in Australia.

Question 4

If the answer to question 1 is no, is the income you received from your consultancy business (consulting fees received from assigned projects) nevertheless assessable here under section 6-5 of the ITAA 1997 on the basis that it is sourced in Australia?

Answer

No.

Question 5

If the answer to question 1 is no, does the Australia-Country A DTA change any part of the outcome to question 4?

Answer

Not applicable - the consulting fees received from assigned projects are foreign sourced, and non-residents are only assessable on their Australian sourced income under section 6-5(3) of the ITAA 1997. Accordingly the income will not be taxed in Australia.

This ruling applies for the following period:

Year ended 30 June 2020

The scheme commenced on:

1 July 2019

Relevant facts and circumstances

General

You were born in Country A and you are a permanent resident of that country.

You are an Australian citizen.

Your usual place of residence is in Country A where you live with your parent in their house (in a major city of Country A). You have been living with your Parent in Country A for the past few years, who is an elder citizen of Country A. You take care of their household issues, and organise their care arrangements.

In early 2020 you came to Australia briefly to visit your adult child.

Just before this time you were on business travel to Country B and Country C, and once that concluded you decided against returning to Country A due to the extreme severity of the COVID-19 situation there at the time. Therefore you came back to Australia to visit your adult child.

You have not been in Australia prior to early in 2020 in the 2019-20 income year.

Due to the COVID-19 situation you have not been able to return home to Country A due to the border controls that are in place. You are also having some issues in relation to your permanent resident visa in Country A.

You intend on eventually residing in Australia permanently, but not until you retire from your employment and consulting services role in Country A. This is due to the fact that you have strong ties to Australia through a property that you own along with your adult child.

In Country A you run a consultancy business, and you also work in a part-time capacity as an academic for an educational institution in Country A.

Since early in 2020 you have been working on-line in Australia with your colleagues in Country A and other parts of the world in regards to both income earning activities.

You have not lodged any foreign income tax returns whilst you have been staying in Australia with your adult child.

Your mail is being sent to an Australian residential address (a property which you own where your adult child is living) (without any redirection).

Accommodation

You own an apartment in Australia, which your adult child resides in. You purchased this property over a decade ago.

Prior to arriving in Australia in early 2020 you have been living in your parent's home in Country A for the last few years, and this accommodation is ready for you to return to at any stage (if and when you are able to return to Country A).

You have a permanent home available for your use in Country A, which is the spare room at your parent's place in Country A. This room is available to you to live in when you return to Country A.

Assets

You have savings in your personal bank account in Country A.

Your business (of which you are the sole owner - a Company which is registered in Country A), has a cash account holding a significant amount of funds. You provide consultancy services through this Company, however you are not the director of this company.

Apart from your Australian apartment, you have a bank account in Australia.

The majority of your belongings are in your Australian apartment, and you also have some belongings in your parent's apartment in Country A.

Family and social connections

You do not have a spouse, you are widowed.

Your family lives in Country A, and you originally came to Australia in the 1980s to pursue your medical career. However since that time you have been living and working in Country A, until you entered Australia in early 2020 (which was only due to the rapidly escalating COVID-19 situation as noted above).

You do not have any professional, social or sporting connections in Australia or in Country A.

Employment

You earn a salary from your employment in a part-time capacity as an academic for an educational institution in Country A, along with consulting fees received from a Consulting Company in Country A (which you own).

Your employment contract in Country A is until early in 20XX and you are hired as a contractor where your position is a 'lead advisor'.

You do not have any Australian employment.

You are not an employee of the Commonwealth of Australia for superannuation purposes.

You are not enrolled in any course of study while in Australia.

Assessable income (Part-time employment and consulting services provided to your own Company registered in Country A)

Part-time employment

Regarding this income earning activity you lead research projects for the educational institution in Country A.

As outlined in the supplied contract, you are employed in the capacity as a lead advisor for a three-year term which began in early 20XX.

The contract of employment was entered into in Country A.

The remuneration (salary income) you receive from the educational institution in Country A is being paid from Country A.

Country A law applies to the contract.

The work takes effect in Country A.

As part of this position you lead the project design, communicate with peers and build consensus with relevant authorities, build the research contents with your colleagues, field trips, regular meetings with funding agencies, attend international dialogues on behalf of the projects. supervise the junior researchers and interns, monitor and evaluate outputs of our teams, approval the budget spending, etc.

You perform the work by reading, researching, meeting, writing and attending workshops.

Your research is carried out at your Australian apartment, as well as in consultation with fellow academics and wider health experts. From time to time your research takes you to overseas countries where you collaborate with various public authorities and government leaders.

A proportion of the associated research cannot be done remotely on-line as it is it is extremely challenging to organise projects as a project lead remotely, however mere reading and writing can be done on-line and remotely without a problem.

However, your role involves one of leadership, which frequently requires in-person meetings: in order to make proper assessments of the quality of candidates for example, or to connect with individuals from industry.

In the time you have been in Australia with your child, only one project has been submitted - as many aspects of the work have slowed down at the educational institution in Country A over the last few months.

No research is conducted at or with any Australian Universities.

Consulting services provided to your own company registered in Country A

Apart from being a part-time consultant as detailed below (as an academic lead), your position within the Company is only to help steer the running of the Company.

You lead the research and strategy for the Company and you are not a director of the company. All other business operations are managed by another individual.

Regarding the nature of this work, it involves providing strategy design of public health policy work for agencies of a large international organisation, the private clients, non-governmental organisations (NGOs), and not-for-profit organisations (NFPs).

As stated above, you help to steer the running of the Company, however your role is only as an academic lead on a part-time basis. Another individual oversees the Company operations.

The consulting work is performed / undertaken by a team of part/time consultants like yourself for the Company.

In regards to how the consultancy work is undertaken by yourself as part of this income earning activity, you are involved in the preparation of policy strategy and public health advisory work involving collaboration (travel, meetings, workshops) with public sector health experts, NGOs and some private sector companies in Country A to understand their needs and requests, and to create sound solutions from research with team members.

Regarding each job / client for the consulting business Company, the table below provides an outline of where the work is done for them, by whom and where each part of the task takes place:

In-person meetings and live demonstrations are indispensable to your work. There is no way to effectively perform as a project lead (which involves meeting new clients and inspecting and understanding emerging digital health technology being developed by health tech partners) via Zoom meeting only. You are actively losing out on important bids as a result of your inability to meet with critical stakeholders in Country A and elsewhere in the world.

You have not entered into or finalised any business contracts or agreements with any client's whilst you have been working on-line in Australia.

Due both to the impact of COVID-19 slowing down private sector and NGO activity in Country A, and your inability to travel to meet clients, you have not concluded a single business deal whilst being stuck here in Australia. Your role as a lead strategist involves selling projects, which is substantially hampered without the ability to meet with potential clients in person.

You earn consulting fees from the Company from assigned projects, and you have never received dividends from the Company.

The majority of your consulting fees are earned on the number of days travelled for assigned projects overseas, and a small portion is earned on the desktop research.

Since arriving in Australia in early- 2020, you have only been paid for your days worked on a project in Country B and Country C in early-2020 (which were worked prior to your arrival in Australia).

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

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

Income Tax Assessment Act 1997 Subsection 6-5(2)

Income Tax Assessment Act 1997 Subsection 6-5(3)

Income Tax Assessment Act 1997 Subsection 6-5(4)

International Tax Agreements Act 1953 Section 4

International Tax Agreements Act 1953 Section 5

Agreement between the Government of Australia and the Government of Country A for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income Article 15

Reasons for decision

Detailed reasoning

Question 1 - residency

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 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:

·         Your usual place of residence for the last few years has been Country A where you live with your parent in their house (in Country A). Your parent is an elderly citizen of Country A. Due to their age and current health you take care of their household duties and you also organise their carer.

·         Just before you arrived in Australia in early 2020 you were on business travel to Country B and Country C, and once that concluded you decided against returning to Country A due to the extreme severity of COVID-19 there at the time. As such you came back to Australia to visit your adult child.

·         Currently you remain in Australia and you still cannot re-enter Country A due to the COVID-19 situation and border controls that are in place, and you are also having some issues in relation to your permanent resident visa in Country A.

·         You have not entered Australia prior to early February 2020 in the 2019-20 financial year.

·         You own an apartment in Australia which your adult child resides in. You purchased this property over a decade ago.

·         You intend on eventually residing in Australia permanently, but not until you retire from your employment and consulting in Country A. This is due to the fact that you have strong ties to Australia through a property that you own along with your adult child. However your intention for now is to return to Country A as soon as you are able to.

·         Whilst you will have a remaining connection with Australia through your two adult age children, along with an Australian property where one of your adult children live, you also have a permanent home available to you at all times (a room at your parent's house in Country A).

·         You have savings in your personal bank account in Country A.

·         Your business (of which you are the sole owner), a Company registered in Country A, has a cash account holding a significant value of funds. You provide consultancy services through this Company, however you are not the director of this company.

·         Apart from your Australian apartment, you have an Australian bank account.

Whilst we acknowledge that you do have some connections to Australia, these are outweighed by the connections you have overseas.

We also acknowledge that you are only currently residing in Australia in the short-term due to the current challenges you are facing in returning to Country A (related to COVID-19 issues and border restrictions).

As such you are not residing in Australia according to the ordinary meaning of the word. Therefore, you do not meet the 'resides test' and you are a non-resident of Australia for tax purposes under this test for the 2019-20 income year.

However, you will be an Australian resident if you meet the conditions of any of the remaining tests.

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.

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 (section 10 of the Domicile Act 1982).

As such, 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, and 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 you were born in Country A and you are a permanent resident of that Country. However since that time you also became an Australian citizen. This meant that your domicile had changed from Country A to Australia when you became an Australian citizen.

As such you are an Australian citizen as you have not taken any legal steps which would have proven an intention to change your Australian domicile to any other Country. As such you have therefore have an Australian domicile.

Therefore, you will be a resident of Australia under this test 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.

As with the factors under the resides test, no one single factor is decisive, and the weight given to each factor depends on the individual circumstances.

·         In consideration of the factors above, along with your overall circumstances, the Commissioner is satisfied that you have a permanent place of abode outside of Australia based on the following:

·         Your usual place of residence for the last few years has been Country A where you live with your parent in their house (in Country A). Your mother is an elderly citizen of Country A. Due to their age and current health you take care of their household duties and you also organise their carer.

·         Just before you arrived in Australia in early 2020 you were on business travel to Country B and Country C, and once that concluded you decided against returning to Country A due to the extreme severity of COVID-19 there at the time. As such you came back to Australia to visit your adult child.

·         Currently you still cannot re-enter Country A due to the COVID-19 situation and border controls that are in place, and you are also having some issues in relation to your permanent resident visa in Country A.

·         You have not entered Australia prior to early 2020 in the 2019-20 financial year.

·         You own an apartment in Australia which your adult child resides in. You purchased this property over a decade ago.

·         Whilst you will have a remaining connection with Australia through your two adult age children, along with an Australian property where your adult son lives, you also have a permanent home available to you at all times (a room at your parent's house in Country A) and you will be able to live there as soon as you are able to return to Country A.

·         You intend on eventually residing in Australia permanently, but not until you retire from your employment and consulting in Country A. This is due to the fact that you have strong ties to Australia through a property that you own along with your adult child. However your intention for now is to return to Country A as soon as you are able to and live in the permanent home you have available there.

·         You have savings in your personal bank account held in Country A.

·         Your business (of which you are the sole owner), a Company registered in Country A, has a cash account holding a significant value of funds. You provide consultancy services through this Company, however you are not the director of this company.

·         Apart from your Australian apartment, you have an Australian bank account.

We acknowledge that you are only currently residing in Australia and staying with your child in your Australian property in the short-term due to the current challenges you are facing in returning to Country A (related to COVID-19 issues and border restrictions).

Therefore, despite the fact that your domicile is Australia, the Commissioner is satisfied that you have established a permanent place of abode outside of Australia.

Therefore you are not an resident of Australia under the domicile test of residency for the 2019-20 income year.

The 183-day test

Where a person is present in Australia for 183 days during the year of income the person will be a resident, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

You will not be in Australia for more than 183 days during the 2019-20 financial year.

As such you are not a resident under this test.

The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the PSS or the CSS, or that person is the spouse or child under 16 of such a person. To be eligible to contribute to those schemes, you must be or have been a Commonwealth Government employee.

You are not an employee of the Commonwealth of Australia for superannuation purposes.

You are not eligible to contribute to the relevant Commonwealth super funds, nor are you the spouse of such a person.

As such you are not a resident under this test.

Your residency status

As you do not satisfy the four tests of residency you are not a resident of Australia for income tax purposes for the 2019-20 financial year under subsection 6(1) of the ITAA 1936.

Questions 2 and 3 income earned from your part-time employment and the source of that income and the application of the DTA (Country A Agreement)

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.

You receive a salary income from the income earning activity where you lead research projects for an educational institution in Country A in global. As such this is therefore ordinary income.

You have undertaken the work and have subsequently been paid for it by the educational institution in Country A. Therefore you have derived that salary.

As you are a foreign resident in the 2019-20 financial year (after early 2020), the salary you received from the educational institution in Country A is assessable income if it was sourced in Australia. However it is not assessable income if it was sourced outside of Australia as per subsection 6-15(1) as it would not be ordinary income to which subsection 6-5 of the ITAA 1997 applies and there is no statutory provision which would make it assessable.

In Nathan v. Federal Commissioner of Taxation 25 CLR 183 at 189-190 it was recognised that the ascertainment of the actual source of a given income is a practical, hard matter of fact.

As stated by Bowen J in Federal Commissioner of Taxation v. Efstathakis (1979) 9 ATR 867; 79 ATC 4256 (the Efstathakis Case) at ATR 870; ATC 4259, to determine source:

... the answer is not to be found in the cases, but the weighing of the relative importance of the various factors which the cases have shown to be relevant.

Commissioner of Taxation v Cam & Sons Ltd (1936) 36 SR (NSW) 544 (the Cam Case) concerned wages paid to seamen employed to work on trawlers. They were engaged and paid in New South Wales, but most of their services were provided outside state territorial waters. Jordan CJ, with whom Street and Bavin JJ agreed in the Cam Case at 548, held that:

Where income is derived from wages or salary, again the source has several factors. Personal exertion may be involved in negotiating and obtaining the contract of employment, in performing the stipulated services, and obtaining payment for them. ... [i]n the ordinary case of the employment of a seaman ... where there is nothing special, either in the circumstances of the contract of employment or in the payment, and where the work is both done and paid for in the ordinary course, the all-important factor is the doing of the work; and the contract of employment and the payment are relatively insignificant and formal elements. But this is not necessarily the case with respect to all wages or salary. In the case of an appointment to a sinecure, the engagement and the payment may be the only significant factors.

Accordingly, the wages had to be apportioned based on 'working time in and out of New South Wales territorial waters (see the Cam Case at 553).

In Federal Commissioner of Taxation v French (1957) 98 CLR 398 (the French Case) the taxpayer was employed as an engineer by the Australian company CSR which carried on business in New South Wales and, relevantly, New Zealand. Each year, the taxpayer spent two or three weeks in New Zealand as inspecting engineer for the company in its New Zealand business. At all other times, the taxpayer performed services for the company in New South Wales. A majority of the High Court held that the wages paid in respect of the period in New Zealand were sourced in New Zealand, because this is where the services were performed, this being the most important factor in Mr French's situation (see French Case at 411, 417 and 422). However the Court also made comments to the effect that this decision did not necessarily determine what would be most important in every personal services contract. For example Dixon CJ in the French Case at 405 in relation to a director and at 406 in relation to an accountant procured to achieve a specified result, and Kitto J at 417-418 refers to a situation where remuneration was payable regardless of service, and to a person who worked sometimes overseas who was paid while on sick leave, and to where a period of overseas service might in substance be merely incidental to Australian service.

In Commissioner of Taxation of the Commonwealth of Australia v Mitchum (1965) 113 CLR 401, (the Mitchum Case) the taxpayer was an actor. He entered into a contract with a Swiss company, under which he agreed to provide services as a consultant to the producer and to act in two motion picture photoplays at such places as the company might from time to time designate. The agreement contained a number of provisions by which the taxpayer agreed to restrict his activities. If the Swiss company failed to utilise his services, provided that he performed all applicable terms of the agreement, he would be paid a salary. The taxpayer came to Australia for a period of time to act in a photoplay, and the issue was the source of the salary paid in respect of this time period. The High Court stated, at 408-409, that:

Taylor J., as I read his reasons, was engaged in deciding a question of fact deriving what assistance he could from the decided cases. He said, speaking, of course, of a case of wages or salary for work done or services performed - ". . . if, as the statute requires, I am compelled to select as the source of an employee's remuneration either the locus of the contract of service, or, the place where the remuneration is payable thereunder, or, the place where the services are performed which give rise to the right of remuneration I am content to conclude that, in the absence of special circumstances, this third element should be chosen" (1957) 98 CLR, at p 422 .

In so saying, his Honour was not, in my opinion, laying down a rule of law: he was expressing his reasons for the conclusion of fact to which he had come.

I do not feel compelled or persuaded by the decision of the Court in French's Case (1957) 98 CLR 398 to hold that in every case where work forms the consideration for wages or salary paid, the source of the income constituted by the wages or salary is in the place where the work is done.

... It is sufficient for present purposes to say that neither French's Case (1957) 98 CLR 398 nor any other of which I am aware lays it down that for the purposes of the Act the source of wages, salary or remuneration for services performed is necessarily, in default of special circumstances, in the place where the work is done or the services performed.

In the Efstathakis Case the taxpayer was a Greek National resident in Australia who was employed by the Greek Government as a secretary/typist in the Greek embassy. She had applied for the job in Greece, and the post had been gazetted there. She performed the services in Australia. Her net pay was compiled in Greece, a cheque was drawn on a bank in Greece and then received in Australia. A condition of her employment was that she could be posted anywhere in the world, but she would probably have resigned, as she had put down roots in Sydney, having child there, buying a unit, and marrying a naturalised Greek Australian. Bowen CJ, with whom Brennan and Deane JJ agreed, held that the wages paid to the taxpayer had an Australian source. His Honour considered the above factors, but gave most weight to 'the residence of the taxpayer in Australia and the facts that the services were performed and payment received [in Australia] ... The payment of remuneration depended upon actual performance of the services (the Efstatakis Case at ATR 871; ATC at 4260).

As per the court cases source cases concerning the provision of personal services are decided by weighing up the outcomes of the considerations of the following three factors (with the weighting given to each determined by their relevance to the case):

·         the place where the contract of employment is entered into,

·         the place where remuneration is payable,

and

·         the place where the services are performed.

In your case:

·         The contract of employment was entered into in Country A.

·         The remuneration (salary income) you receive from the educational institution in Country A is being paid from Country A.

·         Country A law applies to the contract.

·         The work takes effect in Country A.

In the Cam, the French and the Efstathakis Cases it was held that the source of the income was where the taxpayer performed the services. However in those cases the place where the taxpayer was located was the same as where the taxpayer did the work, where it was given effect to and where the outcome of the work occurred:

·         the Cam Case - the fishermen undertook fishing activities putting nets into the water and fished obtaining fish from the sea which all occurred where the boat on which he was working on at the time was located,

·         the French Case - the professional services the taxpayer provided in undertaking inspections were in relation to things he inspected in the locations that he was in at the time he conducted his inspections and which he subsequently reported on,

and

·         the Efstathakis Case - the taxpayer undertook secretarial duties and typing work. The effect of those secretarial, her typed work and the outcome of the other work always occurred at the same location as she was in at that time.

Your situation is distinguished from these cases in one material aspect - this is the fact that your physical location in Australia and the following, all of which are in relation to the performance of the services differed:

·         location of what you were advising on originated in Country A,

·         the salary was being paid from Country A,

·         the contract of employment was entered into in Country A and Country A Law applied to that contract,

and

·         the effect of the outcome of the advice was connected to and originated in Country A.

On physical location alone this factor would lean towards the source of the work being in Australia. However the physical location is not sufficient, the other factors concerning the performance of the services listed in the previous paragraph are also relevant. Once this is done then this factor would also lean towards the income being sourced in Country A. This is even more so, taking into account that you are able to physically perform the work in any location in the world where you have telephone and Internet access.

Therefore, taking into account the both the overall outcome and consideration of the factors the income that you earn in your role with the educational institution in Country A is regarded as being sourced in Country A.

Therefore, as we have determined that the source of this income is sourced (derived) in Country A, along with the fact that you are a non-resident of Australia for taxation purposes, the income earned from your employment with the educational institution in Country A whilst living in Australia is not assessable under section 6-5 of the ITAA 1997.

As such Article 15 of the Agreement between the Government of Australia and the Government of Country A for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (The Country A Agreement) has no application and does not need to be considered.

Questions 4 and 5 income received from your consultancy business (consultancy fees) and the source of Income and the application of the DTA

As stated above 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.

You earn consulting fees from a Consulting Company in Country A (which you own) from assigned projects which are all undertaken in overseas countries, and you have never received dividends from the Company.

The majority of your consulting fees are earned on the number of days travelled for assigned projects overseas, and only a small portion is ever earned on the desktop research.

Since arriving in Australia in early 2020, you have only been paid for your days worked on a project in Country B and Country C shortly prior to you arriving in Australia in early 2020.

An entity derives an amount of ordinary income as soon as it is applied or dealt with in any way on the entity's behalf or as directed by it (subsection 6-5(4) of the ITAA 1997).

Taxation Ruling TR 98/1 Income tax: determination of income; receipts versus earnings (TR 98/1) sets out the Commissioner's view on when income is derived and explains that income can be derived either on the basis of the 'receipts' method or the 'earnings' method.

Under the earnings (or accruals) method, income is derived when it is earned and the point of derivation occurs when a recoverable debt is created. In most cases, the earnings method is the appropriate way to determine business income derived from a trading or manufacturing business (paragraph 20 of TR 98/1).

Under the receipts method, income is derived when it is received, either actually or constructively, and is taken to be derived by a person although it may not actually be paid over, but is dealt with on his/her behalf or as he/she directs.

Paragraph 18 of TR 98/1 states that the receipts method is likely to be appropriate to determine:

·         income derived by an employee;

·         non-business income derived from the provision of knowledge or the exercise of skill possessed by the taxpayer; and

·         business income where the income is derived from the provision of knowledge or the exercise of skill possessed by the taxpayer in the provision of services (subject to certain qualifications).

Consequently, income from a source such as consulting fees in relation to the type of services you are providing to the consulting Company registered in Country A (which you own) is normally assessable on a receipts basis.

You have undertaken the work and have subsequently been paid for it by the abovementioned consulting company. Therefore you have derived that income in the form of consulting fees whilst you have been living in Australia.

As such this is therefore ordinary income you have received in the form of consulting fees whilst you have been living in Australia.

As you are a foreign resident in the 2019-20 financial year (after early 2020), the consulting fees you received from the consulting company is assessable income if it was sourced in Australia. However it is not assessable income if it was sourced outside of Australia as per subsection 6-15(1) as it would not be ordinary income to which subsection 6-5 of the ITAA 1997 applies and there is no statutory provision which would make it assessable.

Following on from the abovementioned reasoning on the source of salary income you received from the educational institution in Country A, the relevant court cases on source (concerning the provision of personal services) are decided by weighing up the outcomes of the considerations of the following three factors (with the weighting given to each determined by their relevance to the case):

·         the place where the contract of employment is entered into,

·         the place where remuneration is payable,

and

·         the place where the services are performed.

In your case, you were physically present in Country B and Country C whilst working on a project in early 2020 (shortly prior to you arriving in Australia), and you only received the consulting fees whilst you were living in Australia.

In addition:

·         each project is undertaken outside of Australia,

·         you cannot perform effectively as a project lead remotely in Australia,

·         the vast majority of your consulting fees are earned on the number of days travelled for the assigned projects overseas,

·         The consulting Company was established in Country A,

·         The payment you received related to days you worked on the assigned project undertaken in Country B and Country C,

and

·         the effect of the outcome of the advice is connected to the relevant overseas countries where the projects are undertaken.

On physical location alone this factor would lean towards the source of the work being in Country B and Country C. However the physical location is not the sole determining factor, the other factors concerning the performance of the services listed in the previous paragraph are also relevant. Once this is done then this factor would also lean towards the income being sourced in those countries (outside of Australia). This is even more so, taking into account that the projects cannot be effectively managed remotely in Australia along with the fact that the effect of the advice given is connected to the relevant overseas countries where each project is undertaken.

Therefore, taking into account the both the overall outcome and consideration of the factors the consulting fees that you receive from the consulting Company are regarded as being sourced outside of Australia.

Therefore, as we have determined that the source of the consulting fees is outside Australia, along with the fact that you are a non-resident of Australia for taxation purposes, the consulting fees received from the Consulting Company whilst living in Australia is not assessable under section 6-5 of the ITAA 1997.

As such Article 15 of the Agreement between the Government of Australia and the Government of Country A for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (The Country A Agreement) has no application and does not need to be considered.