Edited version of private advice

Authorisation Number: 1052057339970

Date of advice: 15 November 2022

Ruling

Subject: Exempt income and residency

Question 1

Are you an Australian resident for income tax purposes?

Answer

Yes.

Question 2

Does section 6-20 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to exempt the payments you received from the International Organisation (The Development Bank) on the basis they are exempted by subsection 6(1) of the International Organisations (Privileges and Immunities) Act 1963 (IOPI Act)?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Country A Project - Employment and arrangements

From XX X 20XX you have been engaged as an independent contractor in the Country A's Government. You were working from your home in Australia.

Your contract is with an overseas based Consultancy firm. The firm is contracted to Country A's Government to deliver the outputs of a grant to Country A.

The contract is for a multi-year period which ends in 20XX.

An international organisation has joined with the governments of Country C and Australia to help Country A overhaul its tax system to expand and secure the countries revenue base.

The organisation has specified the parameters of that Grant and put in place the monitoring framework that specifies the outputs of the contracted work. The parameters of the work are included in the terms of reference for the delivery of the grant.

Your assignment in Country A is scheduled for the period from 20XX to 20XX for a total of up to X,XXX expert working days. You will need your availability to commit to the agreed upon dates in country and at home, to be scheduled in the inception phase. The recent unexpected outbreak of COVID-19 led to the border closure of Country A which required home based work. The consulting firm obtained permission from the bank for you to temporary work from until the border reopened.

Your Situation

You have been a resident of Australia(Country B) since 20XX.

You have lodged your income tax returns as an Australian income tax resident for the last five years -20XX through to 20XX.

You are a Country C Citizen and hold a Country C Passport.

You have recently been contracted by an overseas based consulting firm, to deliver the outputs of the grant to Country A.

You arrived in Country A on X X 20XX. You intended to leave immediately after signing the contract, but the Country A border was closed due to Covid. During this period, you received approval from the organisation and the firm to work from home. As soon as border restrictions were eased, you left for the Country A.

Accommodation while in Country A

From X 20XX to X 20XX, you resided in a hotel as this was your initial period after arrival in Country A.

Since your arrival back in Country A, you reside in a three-bedroom house provided by your employer.

You engage security guards, housekeeper and gardener at the property.

Your spouse has recently ceased employment and will possibly join you for extended periods in Country A.

Proposed travel arrangements for the 20XX FY

You returned to Country A after a short visit home X-XX X 20XX.

During your contract you will be working more than X months of each year, spending most of year in Country A during your contract.

Medical

You do not hold a Medicare card.

You do not currently have a private health insurance in Australia. You have insurance in Country A through your employer, mainly for medical evacuation purposes.

Bank accounts

You have bank accounts in Australia but no other investments.

Overseas bank accounts

You have a Country C Bank account to enable your Country C Government Superannuation (Public Service Employee Superannuation) to be deposited.

You also hold a foreign bank account. This account was a requirement of the international organization when you were employed by them.

You continue to be paid in USD via the consulting firm, so you have retained this account and make transfers to Australia from time to time.

Superannuation

Neither your wife nor yourself, have ever been employed by the Commonwealth Government of Australia. Consequently, you are not a member of the Public Sector Superannuation Scheme (PSS) or Commonwealth Superannuation Scheme (CSS).

You have been in the Country A for almost four months now, you have a better appreciation of the (unpaid) breaks you will need to take.

Future travel plans

Proposed trips to Australia:

•         X 20XX/early X 20XX - up to XX days

•         X 20XX - up to XX days

•         X 20XX - up to XX days

Future breaks will follow the same pattern and duration. While you would like to have more time back at home, your breaks are generally unpaid, so you need to keep them to a minimum.

Depending on events which could occur while you are in Country A (e.g., family illness) you could be required to work from home from time to time, but this would be an exceptional circumstance.

Other key facts include:

The contract is for multiple years and requires you to reside in the Country A.

You own a home in Australia.

Your wife has been employed at a hospital for the last X years in Australia.

Your wife will not accompany you to Country A.

You have multiple children in Australia.

You may undertake work from my home on this contract, but this would be minimal.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Subsection 6-5(2)

Income Tax Assessment Act 1997 Subsection 6-15(2)

Income Tax Assessment Act 1997 Section 6-20

International Organisations (Privileges and Immunities) Act 1963

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 (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 Draft Taxation Ruling TR 2022/D2 Income tax: residency tests for individuals.

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 2022/D2 provides the following guidance in relation to the period of physical presence spent in Australia:

28. In many cases, a visit to Australia of less than 6 months is not sufficient time to be regarded as residing here. This is because a person does not usually establish a sufficient connection to Australia in this time.

29. This, however, can be contrasted with a situation where a person has previously spent a long time in Australia despite only spending short periods in Australia in the relevant income year. In such a case, the shorter period of physical presence in Australia assumes less relevance if the person has retained a continuity of association with Australia, or a particular place within Australia, together with an intention to return to Australia and an attitude that Australia remains their home.

In respect of family and business/employment ties, TR 2022/D2 states the following:

47. Generally speaking, working overseas but returning to Australia at intervals to resume a pre-existing, established family and social life will often mean you are still residing in Australia. This is the case even if you spend more time overseas than in Australia in any given income year. Usually, such an arrangement indicates you are residing in Australia and another country. Having an ongoing, deliberate connection to Australia even though you have a connection to another country through your work does not make you a mere visitor to Australia. In such a case, Australia is your home and you are properly regarded as residing here.

48. This can be contrasted with a situation where you leave Australia to work overseas and effectively shift your life overseas. For example, if you, and your family (if you have one), relocate overseas for work for some years establishing a permanent base and a routine overseas consistent with 'living' there, returning only occasionally for short stays while taking leave from work, then, depending on other facts and circumstances, you might not be a resident under the ordinary concepts test.

Application to your situation

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

•         You own a home in Australia.

•         You have a spouse and children in Australia.

•         Your spouse and children have not accompanied you to the Country A.

•         You have bank accounts in Australia.

•         You have been a tax resident of Australia since 20XX.

•         You will be making regular return visits to Australia during the period of the contract.

•         The house in Country A is provided by your employer.

Although you will spend the majority of each year living and working in the Country A, the Commissioner considers you have not cut any ties with Australia and will retain a continuity of association with Australia through your spouse, children and family home remaining in Australia.

You are a resident of Australia under the resides test for the period 20XX to 20XX.

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 C and your domicile of origin is Country C.

You have not taken up citizenship in Australia, even though you have established a family home and both your spouse and children live in Australia.

In this instance the Commissioner cannot determine that you have abandoned your domicile of origin in Country C.

Therefore, your domicile is Country C, 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 will not be present in Australia for 183 days or more during each of the 20XX to 20XX income years. Therefore, 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.

Application to your situation

You and your spouse 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. Therefore, you are not a resident under this test.

Conclusion

You satisfy the resides test of residency and so are a resident of Australia for income tax purposes for the years ended 30 June 20XX to 20XX.

Question 2

Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income, then it is not assessable income.

Section 6-20 of the ITAA 1997 provides that an amount of ordinary income is exempt income if it is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law.

The IOPI Act is a Commonwealth law under which an international organisation, and persons engaged by it, may be accorded certain privileges and immunities including an exemption from tax.

The Regulations of the relevant international organisation declare it to be an international organisation for the purposes of the IOPI Act.

The Commissioner's guidelines as to whether remuneration derived from an international organisation is assessable are dealt with in Taxation Ruling TR 2019/D1 Income tax: income of international organisations and persons connected with them that is exempt from income tax (TR 2019/D1).

TR 2019/D1 states that subsection 6(1) of the IOPI Act and Part I of each of the Second to the Fifth Schedules to the IOPI Act inclusive, set out the taxation exemptions that can be conferred upon certain persons currently connected with an international organisation.

Paragraph 15 and 16 of TR 2019/D1 state the following:

15. Whether a person is currently connected with an international organisation concerns the relationship between the person and that organisation. The substance of the terms of the engagement of the person, and the relationship between that engagement and the organisation performing its functions, must be considered.

16. The IOPI Act exempts from taxation certain income of a person connected with an international organisation, to the extent it satisfies all of these elements:

•         the income is received from an international organisation to which the IOPI Act applies (see paragraph 8 of this Ruling)

•         the person is connected with the international organisation in one of the ways set out in paragraph 14 of this Ruling, and

•         the conditions and other particulars provided in the Regulations are satisfied for the international organisation in relation to the income of the person.

Paragraph 22 of TR 2019/D1 states that a person who 'holds an office' in an international organisation may be exempt from taxation on salary and emoluments received from an international organisation.

As per paragraph 27 of TR 2019/D1, a holder of an office can include a person who works as an employee of an international organisation, but it does not include a person (whether an employee or not) who is:

•         locally engaged and paid an hourly rate, or

•         engaged as an expert or consultant.

Persons who serve on a committee, participate in the work of, or perform a mission on behalf of an international organisation may also be exempted from taxation on salaries and emoluments received from the organisation (paragraph 31 of TR 2019/D1).

In your private ruling request, you have outlined the following:

•         the international organisation along with the Country A, Australian and Country C Governments are co-funding the project.

•         the international organisation is involved in administration and oversight of the project.

•         the Country A government engaged the consulting firm to deliver the outputs of the project and pays the consulting firm for its services.

•         you were engaged as an independent contractor by the consulting firm to carry out the services and are paid by the consulting firm for your services.

The income tax exemption highlighted above would only apply to an individual/entity who is directly engaged by an International Organisation. However, as you are not receiving income from the international organisation directly and are not connected with the international organisation in one of the ways set out by the IOPI Act and TR 2019/D1, your income will not be treated as exempt for income tax purposes.