Edited version of private advice

Authorisation Number: 1051934055649

Date of advice: 7 February 2022

Ruling

Subject: Residency and assessability of income

Question 1

Are you a resident of Australia for taxation purposes for the first relevant income year?

Answer

No.

Question 2

Are you a resident of Australia for taxation purposes for the second relevant income year?

Answer

Yes.

Question 3

Are you a resident of Australia under the Double Tax Agreement between Australia and Country Z for the second relevant income year?

Answer

Yes.

Question 4

Is your employment income assessable in Australia under the Double Tax Agreement between Australia and Country Z for the second relevant income year?

Answer

Yes.

This ruling applies for the following periods:

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 Country X.

You are a citizen of the Country Y.

You are not a citizen of Australia.

You have been a tax resident of Country Z.

Prior to Country Z you were a resident of Country B.

You are employed by Company Z, a family‐owned group that run their dealings out of an office in Country Z.

The group owns interests in businesses within various industries located in several countries.

You are also a director or commissioner of several of the family groups companies in various countries.

You and your spouse were in Country A and booked a return flight to Country Z.

Your trip to Country A was cut short as you were advised, as residents of Country Z, by The Country Z Health Authority to return to Country Z immediately due to the outbreak of COVID‐19.

This advice was conflicted by a different department of Country Z, which stated any resident of Country Z returning from associated countries was to gain approval before re‐entering.

At the time of returning to Country Z you and your spouse were unaware of the advice from the other department and did not obtain approval for re‐entry. As a result, you were required to enter a 14‐day quarantine during which you were advised that your Employment Pass was withdrawn and was asked to leave Country Z.

You and your spouse were faced with two options, either enter Australia or Country C. You chose Australia.

You held a tourist visa at the time of entry, which allowed you to stay until the middle of the year.

Due to COVID‐19 travel restrictions you were unable to leave Australia by the middle of the year and hence applied for a Resident Return (subclass 155) visa, which was granted.

To this day you and your spouse remain in Australia, residing at your spouse's residence, which is owned 100% by your spouse.

You have been unable to return to Country Z because of the borders remaining closed.

You have been able to fulfil your employment duties with Company Z while living in Australia.

Significant assets and location of those assets owned by you Country Z

•         An apartment (owned 100%)

•         Cash deposits and current accounts in various bank accounts

•         Discretionary investment account

•         Investment company (owned 100%)

Australia

•         Accounts with investments in Australian listed companies.

•         Cash deposits and current accounts in various bank accounts.

•         Australian Super superannuation fund opened while you were forced to stay in Australia

Your spouse and adult children are Australian citizens. Some of your children reside in Australia and another child lives overseas.

Your spouse travels with you wherever you are required to be for work.

You are a director of several Australian companies which are owned by Company Z.

These are not the only companies that you are a director of.

You have two professional fellowships in Australia but have no other professional or social ties to Australia.

Before COVID‐19 restrictions and when you were required to travel for work you resided in Country Z or Country A in apartments that you own.

Whilst you resided in Country Z you held a global health insurance policy covering doctors' visits, hospitalisation, and emergency evacuation.

While in Australia you applied for Medicare and purchased an Australian private health insurance policy.

You have intentions of returning to Country Z with your spouse as soon as you can travel freely and without the requirement to quarantine.

Neither you nor your spouse are eligible to contribute to the PSS or the CSS commonwealth super funds.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1997 section 6-5

International Tax Agreements Act 1953

Reasons for decision

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, as applied 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 an individual is whether they reside in Australia according to the ordinary meaning of the word resides.

Where an individual does not reside in Australia according to ordinary concepts, they will still be an Australian resident if they meet the conditions of one of the other tests.

The resides 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'. These definitions have been highlighted in cases as being definitive observations of the meaning of resides (see Viscount LC in Levene v Commissioners of Inland Revenue [1928] AC 217 and Logan J in Stockton v Federal Commissioner of Taxation [2019] FCA 1679).

The observations contained in the case of Hafza v Director-General of Social Security (1985) 6 FCR 444 are also important:

Physical presence and intention will coincide for most of the time. But few people are always at home. Once a person has established a home in a particular place - even involuntarily: see Commissioners of Inland Revenue v Lysaght [1928] AC 234 at 248; and Keil v Keil [1947] VLR 383 - a person does not necessarily cease to be resident there because he or she is physically absent. The test is whether the person has retained a continuity of association with the place - Levene v Inland Revenue Commissioners [1928] AC 217 at 225 and Judd v Judd (1957) 75 WN (NSW) 147 at 149 - together with an intention to return to that place and an attitude that that place remains " home ": see Norman v Norman (No 3) (1969) 16 FLR 231 at 235... [W]here the general concept is applicable, it is obvious that, as residence of a place in which a person is not physically present depends upon an intention to return and to continue to treat that place as " home ", a change of intention may be decisive of the question whether residence in a particular place has been maintained.

Case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the 'resides' test:

•         Physical presence

•         Intention or purpose of presence

•         Family and business/employment ties

•         Maintenance and location of assets, and

•         Social and living arrangements

These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in Taxation Ruling 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 each individual's circumstances.

For several months in the first year, we consider that your circumstances were not consistent with residing in Australia.

This is because: you were in Australia on a tourist visa and this visa only allowed you to remain in Australia for a short period of time.

You were here at that time on a temporary basis.

For the second income year, we consider that your circumstances were consistent with you residing in Australia.

This is because:

•         you were living with your spouse in Australia

•         you were working in Australia for your Country Z employer

•         you were leading a settled routine in Australia for the entire income year.

You are a resident under this test.

Domicile test

Under the domicile test, you are a resident of Australia if your domicile is in Australia unless the Commissioner is satisfied that your permanent place of abode is outside Australia.

Domicile

Whether your domicile is Australia is determined by the Domicile Act 1982 and the common law rules on domicile.

Your domicile is your domicile of origin (usually the domicile of your father at the time of your birth) unless you have acquired a domicile of choice elsewhere. To acquire a domicile of choice of a particular country you must be lawfully present there and you must hold the positive intention to make that country your home indefinitely. Your domicile continues until you acquire a different domicile. Whether your domicile has changed depends on an objective consideration of all relevant facts.

You were born in Country X and you are a citizen of Country C.

You have not taken any steps to change your domicile to Australia.

You are not a resident under this test.

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 were not in Australia for more than 183 days in the first relevant income year.

You are not a resident under this test for the first relevant income year.

You have been in Australia for more than 183 days in the second relevant income year.

You are a resident for the second relevant income year under this test as the Commissioner is not satisfied that your usual place of abode was outside Australia and you did not intend to take up residence in Australia in that income year.

Superannuation Test

An individual is a resident of Australia if they are either a member of the superannuation scheme established by deed under the Superannuation Act 1990 or an eligible employee for the purposes of the Superannuation Act 1976, or they are the spouse, or the child under 16, of such a person.

You are not a contributing member of the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS) or a spouse of such a person, or a child under 16 of such a person.

Therefore, you are not a resident under this test.

Conclusion

You are not a resident of Australia for taxation purposes for the first relevant income year.

You are a resident of Australia for taxation purposes for the second relevant income year.

Double Tax Agreement between Australia and Country Z

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 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 Country Z Agreement is listed in section 5 of the Agreements Act.

Article X of the Country Z Agreement deals with residency and provides that for the purposes of the agreement:

•         the term 'Country Z resident' means any person who is resident in Country Z; and

•         the term 'Australian resident' means any Australian company and any other person (other than a Country Z company) who is a resident of Australia.

In your case, you were a tax resident of Australia under domestic law for the second relevant income year and you ceased to be a tax resident of Country Z prior to the commencement of the second relevant income year.

Therefore, you are a resident of Australia for the purposes of the in Country Z Agreement for the second relevant income year.

Employment income

The assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year (section 6-5 of the ITAA 1997).

Income derived from rendering personal services is ordinary income for the purposes of section 6-5 of the ITAA 1997.

Article Z of the Country Z Agreement considers employment income and reads as follows:

1. Subject to this Article and to Articles ...... remuneration or other income derived by an individual who is a resident of one of the Contracting States in respect of personal (including professional) services shall be subject to tax only in that Contracting State unless the services are performed or exercised in the other Contracting State. If the services are so performed or exercised such remuneration or other income as is derived therefrom shall be deemed to have a source in, and may be taxed in, that other Contracting State.

Article Z allows Australia to tax the income you derived from your Country Z employer during the relevant income year. This is because you are a resident of Australia under the Country Z Agreement and you have been carrying out your work duties in Australia.

The Article also provides that your income is taxable only in Australia.