Edited version of private advice

Authorisation Number: 1051790397806

Date of advice: 17 December 2020

Ruling

Subject: Residency

Question

Are you a resident of Australia for taxation purposes after arriving in Australia in early 20XX?

Answer

No

Question

Is your income paid as an overseas based employee of an overseas company, assessable in Australia for the period from when you commenced remote work in Australia?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are an Australian citizen who departed Australia in late over XX years ago to live and work in Country A. You are currently a tax resident of that country.

You also have Country B passport which allows you to live and work in Country A. You applied for this passport about XX years ago and renewed it X years ago. You were eligible to apply for this passport as one of your grandparents was born in Country B.

You rent a flat and renewed the rental agreement recently. This agreement is until mid-20XX.

You normally work for a professional firm and do not work with Australian entities or suppliers.

In early 20XX you arrived in Australia to visit family and for a holiday. You were booked to depart in after a few months, but your flights were cancelled due to the Covid-19 pandemic travel restrictions. You have been unable to return due to travel restrictions and illness.

You were due to return to work in mid 20XX and your employer allowed you to work remotely. You will remain with your family until departing Australia.

You work Country A hours whilst in Australia as your work has not changed despite the pandemic.

You have no assets in Australia and plan to leave as soon as this can be arranged.

During your time overseas you travelled to Australia on a few separate occasions to maintain family relationships and holiday. These visits were for short periods.

You have never been employed by the Australian Commonwealth government and nor do you belong 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)

Convention 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 and on Capital Gains (The Country A Convention)

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 many years ago to live and work in Country A.

During your time overseas you travelled to Australia on X separate occasions to maintain family relationships and holiday. These visits were for short periods.

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.

You maintained family ties with Australia and nurtured these ties with regular visits.

You are a non-resident for tax purposes under the resides test after departure. You have not maintained an enduring association with Australia as you have 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 Country A. You have been granted a right to remain which allows you to reside permanently.

You may have abandoned your domicile in Australia and acquired a domicile of choice in Country A as you currently have the right to reside in that country.

Permanent place of abode

A person's 'permanent place of abode' is a question of fact to be determined in the light of all the circumstances of each case. (Applegate v. Federal Commissioner of Taxation 78 ATC 4051; 8 ATR 372 (Applegate))

In Applegate, the court found that 'permanent' does not mean everlasting or forever, but it is to be contrasted with temporary or transitory.

The courts have considered "place of abode" to refer to a person's residence, where he lives with his family and sleeps at night.

Taxation Ruling IT 2650 Income Tax: Residency - Permanent place of abode outside Australia (IT 2650) provides a number of factors which are used by the Commissioner in reaching a satisfaction as to an individual's permanent place of abode. These factors include:

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

(b)  any intention either to return to Australia at some definite point in time or to travel to another country;

(c)   the intended and actual length of the individual's stay in the overseas country;

(d)  any intention either to return to Australia at some definite point in time or to travel to another country;

(e)  the establishment of a home outside Australia;

(f)    the abandonment of any residence or place of abode the individual may have had in Australia;

(g)  the duration and continuity of the individual's presence in the overseas country; and

(h)  the durability of association that the individual has with a particular place in Australia, i.e. maintaining bank accounts in Australia, informing government departments, place of education of the taxpayer's children, family ties.

Paragraph 24 of IT 2650 states that the weight to be given to each factor will vary with individual circumstances of each case and no single factor is conclusive. Greater weight should be given to factors (c), (e) and (f) than to the remaining factors.

You have established a permanent place of abode outside of Australia as:

•         You have no residential home in Australia which remains available to you.

•         You have set up an established home in Country A.

You intend living in Country A for a considerable and indeterminable time. You have abandoned your residence in Australia and most connections to Australia.

The Commissioner is satisfied that you have a permanent place of abode outside Australia, and you are therefore a non-resident under the domicile test of residency during the period in Country A even if you domicile has not changed.

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 have not been in Australia for more than 183 days in the 20XX income year,

You are not a resident for tax purposes under this test during the 20XX income year.

Note: If you do stay in Australia more than 183 days in the 20XX financial year you will not be a resident while you have your usual place of abode in Country A and you do not intend to reside in Australia.

The superannuation test

An individual is still 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 remain a non-resident of Australia for income tax purposes for the 20XX income year.

Income in the Period from 11 May

The Country A Convention states in Article X that if you are in Australia for more than 183 days your employment income from Country A mat be taxed in Australia.

The above means that as you were in Australia for 183 days from arrival your income from your employment may be taxed in Australia.

Article Y of the DTA expressly states that income earned by a resident of Country A which may taxed in Australia under Article X is deemed to be from Australian sources.

As your work may be taxed in Australia it is sourced in Australia and subject to tax here.

In practice, your income from when you commenced remote work will be assessable in Australia. This is because the Article X of the DTA gives Australia taxing rights if you are in Australia for more than 183 days in the relevant period in the financial year. This is based only on presence in Australia not time working.

Other Information

Under Article Z of the DTA a credit for tax payable in Australia is available in Country A subject to the relevant Country A tax law.

As your income is taxable in Australia your employer should be withholding an amount from your salary and remitting that to the ATO. Further information is enclosed.

Superannuation

Employment income which is assessable in Australia will be subject to the normal Australian superannuation contribution requirements.

This means that your employer should make a contribution of 9.50% to a complying Australian superannuation fund.

These contributions should continue until you depart Australia.