Edited version of private advice

Authorisation Number: 1052078324308

Date of advice: 19 January 2023

Ruling

Subject: Residency for income tax purposes

Question 1

Is the gardening pay that you received between XXX to XXX 20XX from your contractual employer Company A, Australian sourced income?

Answer 1

Yes

Question 2

Under article 14 of the double taxation agreement with Country C, is the gardening pay you earned in XXX 20XX to XXX 20XX subject to taxation in Australia?

Answer 2

No

Question 3

Is any portion of the severance pay which you received in XX 20XX from your contractual employer, Australian sourced income?

Answer 3

Yes

Question 4

Under article 14 of the double taxation agreement with Country C, is any portion of the severance pay which you received from your employer whilst a resident for taxation purposes of Country C, subject to taxation in Australia?

Answer 4

Yes

Question 5

Under article 14 of the double taxation agreement with Country C, as a resident of Country C for taxation purposes is your foreign sourced income subject to taxation in Australia?

Answer 5

No

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

X October 20XX

Relevant facts and circumstances

You are not currently a resident of Australia.

You have been employed by Company A for the period of 200X to XXX 20XX.

During your tenure, you were deployed to different offices around the world however, the Australian based company remained your contractual employer.

During your tenure, when deployed overseas, contractual entitlements such as long-service leave, superannuation etc., were processed by the foreign branches as per their judicial requirements.

You were an Australian resident for tax purposes from 20XX to 20XX.

You were an Australian resident for tax purposes from 20XX to 20XX.

You have stated that you were a resident of Country B for tax purposes between 20XX to 20XX and your Visa in Country B expired on the XX/XX/XXXX.

You have received independent advice and have stated that your tax residency of Country C started on the XX/XX/XXXX.

You received 3 months of gardening leave payments from your contractual employer between XXX 20XX and XXX 20XX. The gardening pay was provided to you by your contractual employer, to ensure that you would stay at home and away from employment duties.

Your employment was terminated in XXX 20XX.

In XXX 20XX you received a severance payment.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

Question 1

Is the gardening pay that you received between XXX and XXX 20XX from your contractual employer Company A, Australian sourced income?

Answer 1

Yes

Question 2

Under article 14 of the double taxation agreement with Country C, is the gardening pay you earned in XXX 20XX to XXX 20XX subject to taxation in Australia?

Answer 2

No

Summary

Australia has a tax agreement with Country C to avoid double taxation of individuals. Under article 14 of Australia's double tax agreement (DTA) with Country C, to avoid double taxation of income from employment salaries, wages and similar remuneration will be taxable in the state which the employment was exercised.

Detailed reasoning

You have declared that, as per independent advice which you received, you consider your tax residence of Country C to have commenced on the XX/XX/XXXX. Under article 14 of the DTA with Country C, any income from employment is taxed in Country C, unless the employment was exercised here, which it was not.

Therefore, none of the gardening leave income is subject to tax in Australia under the DTA with Country C and is exempt under section 6-20 of the ITAA 1997.

Question 3

Is any portion of the severance pay which you received in XXX 20XX from your contractual employer Company A, Australian sourced income?

Answer 3

Yes

Question 4

Under article 14 of the double taxation agreement with Country C, is any portion of the severance pay which you received from your employer whilst a resident for taxation purposes of Country C subject to taxation in Australia?

Answer 4

Yes

Summary

Australia has a tax agreement with Country C to avoid double taxation of individuals. Under article 14 of Australia's double tax agreement (DTA) with Country C, to avoid double taxation of income from employment salaries, wages and similar remuneration will be taxable in the state which the employment was exercised.

Detailed reasoning

Article 14 of the DTA with Country C dictates that 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.

Therefore, an appropriate apportionment of the severance pay may be calculated to account for the periods of time where you were receiving remunerations from your Australian contractual employer and were an Australian resident for tax purposes.

Alternatively, if you are unable to calculate an appropriate apportionment of the severance payment under Article 14 of the DTA with Country C, you may choose to use the Organisation for Economic Co-operation and Development (OECD) severance payment guidelines.

'A different situation is that of a severance payment (also referred to as a 'redundancy payment') which an employer is required (by law or by contract) to make to an employee whose employment has been terminated. Such a payment is often, but not always, calculated by reference to the period of the past employment with the employer. Absent facts and circumstances indicating otherwise, such a severance payment should be considered to be remuneration covered by the Article for the last 12 months of employment, allocated on a pro-rata basis to where the employment was exercised during that period; as such it constitutes remuneration derived from that employment for the purposes of the last sentence of paragraph 1.'

Question 5

Under article 14 of the double taxation agreement with Country C, as a resident of Country C for taxation purposes is your foreign sourced employment income subject to taxation in Australia?

Answer 5

No

Summary

Australia has a tax agreement with Country C to avoid double taxation of individuals. Under article 14 of Australia's double tax agreement (DTA) with Country C, to avoid double taxation of income from employment salaries, wages and similar remuneration will be taxable in the state which the employment was exercised.

Detailed reasoning

You have declared that as per independent advice which you received, you consider your tax residence of Country C to have commenced on the XX/XXX/XXXX.

As all payments were received in respect to your employment, article 14 of the DTA with Country C will determine the taxation of your foreign sourced employment income. Therefore, as the foreign employment income was received in the period where you have declared your tax residency of Country C and the employment was not exercised in Australia, none of the income is subject to tax in Australia under the DTA with Country C and is exempt under section 6-20 of ITAA 1997.