Edited version of private advice

Authorisation Number: 1051767054198

Date of advice: 30 October 2020

Ruling

Subject: Residency

Question

Are you a resident of Australia for income tax purposes?

Answer

No

Question

Is your salary paid as an overseas based employee of an Australian company, assessable in Australia?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances:

You are a citizen of Australia, with citizenship granted in 20XX. You left Australia for Country A in mid-20XX to live and work in that country. You were granted permanent residency that country a few years later.

Your family moved with you and now reside with you in an apartment in City A.

You also hold a local personal identification, a Country A passport and a local motor vehicle registration identification.

Your intention upon departing Australia was to indefinitely leave Australia and relocate overseas.

You reside in an apartment in City A which you own. This was purchased in 20YY.

You did not own any Australian property and were living with family before departing Australia.

You sold all your belongings before departing Australia and took most personal possessions with you when you departed.

You advised the Australian Electoral Commission of your departure. You retain an Australian bank account, a savings account and an Australian credit card. You also have small shareholdings in Australia.

You have not retained any professional or sporting connections with Australia but have joined a sporting club in Country A as well as a local band.

You retain social connections with Australia as you have some family and friends who reside in Australia. When visiting Australia, you have stayed with your parents and your sibling.

You were employed by an Australian company, Company A, as a manager. You commenced in this role in January 20ZZ. This is a permanent position where you provide quality control and supervise and mentor a Team which has members in Country B, Country C and Country D.

Recently your employer has issued shares as part of a company share program.

Your Australian employer pays your salary through Australian bank accounts using an Australian payroll provider.

While working in Country A you have not been obliged to lodge tax returns. However, you have lodged Australian returns and intend to continue to lodge Australian returns.

Neither you nor your spouse has ever been employed by the Australian Commonwealth government and neither belongs to any Commonwealth superannuation scheme such as CSS or PSS.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 6(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', regarding 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, and

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

Resides Test

When considering the resides test the following factors are normally considered:

·         physical presence

·         intention or purpose

·         family or business ties

·         maintenance and location of assets

·         social and living arrangements.

In your case, you are a citizen of Australia who departed Australia with your family.

During your time in Country A you travelled to Australia on X separate occasions to visit friends and relatives.

This subject is addressed in Taxation Ruling 98/17 (TR98/17) Income tax: residency status of individuals entering Australia. At paragraphs 20 and 21 it states -

20. All the facts and circumstances that describe an individual's

behaviour in Australia are relevant. In particular, the following factors

are useful in describing the quality and character of an individual's

behaviour:

·         intention or purpose of presence;

·         family and business/employment ties;

·         maintenance and location of assets; and

·         social and living arrangements.

21. No single factor is necessarily decisive and many are

interrelated. The weight given to each factor varies depending on

individual circumstances.

Your intention upon departure was to reside overseas indefinitely. You formed this view in 20XX before departure.

You have established social or sporting connections in Country A but have also maintained social and family relationships in Australia including family and friends.

You have purchased an apartment in Country A where you live with your family.

You are not considered a resident for tax purposes under the resides test. Even though you are considered to have maintained an association with Australia, you have also established a permanent presence in Country A.

The domicile test

Under the domicile test, a person is a resident of Australia if their domicile is in Australia unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

Domicile

"Domicile" is a legal concept to be determined according to the Domicile Act 1982 and common law rules. A person's domicile is in their country of origin unless they acquire a different domicile of choice or operation of law. To obtain a different domicile of choice, a person must have the intention to make their home indefinitely in another country, usually done by obtaining a migration visa. The domicile of choice which a person has at any time continues until that person acquires a different domicile of choice.

In your case, you are a citizen of Australia. You have left Australia and have chosen to live in another country where you have been granted permanent residency.

You have abandoned your domicile in Australia and acquired a domicile of choice in Country A as you have the right to reside permanently in that country. This is because you have the right of permanent occupancy and a Country A passport.

You are not a resident for tax purposes under this test.

The 183 days 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 were not in Australia for more than 183 days in any year during the relevant period.

You are not a resident for tax purposes 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 Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person.

You are not a contributing member of the PSS or the CSS or a spouse of such a person, or a child under 16 of such a person. You are not a resident for tax purposes under this test.

Residency status

As you satisfy none of the four tests of residency outlined in subsection 6(1) of the ITAA 1936, you are a non-resident of Australia for income tax purposes after departing Australia.

Source of Income

The relevant parts of section 6-5 of the ITAA 1997 state:

(1) Your assessable income includes income according to ordinary concepts, which is called ordinary income.

...

(3) If you are a foreign resident, your assessable income includes:

(a) the * ordinary income you * derived directly or indirectly from all * Australian sources during the income year; and

(b) other * ordinary income that a provision includes in your assessable income for the income year on some basis other than having an * Australian source.

Subsection 6-15(1) further states:

If an amount is not ordinary income, and is not statutory income, it is not assessable income (so you do not have to pay tax on it).

Since the 20XX income year you have been employed by an Australian company.

The salary you received in return for performing your duties as a manager are salary and wages and therefore ordinary income (as per Mutual Acceptance Company Ltd v FCT (1944) 69 CLR 389; Murdoch v Commissioner of Pay-roll Tax (Vic) (1980) 143 CLR 629).

You have undertaken the work and subsequently been paid for it by your Australia employer. Therefore, you have derived that salary.

If you were a foreign resident since departure, the salary received is assessable income if it was sourced in Australia. 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.

Your contract of employment was formulated, prepared and is governed by, the laws that apply in Australia. Therefore, this factor significantly leans towards the source of your income being Australian. While the fact that you are located in Country A when you signed the contract is also relevant, it does not change this outcome.

Your remuneration is paid by the Australian employer which is located in Australia into a bank account located in Australia in Australian dollars. Therefore, this factor leans towards the source of the taxpayer's income being Australian.

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 Country A.

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

While you provide quality control, supervision and mentoring for members your team with members located outside Australia this team ultimately works for an Australian company and is paid through an Australian payroll provider into Australian bank accounts. The work they do is ultimately to serve the interests of an Australian corporate entity.

On balance, the factors suggesting an Australian source of income are more persuasive than other factors as shown by the many links back to Australia and the ultimate benefit to an Australian entity. In totality the factors weighted together show a stronger Australian connection than with other countries.

Therefore, taking into account the both the overall outcome and consideration of the factors the income that you earn is regarded as being sourced in Australia. Accordingly, this income is assessable in Australia.