Edited version of private advice

Authorisation Number: 1051939166949

Date of advice: 21 January 2022

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for tax purposes for the period you work for your Country Z employer in Australia?

Answer

Yes.

Question 2

Are you a resident of Australia for taxation purposes for the period you work for your Country Z employer in Country Z?

Answer

Yes.

Question 3

Are you a resident solely of Australia under the Double Tax Agreement between Australia and Country Z?

Answer

Yes.

Question 4

Will your employment income be subject to tax in Australia while you are working from home in Australia for your Country Z employer?

Answer

Yes.

Question 5

Will your employment income be subject to tax in Australia while working in Country Z for your Country Z employer?

Answer

Yes.

Question 6

Will the amount of any foreign income tax offset you are entitled to be limited to Country Z tax paid in accordance with the Double Tax Agreement in respect of income from sources in Country Z?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were born in Country Z.

You are a citizen of Country Z.

You are a permanent resident of Australia; this was granted several years ago.

You commenced living in Australia with your spouse and child in the following year.

You purchased a home in Australia a couple of years ago.

Your assets in Australia include your house and a car along with an amount of superannuation.

You have a superannuation fund in Country Z.

You currently work for an Australian based consulting company.

You have been seconded to a Country Z company and have been working from home for this company for several months.

You are not able to currently work in Country Z due to the pandemic and your Country Z employer allows you to work from home.

You will work from the Country Z office once you are able to.

You will commence work in Country Z for the Country Z company several weeks from now.

When in Country Z you will stay with your parents in-law at their home.

You have a bedroom and will share their living areas with them.

You will not pay rent for this accommodation.

Your spouse and child will remain in Australia living in your family home.

You intend on working in Country Z for several months in a financial year.

You intend on working from home in Australia for the Country Z company for approximately half of the financial year.

You will travel to other countries for the Country Z company.

Your spouse and child will visit you in Country Z in the school holidays.

You financially support your spouse and child.

The Country Z tax authorities have told you that you will be a resident of Country Z for taxation purposes as you are a citizen of Country Z and work for a Country Z company.

You and your spouse are not 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 subsection 770-15(1)

Income Tax Assessment Act 1997 section 995-1

International Tax Agreements Act 1953

Reasons for decision

Residency for taxation purposes

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 Rulings IT 2650 and TR 98/17.

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.

We consider that your circumstances are consistent with you residing in Australia. This is because:

•         You and your family have been living in Australia.

•         You have had permanent residency of Australia.

•         You have a home in Australia which you purchased.

•         You have been working for a company from home in Australia

•         Although you will work in Country Z for a Country Z Company, you will spend around half of the financial year in Australia working remotely from your home for the Country Z company.

•         Your family will remain in Australia living in the family home.

•         You will financially support your family in Australia.

You have a home and family in Australia and you will retain a continuity of association with Australia after you enter into your new employment arrangement.

Therefore, you will continue to be a resident of Australia for taxation purposes for the relevant years.

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.

In your case:

•         You were born in Country Z and are a citizen of Country Z.

•         You were granted permanent residency of Australia and have lived here with your family for several years.

Consequently, the Commissioner is satisfied that you have taken sufficient steps to change your domicile of origin to a domicile of choice to Australia.

Permanent place of abode

If you have an Australian domicile, you are an Australian resident unless the Commissioner is satisfied that your permanent place of abode is outside Australia. This is a question of fact to be determined in light of all the facts and circumstances of each case.

'Permanent' does not mean everlasting or forever, but it is to be distinguished from temporary or transitory.

The courts have held that the phrase 'permanent place of abode' calls for a consideration of the town or country where a person is located. It does not extend to more than one country, or a region of the world.

The Full Federal Court in Harding v Commissioner of Taxation [2019] FCA 29 held at paragraphs 36 and 40 that key considerations in determining whether a taxpayer has his or her permanent place of abode outside Australia are:

(a)  whether the taxpayer has definitely abandoned, in a permanent way, living in Australia; and

(b)  whether the taxpayer is living permanently in a specific country.

Paragraph 23 of Taxation Ruling IT 2650 Residency - Permanent place of abode outside Australia sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode:

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

(b)   whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time;

(c)   whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia;

(d)   whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;

(e)   the duration and continuity of the taxpayer's presence in the overseas country; and

(f)    the durability of association that the person has with a particular place in Australia, i.e. maintaining assets in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

As with the factors under the resides test, no one single factor is decisive, and the weight given to each factor depends on the individual circumstances.

The Commissioner is not satisfied that your permanent place of abode is/will be outside Australia. This takes into account that:

•         You will continue to live with your family in your family home in Australia.

•         You will spend half of the financial year in Australia carrying out your employment duties.

•         You will financially support your family in Australia.

•         You will not be abandoning, in a permanent way, living in Australia.

You are 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.

In your case, you have been in Australia for more than 183 days in the current income year and the Commissioner is not satisfied that your usual place of abode is outside Australia and you do not intend to take up residence in Australia.

Therefore, you are a resident for the current income year under this test.

You will not be in Australia for more than 183 days in the future income year.

Therefore, you will not be a resident under this test for the future 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 will be a resident of Australia for taxation purposes for the relevant income years.

Residency under the Double Tax Agreement

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 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.

In your case, you are a resident of both Australia and Country Z for domestic tax law purposes.

An Article of the Country Z Agreement considers the circumstances where a person is a resident of both Australia and Country Z for domestic tax purposes.

2. Where by reason of the provisions of paragraph 1 of this Article an individual is both a Country Z resident and an Australian resident-

(a) he shall be treated solely as a Country Z resident:

(I) if he has a permanent home available to him in Country Z and has not a permanent home available to him in Australia;

(ii) if sub-paragraph (a)(i) of this paragraph is not applicable but he has an habitual abode in Country Z and has not an habitual abode in Australia;

(iii) if neither sub-paragraph (a)(i) nor sub-paragraph (a)(ii) of this paragraph is applicable but the Contracting State with which his personal and economic relations are closest is Country Z;

(b) he shall be treated solely as an Australian resident-

(i) if he has a permanent home available to him in Australia and has not a permanent home available to him in Country Z;

(ii) if sub-paragraph (b)(i) of this paragraph is not applicable but he has an habitual abode in Australia and has not an habitual abode in Country Z;

(iii) if neither sub-paragraph (b)(i) nor sub-paragraph (b)(ii) of this paragraph is applicable but the Contracting State with which his personal and economic relations are closest is Australia.

Permanent home

Taxation Ruling TR 2001/13 discusses the Commissioner's views about interpreting double tax agreements. Paragraph 104 provides that the OECD Model Tax Convention and Commentary will often need to be considered in interpreting double tax agreements (see also ATO ID 2003/1195).

Permanent home is not defined in the Double Tax Agreement. Therefore recourse can be made to supplementary materials in order to aid construction. The OECD commentary to the Model Tax Convention is taken to be a legitimate aid to construction (Thiel v Commissioner of Taxation [1990] HCA 37: 171 CLR 338).

The OECD Commentary provides that in relation to a 'permanent home':

a.    for a home to be permanent, an individual must have arranged and retained it for his or her permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be of short duration. The dwelling has to be available at all times continuously and not occasionally for the purposes of a stay, which owing to the reasons for it is necessarily of short duration (e.g. travel for pleasure, business travel, attending a course etc) For instance, a house owned by an individual cannot be considered to be available to that individual during a period when the house has been rented out and effectively handed over to an unrelated party so that the individual no longer has possession of the house and the possibility to stay there.

b.    any form of home may be taken into account, including a house or apartment belonging to or rented by the individual and a rented furnished room.

In your case, you have a permanent home available to you in both Australia and Country Z.

Habitual abode

The OECD commentary provides that in determining a taxpayer's habitual abode, it requires a determination of whether the individual lived habitually, in the sense of being customarily or usually present, in one of the two States but not in the other during a given period.

The test will not be satisfied simply by determining in which of the two Contracting States the individual has spent more days during the period (JJ Davies, White and Steward in Pike v Commissioner of Taxation [2020] FCAFC 158 at [29]).

The notion of habitual abode refers to the frequency, duration and regularity of stays that are part of the settled routine of an individual's life and are therefore more than transient. It is possible for an individual to have an habitual abode in two states where the individual was customarily or usually present in each State during the relevant period.

In your case, you will spend time in both Australia and Country Z and will have a habitual abode in both countries.

Personal and economic ties (centre of vital interests)

The OECD commentary states regard should be had to the taxpayer's family and social relations, their political, cultural or other activities, their place of business, the place from which they administer their property etc. As noted in Pike v Commissioner of Taxation [2020] FCAFC 158 at [39], the clause does not place greater weight on personal factors over economic factors. In each case it will be a matter of fact and degree as to whether a taxpayer's personal and economic relations, viewed as a whole, support ties closer to one contracting state over the other contracting state.

In your case, your personal and economic ties are closer to Australia due to the amount of time you spend in Australia carrying out your employment activities, your immediate family being in Australia, and your home being in Australia.

Conclusion

You are a resident solely of Australia for the purposes of the Country Z Agreement.

Taxation of employment income

The assessable income of an Australian resident taxpayer includes income from all sources whether in or out of Australia.

Therefore, your employment income is assessable in Australia unless the Country Z Agreement prevents it.

An Article of the Country Z Agreement considers employment income and states, relevantly to this case:

1. Subject to this Article...... 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.

From the above, as you are a resident of Australia under the Country Z Agreement, Australia has the right to tax the income you derive from your work with your Country Z employer whether you are working from home in Australia or working in Country Z.

We note that the Article also provides that where you carry out your employment activities in Country Z, the income will be deemed to have a source in Country Z and may be taxed in Country Z.

Foreign Income Tax Offset

Foreign income tax is a tax imposed by a law other than an Australian law, on income profits or gains (subsection 770-15(1) of the ITAA 1997).

An Article of the Country Z Agreement deals with tax credits and states, relevantly to this case:

(1) Subject to the provisions of the law of Australia from time to time in force which relate to the allowance of a credit against Australian tax of tax paid in a country outside Australia (which shall not affect the general principle hereof), Country Z tax paid under the law of Country Z and in accordance with this Agreement, whether directly or by deduction, in respect of income derived by a person who is a resident of Australia from sources in Country Z shall be allowed as a credit against Australian tax payable in respect of that income.

In your case, you will be eligible for a tax credit in Australia for the tax you have paid in Country Z on your income limited to Country Z tax correctly imposed in accordance with the Agreement, that is, tax levied only from your employment physically carried out in Country Z.