Edited version of private advice

Authorisation Number: 1051963411604

Date of advice: 23 March 2022

Ruling

Subject: Residency

Question 1.

Are you an Australian Resident for Taxation purposes?

Answer 1.

No.

Question 2.

Is the employment income received by you, working for an Australian resident company in Country B, assessable under section 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 2.

No.

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 Country A and are a citizen of Country A.

You arrived in Australia and held a working holiday visa.

After the working holiday visa ended, you were granted a student visa. Further, you also held a sponsorship visa before becoming a permanent resident.

You acquired Australian citizenship. You are a dual national.

You departed Australia to relocate to Country B to live and work on XX Month 20XX with your spouse.

You will reside in Country B for the foreseeable future and will remain in Country B until at least the end of 20XX.

You continue to be employed by an Australian resident company on a permanent employment contract and you are working remotely in Country B.

Since your departure, you continued to be paid by your Australian employer and PAYG was withheld during this period.

You have a valid Country A passport which allows you to live and work in any country that is part of the European Union (EU).

You entered into a long-term lease agreement in Country B. The Lease was for a period of XX months.

You have informed your bank in Australia that you are living in Country B.

Since departing Australia, you have returned to Australia once.

You don't own property in Australia.

You no longer have material assets in Australia.

You have an Australian bank account and Australian superannuation.

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.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-5(3)

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 subsection 995-1(1)

International Tax Agreements Act 1953 section 4

Reasons for decision

Summary

You are a non-resident for taxation purposes from the day of departure. As a non-resident for taxation purposes, you are required to pay tax on your Australian sourced income.

Further, the employment income you receive from your Australian resident company employer in while in Country B, is not assessable under section 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997), due to the operation of the double tax agreement between Australia and Country B.

Detailed reasoning

Question 1.

Are you an Australian Resident for taxation purposes from the date of departure from Australia?

Answer

No.

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 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.

We consider that your circumstances are not consistent with residing in Australia.

You are not a resident of Australia under the resides 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.

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 your permanent place of abode is outside Australia.

Therefore, you are not a resident of Australia 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.

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.

Conclusion

As you do not satisfy any of the four tests of residency, you are not a resident of Australia for income tax purposes.

Question 2.

Is the employment income received by you, working for an Australian resident company in Country B, assessable under section 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident taxpayer includes ordinary income derived directly or indirectly from all Australian sources during the income year and other ordinary income that a provision includes as assessable income on some basis other than having an Australian source.

Salary and wages are ordinary income under subsection 6-5(3) of the ITAA 1997. The income in the present case is sourced from Australia and subsection 6-5(3) will apply.

In determining liability to tax on Australian sourced income, 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 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Although your income is Australian sourced income, you do not exercise your employment in Australia. Therefore, if you are a resident of Country B for tax purposes, the Australian-sourced income is not taxable in Australia under the DTA.