Edited version of private advice

Authorisation Number: 1051994824288

Date of advice: 17 June 2022

Ruling

Subject: Residency

Question 1

Are you an Australian resident for tax purposes?

Answer

Yes.

Question 2

Are you a resident solely of Australia for the purposes of the double tax agreement between Australia and Country A?

Answer

Yes.

Question 3

Is your employment income subject to tax in Australia under Article 14 of the double tax agreement between Australia and Country A?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2020

Year ended 30 June 2021

Year ending 30 June 2022

The scheme commences on:

1 July 2019

Relevant facts and circumstances

You were born in Country B.

You previously lived and worked in Country B.

You then lived and worked in Country C until you arrived in Australia.

You arrived in Australia on a tourist visa during the year ended 30 June 2019.

As you entered on a tourist visa you had no rights to live or work in Australia - subsequently, you were open to work anywhere in the world except Australia.

You received an offer from a Country A employer during the year ended 30 June 2019.

You then departed Australia before 30 June 2019 and went to Country A as you had gained employment there.

You entered Country A on a Work Visa which was granted just prior to your arrival and expired after approximately 8 months.

You commenced employment with the Country A employer soon after your arrival.

You applied for a second Work Visa to allow you to work in Country A until 30 June 2020.

You travelled between Country A and Australia approximately 10 times during the years ended 30 June 2019 and 30 June 2020.

You made another return trip to Australia as it appeared that the borders would soon close due to COVID-19 and you wanted to prevent being separated from your family during the pandemic. The borders then closed.

You continued to work for the Country A employer after the borders closed and you remained in Australia.

You spent over 183 days in Australia during the year ended 30 June 2020.

You live in rented accommodation in Country A and continued to pay for this accommodation while you were in Australia. You also have a motor vehicle and personal possessions in Country A.

Each time you entered Australia, you did so on a tourist visa while your application for permanent residency (which was lodged from outside of Australia) was being considered.

You were granted permanent residency in Australia during the year ended 30 June 2021.

During the year ended 30 June 2021 you went back to Country A when restrictions eased but returned to Australia after 13 days as restrictions tightened again.

You have now recommenced regular travel between Australia and Country A

Your work with the Country A employer does not require you to be in Australia - you work remotely while in Australia.

Your work with the Country A employer largely involves drafting of policy and/or training documents and occasionally video calls with an Australian counterpart to discuss areas of common interest and ways in which investigations should be conducted.

Your salary from the Country A employer is paid in Country A dollars into a Country A bank account which you have maintained while in Australia.

During the year ended 30 June 2022 you were approached by an Australian employer to do contract work on a short-term basis while continuing your main employment with the Country A employer and not making any changes to the terms and conditions of that employment.

You set up an ABN and signed a contract with the Australian employer during the year ended 30 June 2022 to work as a contractor on a short term basis. Your contract ends on 30 June 2022.

To date, no remuneration from the Australian employer has been received but it is expected that it will be received towards the end of the contract or after completion.

Your work with the Australian employer can be completed remotely while you are in Country A.

Your long term plan had been to reside in Country A until 2023 or 2024 and then migrate and settle in Australia at which point you would seek Australia employment.

If COVID-19 travel restrictions were not in place you intended to continue to live in Country A spending more than half of each year there, returning to Australia only for short trips to see your family.

These intentions changed during the year ended 30 June 2022. You still intend on returning to Country A and maintaining your living conditions in Country A, however the amount of time you intend to spend in Country A each year has changed.

Following discussions with your Country A employer regarding your current circumstances, you concluded that you will now likely spend less than half of the year in Country A and therefore more than half of the year in Australia starting during the year ended 30 June 2022 - this change is because your ability to work remotely without your work being negatively impacted was recognised by your Country A employer.

With borders now open, the expectation is that you will still have a mixture of time working in Country A and working remotely in Australia.

You were a Country A tax resident for the 2019-2020 Country A tax year as you were in Country A for 183 qualifying days.

You believe your tax residence in Country A has continued for the 2021 and 2022 Country A income years.

Your only Country A income is your salary from your Country A employer which is taxed on PAYG basis.

Your spouse was born in Australia and emigrated to the Country B in 2007.

Your spouse and children are Australian citizens. Your children also hold Country B citizenship by descent.

Your spouse and children reside in Australia and your spouse returned to Australia with the children during the year ended 30 June 2019.

Since their arrival in Australia, your spouse and children, have only left once during the year ended 30 June 2020 to visit you in Country A for about a week.

You also have another two children who are Country B citizens and reside in the Country B.

Your spouse purchased a property in Australia during the year ended 30 June 2021, but you are not on the mortgage or property title.

During the year ended 30 June 2022, they rented the property to tenants.

You stay with your spouse and children in rental accommodation when you are in Australia.

Your name has been on the tenancy agreement for the rental accommodation since mid-way through the year ended 30 June 2019 (partly to aid partner visa application).

You and your spouse both financially support your family.

Your spouse works full time in Australia and earns sufficiently to provide for them and your children.

For the periods where you have been in Australia, you transfer money from your Country A bank account to your joint Australian bank account to supplement your spouse's income for both living expenses and to contribute to savings.

When you are in Country A you send some funds to the joint Australian bank account for savings but retain enough to live on in Country A.

Some funds are also transferred to your joint Country B bank account.

You have joint Australian bank accounts with your spouse which earns interest each year.

You own a property in Country B with your spouse.

The property in Country B is currently being rented out and you receive rental income from it.

You hope to sell your property in Country B in next 6 months.

You enrolled in Medicare during the year ended 30 June 2021.

You took out private health insurance in Australia toward the end of the year ended 30 June 2021.

You will take out some private health insurance in Country A in the next couple of months.

You have driving licences in both Australia and Country A.

You joined a golf club at the start of the year ended 30 June 2022 in Australia and will maintain this membership while in Country A.

You also play golf in Country A, but you do not have a membership there.

You have never been a member of a superannuation scheme in Australia.

Your spouse is a member of the PSS scheme but is no longer contributing.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

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

International Tax Agreements Act 1953

Reasons for decision

Question 1

Overview of the law

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 (also referred to as the ordinary concepts test)

•                the domicile test

•                the 183-day test, and

•                the Commonwealth superannuation fund test.

The resides test is the primary test for deciding the residency status of an individual. This test considers whether an individual resides 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 domicile test, 183-day test and Commonwealth superannuation fund test).

Our interpretation of the law in respect of residency is set out in Taxation Ruling IT 2650 Income tax: residency - permanent place of abode and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.

We have considered the statutory tests listed above in relation to your situation as follows:

The resides test

The ordinary meaning of the word 'reside' has been expressed as 'to dwell permanently or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place': See Commissioner of Taxation v Miller (1946) 73 CLR 93 at 99 per Latham CJ, citing Viscount Cave LC in Levene v Inland Revenue Commissioners [1928] AC 217 at 222, citing the Oxford English Dictionary. Likewise, the Macquarie Dictionary defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

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.

The Commissioner considers the following factors in relation to whether a taxpayer is a resident under the 'resides' test:

•                period of physical presence in Australia

•                intention or purpose of presence

•                behaviour while in Australia

•                family and business/employment ties

•                maintenance and location of assets

•                social and living arrangements.

It is important to note that no one single factor is decisive, and the weight given to each factor depends on each individual's circumstances.

Because the ordinary concepts test is whether an individual resides in Australia, the factors focus on the individual's connection to Australia. Having a connection with another country, or being a resident of another country, does not diminish any connection to Australia: Logan J in Pike v Commissioner of Taxation [2019] FCA 2185 at 57 reminds us that 'it is no part of the ordinary meaning of reside in the 1936 Act that there be a "principal" or even "usual" place of residence. ... It is important that ... "resident" not be construed and applied as if there were such adjectival qualifications.' For this reason, the test is not about dominance or exclusivity.

TR 98/17 explains that an individual may be considered a resident under the resides test if their behaviour while they are here is such that they exhibit a degree of continuity, routine or habit that is consistent with a person residing in Australia according to the ordinary meaning of the word 'reside'.

As a broad principle, where a person has a settled routine for six months or more (for example, the person has stayed in one place or has been with one employer for six months at the same location) they may satisfy the resides test. The period of time of the settled routine need not be confined to one financial year. As long as the pattern of behaviour is exhibited the individual may be regarded as being a resident from the time of their arrival.

Application to your situation

We have taken the following into consideration when determining whether you meet the resides test:

-        Your spouse and children reside in Australia

-        You arrived in Australia during the year ended 30 June 2020 to prevent being separated from your family during the COVID-19 pandemic

-        You lived in a rental property with your name included on the tenancy agreement

-        You spent more than six months living in Australia and working from home in Australia

-        Your movements and habits were consistent with having a settled routine in Australia

-        You were granted permanent residency in Australia during the year ended 30 June 2021

You are a resident of Australia under the resides test from the time of your arrival in Australia during the year ended 30 June 2020 to 30 June 2022.

Although the law only requires you to be considered a resident under one test, for completeness the other tests are also considered.

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 in 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 a domicile of dependence or have acquired a domicile of choice elsewhere. To acquire a domicile of choice of a particular country you must be lawfully present there and 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.

Application to your situation

In your case, you were born in Country B and your domicile of origin is Country B. You gained permanent residency in Australia during the year ended 30 June 2021. Although your domicile may have changed to Australia when you gained permanent residency, there is currently insufficient evidence available for the Commissioner to determine with certainty that you have acquired a domicile of choice in Australia.

Therefore, your domicile is Country B, and you are not a resident of Australia under the domicile test.

183-day test

Where a person is present in Australia for 183 days or more during the year of income the person will be a resident, unless the Commissioner is satisfied that both:

•                the person's usual place of abode is outside Australia, and

•                the person does not intend to take up residence in Australia.

Application to your situation

You have been in Australia for 183 days or more in the 2020 and 2021 income years. You will be in Australia for 183 days or more in the 2022 income year. Therefore, you will be a resident under this test unless the Commissioner is satisfied that your usual place of abode was outside Australia and you do not have an intention to take up residence in Australia.

Usual place of abode

In the context of the 183-day test, a person's usual place of abode is the place they usually live, and can include a dwelling or a country. A person can have only one usual place of abode under the 183-day test. However, it is also possible that a person does not have a usual place of abode. This is the case for a person who merely travels through various countries without developing any strong connections.

If a person has places of abode both inside and outside Australia, then a comparison may need to be made to determine which is their usual place of abode. When comparing two places of abode of a particular person, we will examine the nature and quality of the use which the person makes of each particular place of abode. It may then be possible to determine which is the usual one, as distinct from the other or others which, while they may be places of abode, are not properly characterised as the person's usual place of abode: Emmett J at [78] in Federal Commissioner of Taxation v Executors of the Estate of Subrahmanyam [2001] FCA 1836.

Application to your situation

We have taken the following into consideration when deciding whether your usual place of abode is outside of Australia:

-        You were unable to return to Country A due to border closures

-        You stayed with your spouse and children in Australia

-        You joined a local golf club in Australia at the start of the year ended 30 June 2022

-        You worked remotely in Australia

-        Your movement and habits were consistent with having a settled routine in Australia

Based on your circumstances, the Commissioner is not satisfied that your usual place of abode was outside Australia for the relevant income years.

Therefore, you are 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.

Application to your situation

You are not a member on behalf of whom contributions are being made to 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 spouse is a member of the PSS but is longer a contributing member.

Therefore, you are not a resident under this test.

Conclusion

You satisfy the resides and 183-day tests of residency and so are a resident of Australia for income tax purposes for the years ended 30 June 2020, 2021, 2022.

Question 2

Double Taxation Agreement

It is possible to be a resident for tax purposes of more than one country at the same time in respect of an income year or part of an income year. If this is the case, in determining your liability to pay tax in Australia it is necessary to consider any applicable double tax agreements. Sections 4 and 5 of the International Tax Agreements Act 1953 (Agreements Act) incorporate that Act with the ITAA 1936 and the ITAA 1997 and provide that the provisions of a double tax agreement have the force of law.

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.[1]

Article 4 of the Country A Agreement sets out the tiebreaker rules for residency for individuals. The tiebreaker rules ensure that the individual is only treated as a resident of one country for the purposes of working out liability to tax on their income under the double tax agreement. The tiebreaker rules do not change a taxpayer's residency status for domestic law purposes.

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then their 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; but if a permanent home is available in both States, or in neither of them, 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, 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 that individual is a national.

Permanent home

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 provides that in relation to a 'permanent home':

1. 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.
2. 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.

You had a permanent home in both Australia and Country A during the relevant period.

Personal and economic ties (centre of vital interests)

The OECD commentary states that 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.

We have concluded that your personal and economic ties were closer to Australia based on the following considerations:

-        Your spouse and children reside in Australia

-        You spent almost the entire relevant period living in Australia with your spouse and children

-        You spent almost the entire relevant period in Australia carrying out the activities from which you derived your employment income

-        You enrolled in Medicare during the year ended 30 June 2021

-        You took out private health insurance in Australia toward the end of the year ended 30 June 2021

-        You became a member of a local golf club in Australia at the start of the year ended 30 June 2021

-        You transfer money from your NZ bank account to your joint Australian bank account to supplement your spouse's income for both living expenses and to contribute to savings

Conclusion

We have concluded that the tiebreaker tests in Article 4 of the Country A Agreement apply so that you are deemed to be a resident only of Australia for treaty purposes. The provisions of the Country A Agreement will therefore apply on the basis that you are a resident of Australia for tax purposes and not of Country A.

Question 3

Income from Employment - Article 14 of the Country A Agreement

Article 14 of the Country A Agreement deals with income from employment and states:

1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by 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 therefrom may be taxed in that other State.

We note thatArticles 16, 18 and 19 of the Country A Agreement are not relevant to you.

In your case, Article 14 reads that the employment income derived by you as a resident of Australia for the purposes of the Country A Agreement is taxable only in Australia unless the employment is exercised in Country A. Where the employment is exercised in Country A, the income derived from that employment may be taxed in Country A.

Conclusion

Australia will have the sole taxing rights on the remuneration attributable to the portion of employment that was carried out in Australia from the time year entered Australia during the year ended 30 June 2020.

There will be dual taxing rights on the remuneration attributable to the portion of employment that was carried out in Country A from the time year entered Australia during the year ended 30 June 2020.

Additional Information

Foreign Income Tax Offset

Where foreign tax is paid in relation to income derived by an Australian resident from foreign sources, a credit (called a foreign income tax offset (FITO)) may be allowed against the Australian income tax payable on that foreign income.

In your case, as Australia has sole taxing rights to the income attributable to the portion of your employment that was carried out in Australia under Article 14(1) of the Country A Agreement, you are not entitled to a FITO despite the presence of the 'elimination of double taxation' provisions contained in Article 23 of the Country A Agreement.

Article 23 of the Country A Agreement provides that Country A tax paid under the law of Country A and in accordance with the Country A Agreement, in respect of income derived by a resident of Australia from sources in Country A shall be allowed as a credit against Australian tax payable on that income.

Article 22 of the Country A Agreement states that income derived by a resident of Australia which, under Article 14 may be taxed in Country A, shall for the purposes of the law of Australia relating to its tax be deemed to arise from sources in Country A.

While you are carrying out employment duties in Australia, the income you will derive from this work assignment will only be assessable in Australia under Article 14(1) of the Country A Agreement.

Country A does not have any rights to impose tax on the income under the Country A Agreement while you are carrying out employment duties in Australia.

Therefore, where Country A has no taxing rights to your foreign income under Article 14 of the Country A Agreement, foreign tax cannot be imposed in accordance with the terms of the Country A Agreement (Article 23). Consequently, you will not be entitled to a FITO.

The income attributable to the portion of your employment that was carried out in Australia will be taxed in Australia when you lodge your income tax return. As tax has been withheld by the Country A tax authorities on a PAYG basis on this income, you will need to seek a refund for the tax withheld from them.

[1] See also ATO ID 2003/1195