Edited version of private advice

Authorisation Number: 1051925205419

Date of advice: 2 December 2021

Ruling

Subject: Residency and employment income

Question 1

Are you a resident of Country Y under the tie break test between Australia and Country Y for the relevant income years?

Answer

Yes.

Question 2

Is your employment income only subject to tax in Country Y under the Double Tax Agreement?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were born in Australia and are a citizen of Australia.

You and your family went to Country Y to live and work.

The purpose of you and your family moving to Country Y was to spend time with your spouse's family.

You have a temporary work visa to enter Country Y.

Your spouse and children are Country Y citizens and hold both Country Y and Australian passports.

Your intention was to be in Country Y for a couple of years and then return to Australia.

The pandemic has prevented you from returning to Australia and you are trying to return to Australia in the coming months.

You were a resident of Australia for taxation purposes for the relevant income years.

You have been working for your Australian employer remotely in Country Y since you moved overseas.

Your Australian employer has been withholding tax from your income.

You have been paying tax in Country Y on the same income and paying tax twice.

You are required to lodge a tax return in Country Y.

You are a resident of Country Y for taxation purposes.

Your home in Australia was rented out for the first 12 months that you were in Country Y.

The tenant moved out of the house in Australia.

Your property in Australia is now being looked after by a friend.

You sold most of your household affects in Australia.

Your car is with your parents in Australia.

You rent accommodation in Country Y and have all household affects in Country Y along with a car.

You commenced renting this property shortly after arriving in Country Y and the lease is ongoing.

Your spouse works in Country Y.

Your spouse lodges tax returns in Country Y.

You have maintained contact with your family and friends in Australia while in Country Y.

You have maintained a sports membership in Australia.

You have family and friends in Country Y and you are a member of a sports club.

You have no investments in Australia.

You have maintained your private health insurance in Australia.

You and your spouse are not eligible to contribute to the PSS or the CSS Commonwealth super funds.

Relevant legislative provisions

International Tax Agreements Act 1953

Income Tax Assessment Act 1997 subsection 6-20(2)

Reasons for decision

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the Income Tax Assessment Act 1997 (ITAA 1997) so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

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 Agreement with Country Y (DTA) is listed in section 5 of the Agreements Act.

Article 4 considers residency and the situation where a taxpayer is a resident of both Australia and Germany for taxation purposes.

2 Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then that individual's status shall be determined as follows:

(a) the individual shall be deemed to be a resident only of the State in which a permanent home is available to that individual; if a permanent home is available in both States, that individual shall be deemed to be a resident only of the State with which the individual's personal and economic relations are closer (centre of vital interests);

(b) if the State in which the centre of vital interests is situated cannot be determined, or if a permanent home is not available to the individual in either State, the individual shall be deemed to be a resident only of the State in which that individual has an habitual abode;

(c) if the individual has an habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which the individual is a national;

For part of the first relevant year, you had a permanent home available to you in Country Y and not in Australia as your Australian home was rented out and not available for your use for that period.

Therefore, you were a resident of Country Y under Article 4 of the DTA for that period.

In the XXXX income year, you had a permanent home available to you in Country Y and not in Australia as your Australian home was rented out for most of the income year so was not available for your use at all times.

Therefore, you were a resident of Country Y under Article 4 of the DTA for the XXXX income year.

In the XXXY income year, you had a permanent home available to you in both Australia and Country Y as your Australian home was being looked after by a friend so was available for your use. Therefore, it needs to be determined to which country your personal and economic relations were closer to.

Based on your circumstances, which include living with your family in Country Y and carrying out your employment activities from which you derived your income in Country Y, it is considered that your personal and economic relations were closer to Country Y.

Therefore, you were a resident of Country Y under Article 4 of the DTA for the XXXY income year.

Article 14 of the DTA considers employment income and states:

1 Subject to the provisions of Articles 15, 17 and 18, salaries, wages and other similar remuneration derived by an individual who is a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in that other State.

As you were a resident of Country Y under the tie break test and your employment was exercised in Country Y, the income derived from your Australian employer is only taxable in Country Y under Article 14. Australia does not have a taxing right despite tax being withheld by your employer.