Edited version of private advice

Authorisation Number: 1051953921260

Date of advice: 17 March 2022

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for taxation purposes?

Answer

No.

Question 2

Is your employment income subject to tax in Australia under Article 15 of the Double Tax Agreement between Australia and Country Z for the first relevant income year?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were born in Australia.

You are a citizen of Australia.

You are a permanent resident of the Country Z.

You are a tax resident of Country Z.

You have lived outside Australia for many years.

Under a services contract between Company Z (a company registered in the Country Z) and Company Y (a company registered in Country Y), you have been employed to provide services as an office holder to Company Z. The agreement specifies that you are required to be located in a Head Office in the Country Z to perform that role and provide reports. The services agreement was for several months.

Several months later, you entered into an employment agreement with Company X to provide services as an office holder of Company Z in connection with Country Z and other regional projects. The agreement is for an extended period.

You have lived and worked in several locations since originally leaving Australia.

In the early part of the relevant period when you accepted the role with Company Z, you were living in Country X with your spouse and child.

Throughout the majority of the relevant year, you remained based in Country X with your spouse and child, travelling regularly to the Country Z, City Z and Country Y to attend to your obligations as office holder of Company Z, and Company X.

Political insecurity increased in Country X (due to changes in government and the worsening situation in Country B) throughout the relevant year and security risks increased. The combination of that increased political and security risk together with the strain of the regular travel you were undertaking for your employment, you made the decision to move to Country Z for your employment. The decision was made that your spouse and child would not accompany you to the Country Z but would instead move to Australia.

You and your spouse were having marital difficulties at the time and it was not clear that you would stay together.

Your work schedule was for two weeks on one week off, allowing you to regularly visit your spouse and child in Australia and for them to visit you in the Country Z.

In a prior year, you moved to the Country Z in a leased apartment provided by the company.

The apartment is a fully furnished apartment spacious enough for you to host your family for visits.

At the time of moving, you had a business entry visa for the Country Z.

Your personal belongings are kept in the apartment.

A couple of years ago your spouse and child moved to Australia.

Your spouse owns the house in Australia in which they are living.

You travelled to Australia with your spouse and child to assist them with the move.

This was the first time in several years that you had been to Australia.

You returned to Country Z some time later.

You and your spouse have formalised your separation.

Your visits to Australia were to assist your spouse and child to settle in.

When you arrived in Australia on a couple of years ago your intention had been to depart on the within a few days for several weeks period in the Country Z and for your spouse and child to visit you in the Country Z during that period.

Your flight was cancelled due to COVID-19 related lockdowns imposed in Australia and the Country Z and your spouse and child's flights were also cancelled.

The flights booked by your family to travel over the middle of the year were also cancelled by the airlines and the Australian border restrictions in place.

The Country Z restrictions denied entry into the country for all foreign nationals, which included the visa category that you had at the time.

In the same year, the Country Z declared your industry an essential service.

This provided opportunity, through the Australian and Country C representatives in the Country Z, to seek exemptions from the relevant government authority to enable foreign national employees to travel to the Country Z. Following confirmation from the relevant government authority that the exemption could apply to persons in your class in the middle of the year, you sent your passport to the Consulate in Canberra for approval from the Department of Foreign Affairs.

You were granted a single entry visa to enter the Country Z.

After several flight cancellations due to the COVID lockdown, you departed Australia later in the year and returned to the Country Z.

On arriving in the Country Z you applied for an visa. The visas were added to a list that were exempt from requiring Department of Foreign Affairs approval for entry and exit.

You were granted the visa on towards the end of the year.

The visa is granted to foreign personnel of regional or area headquarters or regional operating headquarters of multinational companies. The visa is valid for two years and may be extended for additional three years.

Your family were scheduled to travel to the Country Z for Christmas. However, due to COVID travel restrictions they were unable to get clearance to do so.

You returned to Australia to complete the mandatory two week quarantine period and spend Christmas with your family in Australia.

You had intended to return to the Country Z in the following month.

Prior to that time, the Country Z government banned all travel from more than 30 countries, including Australia, due to the new UK variant of the COVID-19 virus being detected, and subsequently extended to the end of the month.

Your flight to return to the Country Z was accordingly cancelled. The restriction was lifted at the end of the month and you returned to the Country Z shortly thereafter.

Your travel plans for the following year were also disrupted by the COVID-19 restrictions. The original work schedule you had planned for the year would see you for most of your time in the Country Z and overseas, coming back to Australia several times, for a couple of weeks each time.

Following the continuous and renewed border restrictions in place, the only option for you to see your child was for you to return to Australia, accepting the quarantine period in place on international travel by the Australian Federal Government.

Your family has not been able to visit you in the Country Z due to the travel restrictions imposed by the Australian Government, and the difficulties of obtaining an entry Visa to the Country Z for your family members you were unable to travel during the year to any other location than the Country Z.

Due to the mandatory quarantine period, you had to prolong each of your visits to Australia by 14 days.

Your stay in Australia, as originally planned, needed to be further extended on a number of occasions: due to new border restrictions placed by the Country Z, as mentioned above and in a number of months, due to several flight cancellations and another imposed board restriction by the Country Z government due to the COVID delta strain.

You and your family were planning to travel overseas for the Christmas holidays. However, these plans had to be cancelled due to the impossibility for your spouse and child to leave Australia, not having been able to obtain travel exemptions. Therefore, you had to take on an unplanned trip back to Australia to be able to spend the festive season with your child.

You own a property in Australia which is occupied by your parent. You have owned the property for several years.

You also own a property overseas and overseas shares and a bank account;

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

Reasons for decision

Question 1

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. 3rd 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 Residency - Permanent place of abode outside Australia (IT 2650) and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia (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 not consistent with you residing in Australia for the relevant period. This is because:

•         You came to Australia to assist with your family returning to live in Australia and to get them settled

•         Your intention was to return to the Country Z where you work and live

•         You never intended on being in Australia on a permanent basis

•         Covid restrictions meant your flights were delayed

•         You left Australia as soon as you were able to.

You are not 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.

In your case, you were born in Australia and are a citizen of Australia.

The Commissioner is not satisfied that you have taken the necessary steps to change your domicile.

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 satisfied that you have a permanent place of abode outside Australia this is because:

•         You live and work in Country Z

•         You have a rental property you live in in Country Z

•         Your personal items are stored at the rental property in Country Z

•         You only visit Australia to see your child.

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.

You were in Australia for more than 183 days in the relevant income year.

The Commissioner is satisfied that your usual place of abode was outside Australia during the relevant income year as you were only here temporarily and were not able to return to your residence in the Country Z due to border restrictions.

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

You are not a resident under this test.

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 and your spouse 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.

You are not a resident under this test.

Conclusion

You are not a resident of Australia for tax purposes.

Question 2

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 15 considers employment income and states:

(1) Subject to...........salaries, wages and other similar remuneration derived by an individual who is a resident of one of the Contracting States 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.

(2) Notwithstanding the provisions of paragraph (1), remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if -

(a) the recipient is present in that other State for a period or periods not exceeding in the aggregate 183 days in the year of income or taxable year, as the case may be, of that other State; and

(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of that other State; and

(c) the remuneration is not deductible in determining taxable profits of a permanent establishment or a fixed base which the employer has in that other State.

(3) Notwithstanding the preceding provisions of this Article, remuneration in respect of an employment exercised aboard a ship or aircraft operated in international traffic by a resident of one of the Contracting States may be taxed in that Contracting State.

In your case, you were in Australia during the first relevant income year for over 183 days.

Therefore, your employment income is subject to tax in Australia under Article 15(1) of the Country Z Agreement.

You will be in Australia for less than 183 days in the second relevant income year.

Therefore, your income will not be subject to tax in Australia under Article 15(2) of the Country Z Agreement for that year.