Edited version of private advice

Authorisation Number: 1051909066538

Date of advice: 27 October 2021

Ruling

Subject: Residency - foreign employment income

Question 1

Are you a resident of Australia for income tax purposes after returning to Australia?

Answer

No

Question 2

Are you liable to pay the Medicare levy?

Answer

No

Question 3

Are you liable to pay the Medicare levy surcharge?

Answer

No

Question 4

Is your employment income assessable in Australia after returning to Australia?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

28 May 20XX

Relevant facts and circumstances

You are a citizen of Australia who departed Australian many years ago to live and work in country X.

You also hold country Y citizenship but have never lived in that country except for short holidays.

You are now married and have children.

Your other relatives live in Australia.

You and your family return annually to Australia to spend Christmas with your family and for holidays.

The above pattern of travel means that you spent less than 183 days in Australia in previous financial years.

You live in a rented house in country X which you have rented continuously. This house contains all your family's living goods, clothes and personal effects and your family vehicle.

You also own a holiday house in country X.

You were granted a 5-year work visa for country X and lived and worked there on that visa. On leaving country X to travel to Australia you obtained a special re-entry permit which exempted you from the travel restrictions. The permit was valid for 12 months but has now expired.

Through your employer in country X you are now applying for a new certificate of eligibility which will allow you to re-enter the country.

Your current intention is not to live in Australia permanently but to return to country X in December 20XX.

When you arrived in Australia you held return tickets. However, the complexity of the probate process, combined with the emerging pandemic travel and quarantine restrictions, caused you to delay your return several times.

In the interim you have temporarily enrolled both of your children in local schools.

You have continued working for your employer during the entire time you have stayed in Australia.

Your source of income during your time in Australia has been your salary from your employer and you have not applied for any positions in Australia.

Your assets in Australia include investment properties, bank accounts to operate loan accounts, ASX shares, a camping van and residual superannuation from your previous employment in Australia before your departure.

In country X you have a beach house, local bank accounts to receive your salary, investment accounts for both yourself and your spouse, all clothes, sporting and personal effects and household effects.

Your social connections in Australia consist mainly of your family as well as former school and university friends. You do not have sporting or professional connections in Australia.

In country X your social connections are friends and your office colleagues. Your spouse's family live in country X and you visit them regularly. You also have sporting connections.

Neither you, nor your spouse, have never been employed by the Australian Commonwealth government and do not 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)

Income Tax Assessment Act 1936 Section 251S

Income Tax Assessment Act 1936 Section 251U

Income Tax Assessment Act 1936 Section 251T

Medicare Levy Act 1986 Section 3(5)

Medicare Levy Act 1986 Sections 8B to 8G

International Tax Agreement Act 1953

Convention between Australia and country X for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, protocol, and exchange of notes (The Convention)

Reasons for decision

Questions 1 to 3

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 Australian to live and work in country X. You returned to Australia on in 20XX to attend your parent who was ill.

Regrettably, your parent passed away before your return and you were obliged to attend to the many issues involved in estate. As well as the estate you and your family were unable to travel due to Covid travel restrictions. These factors have prevented your planned return to your family home in country X.

This subject is addressed in Taxation Ruling 98/17 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 are a non-resident for tax purposes under the resides test after your departure as you expect to be living and working in country X for several years. You cannot be said to be residing in Australia for the same period.

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.

Your domicile of origin was Australia.

In your case, you are a citizen of Australia. You have left Australia and have chosen to live in country X for many years.

You also hold country Y citizenship but have never lived in that country except for short holidays.

You have not abandoned your domicile in Australia and acquired a domicile of choice in country X as you do not have the right to reside permanently in that country.

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

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 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 home in Australia, although you have recently inherited another property.

•         You have established a home in country X and own a holiday home there.

•         You anticipate visiting friends and family in Australia during leave only.

•         You intend on living in country X for a considerable and indeterminable time.

The duration and continuity of your presence in country X supports the argument that you established a long-term place of abode outside Australia. Your intended duration there indicates permanency. While you will maintain an association with Australia through family relationships, these do not outweigh your long-term presence in country X.

Consequently, 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.

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 been in Australia for 183 or more days in this financial year however, the Commissioner accepts that your usual place of abode is outside Australia.

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 PSS or the 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 do not satisfy any of the residency tests outlined in subsection 6(1) of the ITAA 1936, you are not a resident of Australia for income tax purposes after temporarily returning to Australia.

Medicare levy and Medicare levy surcharge

Section 251T of the ITAA 1936 provides for exemption from the Medicare levy to persons who qualify as prescribed persons. Prescribed persons are listed in section 251U of the ITAA 1936.

Having considered your circumstances, the Commissioner accepts that you are a prescribed person (Paragraph 251U(1)(d)). Therefore, you are not liable to pay the Medicare levy and Medicare levy surcharge.

Question 4

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a foreign resident taxpayer includes ordinary income derived directly or indirectly from all Australian sources during the income year.

In determining liability to Australian tax in respect of Australian sourced income received by a foreign resident, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act incorporates the Act with the ITAA 1936 and the ITAA 1997 so that those Acts are read as one.

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Convention is listed in section 5 of the Agreements Act.

Article Z of the Convention states -

1.    Subject to the provisions of Articles , salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that Contracting State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other Contracting State.

2.    Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned Contracting State if:

a)    the recipient is present in the other Contracting State for a period or periods not exceeding in the aggregate 183 days in any 12-month period commencing or ending in the taxable year of that other Contracting State;

...

In your case, you have continued working for your employer during the entire time you have stayed in Australia. You receive salary from your employer. You spend more than 183 days in any 12-month period in Australia. Therefore, your employment income is assessable in Australia from the date of your arrival.