Edited version of private advice

Authorisation Number: 1052109653425

Date of advice: 21 April 2023

Ruling

Subject: Residency and assessable income

Question 1

Are you a resident of Australia for taxation purposes?

Answer

Yes.

Question 2

Is your income received from your Australian employer assessable in Australia?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were born in COUNTRY Y and are a citizen of COUNTRY Y.

You have been a permanent resident of Australia since MM YYYY.

You have been living and studying in Australia since YYYY.

You have been working in Australia, with your Australian employer, since MM YYYY.

You went back to COUNTRY Y on DD MM YYYY to care for your parent, who has medical issues.

Your spouse and child accompanied you to COUNTRY Y.

You are living with your parents in COUNTRY Y.

Prior to returning to COUNTRY Y, you lived in your own property in Australia, which you purchased in YYYY.

Your Australian property is being rented, on a X-MM rolling lease, while you are living in COUNTRY Y.

When you left for COUNTRY Y most of your personal belongings were stored at your friend's house in Australia.

You only took daily necessities, like clothes and work equipment with you to COUNTRY Y.

You intend on returning to Australia once your parent is well and anticipate that this may be towards the end of YYYY or early YYYY.

You may also need to return around the same time to be onsite for a project you are currently running in Australia for your Australian employer.

You are currently working remotely for your Australian employer in COUNTRY Y and are able to return to Australia at any time.

In addition to your family home, which is currently being rented while you are living in COUNTRY Y, you also own a second investment property within Australia which is currently being rented.

You have no assets in COUNTRY Y.

You are not a member of any groups or associations in COUNTRY Y.

Your spouse does not work in COUNTRY Y

You are not a resident of COUNTRY Y for taxation purposes.

You are not in receipt of any COUNTRY Y sourced income.

Your child does not attend school in COUNTRY Y.

You have maintained your Australian driver's licence, health insurance and name on the electoral role.

You and your spouse are not eligible to contribute to the PSS or the CSS super funds.

You are paid by your Australian employer in Australian dollars into an Australian bank account.

You entered into your employment contract in Australia.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 995-1

International Agreements Act 1953

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.

Application to your situation

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

•         You have been living and studying in Australia since MM YYYY.

•         You have been working in Australia, with your Australian employer since MM YYYY.

•         You have been a permanent resident of Australia since MM YYYY.

•         You went back to COUNTRY Y on DD MM YYYY to care for your parent who has health issues.

•         Prior to returning to COUNTRY Y, you lived in your own property in Australia, which you purchased in MM YYYY.

•         Your spouse and child accompanied you to COUNTRY Y.

•         You are staying with your parents in COUNTRY Y.

•         You are working for your Australian employer remotely in COUNTRY Y.

•         You are paid by your Australian employer in Australian dollars into an Australian bank account.

•         You are not in receipt of any COUNTRY Y sourced income.

•         You intend on returning to Australia once your father is well and anticipate that this may be towards the end of YYYY or early YYYY.

•         Your Australian property is being rented, on a X-MM rolling lease, while you are living in COUNTRY Y.

•         Most of your personal belongings were stored at your friend's house in Australia when you departed.

•         You only took daily necessities, like clothes and work equipment with you to COUNTRY Y.

•         You have maintained your Australian driver's licence, health insurance and name on the electoral role.

•         You have not broken your continuity of association with Australia during the period you are in COUNTRY Y.

•         You have no assets in COUNTRY Y.

•         You are not a member of any groups or associations in COUNTRY Y

Therefore, you remain a resident of Australia for taxation purposes.

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 Y and your domicile of origin is COUNTRY Y.

It is considered that you did not abandon your domicile of origin in COUNTRY Y and acquire a domicile of choice in Australia.

Therefore, your domicile is COUNTRY Y 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 were not present in Australia for more than 183 days in the income years ending 30 June YYYY and it is unclear at this stage whether you will satisfy the 183-day test for the YYYY and YYYY income years.

You are therefore 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 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 and you are therefore a resident of Australia for taxation purposes.

Question 2

Source of Income

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source.

In Nathan v. Federal Commissioner of Taxation 25 CLR 183 at 189-190 it was recognised that the ascertainment of the actual source of a given income is a practical, hard matter of fact.

As stated by Bowen J in Federal Commissioner of Taxation v. Efstathakis (1979) 9 ATR 867; 79 ATC 4256 (the Efstathakis Case) at ATR 870; ATC 4259, to determine source:

... the answer is not to be found in the cases, but the weighing of the relative importance of the various factors which the cases have shown to be relevant.

In the Cam, French and Efstathakis cases it was held that the source of the income was where the taxpayer performed the services:

•         Commissioner of Taxation v Cam & Sons Ltd (1936) 36 SR (NSW) 544 (the Cam Case) - concerned wages paid to seamen employed to work on trawlers. They were engaged and paid in New South Wales, but most of their services were provided outside state territorial waters. Jordan CJ, with whom Street and Bavin JJ agreed in the Cam Case at 548, held that:

Where income is derived from wages or salary, again the source has several factors. Personal exertion may be involved in negotiating and obtaining the contract of employment, in performing the stipulated services, and obtaining payment for them.... [I]n the ordinary case of the employment of a seaman... where there is nothing special, either in the circumstances of the contract of employment or in the payment, and where the work is both done and paid for in the ordinary course, the all-important factor is the doing of the work; and the contract of employment and the payment are relatively insignificant and formal elements. But this is not necessarily the case with respect to all wages or salary. In the case of an appointment to a sinecure, the engagement and the payment may be the only significant factors

Accordingly, the wages had to be apportioned based on 'working time in and out of New South Wales territorial waters.

•         Federal Commissioner of Taxation v French (1957) 98 CLR 398 (the French Case) - the taxpayer was employed as an engineer by the Australian company CSR which carried on business in New South Wales and, relevantly, New Zealand. Each year, the taxpayer spent two or three weeks in New Zealand as inspecting engineer for the company in its New Zealand business. At all other times, the taxpayer performed services for the company in New South Wales. A majority of the High Court held that the wages paid in respect of the period in New Zealand were sourced in New Zealand, because this is where the services were performed, this being the most important factor in Mr French's situation (see French Case at 411, 417 and 422).

However, the Court also made comments to the effect that this decision did not necessarily determine what would be most important in every personal services contract. For example Dixon CJ in the French Case at 405 in relation to a director and at 406 in relation to an accountant procured to achieve a specified result, and Kitto J at 417-418 refers to a situation where remuneration was payable regardless of service, and to a person who worked sometimes overseas who was paid while on sick leave, and to where a period of overseas service might in substance be merely incidental to Australian service.,

and

•         the Efstathakis Case - the taxpayer was a Greek National resident in Australia who was employed by the Greek Government as a secretary/typist in the Greek embassy. She had applied for the job in Greece, and the post had been gazetted there. She performed the services in Australia. Her net pay was compiled in Greece, a cheque was drawn on a bank in Greece and then received in Australia. A condition of her employment was that she could be posted anywhere in the world, but she would probably have resigned, as she had put down roots in Sydney, having child there, buying a unit, and marrying a naturalised Greek Australian. Bowen CJ, with whom Brennan and Deane JJ agreed, held that the wages paid to the taxpayer had an Australian source. His Honour considered the above factors, but gave most weight to 'the residence of the taxpayer in Australia and the facts that the services were performed and payment received [in Australia]... The payment of remuneration depended upon actual performance of the services (the Efstatakis Case at ATR 871; ATC at 4260).

As per the above cases, cases concerning the provision of personal services are decided by weighing up the outcomes of the consideration of the following three factors (with the weighting given to each determined by their relevance to the case):

•         the place where the contract of employment is entered into,

•         the place where remuneration is payable, and

•         the place where the services are performed.

In your situation, you were employed by an Australian entity and carried out the services in COUNTRY Y.

The original contract of employment was formulated, prepared and is governed by the laws that apply in Australia.

Therefore, this factor significantly leans towards the source of the income being Australia.

Your remuneration was paid by an employer, which are located in Australia, into a bank account located in Australia in Australian dollars.

Therefore, this factor leans towards the source of the income being Australia.

As mentioned above, in the Cam, French and Efstathakis cases it was held that the source of the income was where the taxpayer performed the services. However, in those cases the place where the taxpayer was located was the same as where the taxpayer did the work, where it was given effect to and where the outcome of the work occurred.

Your case is distinguished from these cases as the place where your work was given effect to and where the outcome of the work occurred was with your employer in Australia.

On the physical location of where your duties were performed alone, this would lean towards the source of the work being in COUNTRY Y.

However, your physical location is not sufficient, the other factors listed above are also relevant. Considering this, the third factor leans towards the income being sourced in Australia. This is even more so, taking into account that you were able to physically perform your work in any location in the world. Your employment duties had no relationship with COUNTRY Y apart from your physical presence.

Therefore, the income you earned from your Australian employer is regarded as being sourced in Australia.