Edited version of private advice

Authorisation Number: 1052136703074

Date of advice: 5 July 2023

Ruling

Subject: Residency

Question

Are you a resident of Australia for income tax purposes from X January 20XX until X November 20XX?

Answer

No.

Question

Is the income you derived when you were working remotely in Australia for a foreign company for the period of X March 20XX to X August 20XX considered to be foreign sourced income?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a citizen of the Country X and hold a Country X passport.

You spouse also holds a Country X passport.

You do not have any children that are of a dependant age.

In January 20XX, you departed Australia and arrived in Country Y to commence working for a company.

Prior to leaving Australia, you had lived in Australia for an extended time.

Your assignment was to be for an extended time and was expected to conclude in December 20XX.

Your spouse accompanied you to Country Y.

Your property in Australia was leased when you commenced your assignment in Country Y.

Your spouse managed the rental of your property. You remained responsible for the mortgage on this residence and continued to make the repayments whilst you were in Country Y.

You leased an apartment in Country Y when you first arrived and resided there with your spouse.

You took all your personal effects with you to Country Y.

You moved most of your household effects to Country Y to furnish your apartment and sold your remaining household effects.

You intended to visit Australia for short holidays until the end of your assignment.

You did not intend to reside in Country Y after your assignment concluded.

In March 20XX, you and your spouse returned to Australia for you to apply for a visa and to finalise your relocation to Country Y.

Your visa was supplied by your employer.

Your visa was initially granted for a certain period, however, was later extended.

You had booked a return flight to Country Y, however due to Covid-19 travel restrictions, you had to cancel your flight when Country Y closed their borders. You then remained in Australia with your spouse.

You stayed in temporary accommodation in Australia as your residence in Australia was not available to you.

You continued to work remotely for your Country Y employer whilst you were in Australia.

You did not develop any professional, social, or sporting connections in Australia.

In August 20XX, you returned to Country Y.

You intended to remain in Country Y and continue your assignment with your employer.

You and your spouse resided in the apartment you initially leased when you first arrived in Country Y until the end of your assignment.

You were paid through a Country Y payroll system into your Australian bank account.

You were taxed on your earnings in Country Y and lodged Country Y tax returns during the time you were a tax resident of Country Y.

Your employer made contributions into your superannuation account whilst you were working in Country Y.

You do not own any Australian assets.

You do not own any overseas assets and do not intend to acquire any assets outside of Australia.

You advised your private health insurer to suspend your policy whilst you were in Country Y.

You did not inform Organisation A or Organisation B that you were departing Australia.

When completing incoming and outgoing passenger cards, you state that you are an Australian resident and provide an Australian address.

You used your Australian address to receive your mail until December 20XX when the property was listed for sale.

The property was sold in July 20XX, and you then used your child's Australian address to receive your mail.

In December 20XX until January 20XX, you travelled to the Country X for a holiday.

In May 20XX until June 20XX, you travelled to Australia for a holiday and to visit your child.

In November 20XX, your assignment in Country Y concluded. You also departed Country Y to return to Australia on this date.

You did not maintain any professional, social, or sporting connections in Country Y.

When you had arrived back in Australia, you accepted a position with the Australian division of your Country Y employer.

You intend to remain in Australia and apply for Australian citizenship.

You are not a Commonwealth of Australia Government employee for superannuation (super) purposes.

You are not a member of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Section 6-5

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

International Tax Agreements Act 1953

Reasons for decision

Question 1

Detailed reasoning

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.

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 TR 2023/1 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 not 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 departed Australia to work in Country Y for an extended period.

•         You resided in Country Y on a visa.

•         Once in Country Y, you intended to visit Australia for only a short period of time to finalise your relocation to Country Y and had booked a return flight back to Country Y.

•         After arriving back in Australia, to finalise your relocation to Country Y, you were unable to return to Country Y due to Covid-19 travel restrictions.

•         You stayed in temporary accommodation as the property you owned had been leased and was later sold.

•         You returned to Country Y once their borders reopened.

•         After returning to Country Y, you only made a short visit back to Australia for a holiday.

•         You leased a property in Country Y from the date that you initially arrived in Country Y until the end of your assignment.

•         You took your personal and household effects with you to Country Y

•         Your spouse accompanied you to Country Y.

You are not a resident of Australia under the resides test whilst you were living in Country Y for the relevant ruling period.

You may still be an Australian resident if you meet the conditions of one of the other tests (the domicile test, 183-day test and Commonwealth superannuation fund 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.

Application to your situation

In your case, you were born in the Country X and your domicile of origin is Country X. You moved to Australia and became an Australian permanent resident. Your domicile of origin then changed from Country X to Australia.

It is considered that you did not abandon your domicile of origin in Australia and acquire a domicile of choice in Country Y. You were not entitled to reside in Country Y indefinitely as you only held a visa which was initially only valid for a certain period and then extended for an additional period.

Therefore, your domicile is Australia.

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 phrase 'permanent place of abode' calls for a consideration of the physical surroundings in which you live, extending to a town or country. 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 their permanent place of abode outside Australia are:

•         whether the taxpayer has definitely abandoned, in a permanent way, living in Australia

•         whether the taxpayer is living in a town, city, region or country in a permanent way.

The Commissioner considers the following factors relevant to whether a taxpayer's permanent place of abode is outside Australia:

(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.

Application to your situation

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

•         You departed Australia to work in Country Y for an extended period.

•         You leased an apartment in Country Y from the time that you initially arrived in Country Y until the end of your assignment.

•         You took your personal and household effects with you to Country Y.

•         Your spouse accompanied you to Country Y.

•         When you returned to Australia to finalise your relocation, you stayed in temporary accommodation.

•         You intended to remain in Country Y for the duration of your assignment and only travelled to Australia to finalise your visa and then for a short holiday.

•         Your home in Australia was leased and the property was later sold.

The Commissioner is satisfied that your permanent place of abode is outside Australia for the relevant ruling period.

Therefore, 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 183 days or more in the income years ending 30 June 20XX, 30 June 20XX, and 30 June 20XX. Therefore, you are not a resident under this test for these income years.

You have been in Australia for 183 days or more in the 20XX 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

Based on your circumstances, the Commissioner is not satisfied that your usual place of abode was outside Australia following your return to Australia after XX November 20XX

Therefore, you are a resident under this test following your return to Australia after XX November 20XX.

Intention to take up residency

To determine whether you intend to take up residence in Australia, we look at evidence of relevant objective facts. 'Intend to take up residency' does not merely mean intend to stay for a long time. It means intending to live here in such a manner that you would reside here.

We have taken the following into consideration when deciding whether you intend to take up residence in Australia:

•         You intend to remain in Australia.

•         You intend to apply for Australian citizenship.

Based on your circumstances, the Commissioner is satisfied that you did intend to take up residence in Australia in the 20XX income year and will be a resident after X November 20XX when you returned to Australia from Country Y.

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

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

You will be a part year Australian resident for tax purposes for the remainder of the year ending 30 June 20XX.

Question 2

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.

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 (see the Cam Case at 553).

In 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.

In Commissioner of Taxation of the Commonwealth of Australia v Mitchum (1965) 113 CLR 401, (the Mitchum Case) the taxpayer was an actor. He entered into a contract with a Swiss company, under which he agreed to provide services as a consultant to the producer and to act in two motion picture photoplays at such places as the company might from time to time designate. The agreement contained a number of provisions by which the taxpayer agreed to restrict his activities. If the Swiss company failed to utilise his services, provided that he performed all applicable terms of the agreement, he would be paid a salary. The taxpayer came to Australia for a period of time to act in a photoplay, and the issue was the source of the salary paid in respect of this time period. The High Court stated, at 408-409, that:

Taylor J., as I read his reasons, was engaged in deciding a question of fact deriving what assistance he could from the decided cases. He said, speaking, of course, of a case of wages or salary for work done or services performed - "... if, as the statute requires, I am compelled to select as the source of an employee's remuneration either the locus of the contract of service, or, the place where the remuneration is payable thereunder, or, the place where the services are performed which give rise to the right of remuneration I am content to conclude that, in the absence of special circumstances, this third element should be chosen" (1957) 98 CLR, at p 422.

In so saying, his Honour was not, in my opinion, laying down a rule of law: he was expressing his reasons for the conclusion of fact to which he had come.

I do not feel compelled or persuaded by the decision of the Court in French's Case (1957) 98 CLR 398 to hold that in every case where work forms the consideration for wages or salary paid, the source of the income constituted by the wages or salary is in the place where the work is done.

... It is sufficient for present purposes to say that neither French's Case (1957) 98 CLR 398 nor any other of which I am aware lays it down that for the purposes of the Act the source of wages, salary or remuneration for services performed is necessarily, in default of special circumstances, in the place where the work is done or the services performed.

In 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 court cases, concerning the provision of personal services are decided by weighing up the outcomes of the considerations 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.

Application to your circumstances

You commenced an assignment in Country Y, you were employed by a Country Y company and were paid by a Country Y payroll system.

You commenced working remotely for your Country Y employer whilst in Australia due to Covid-19 restrictions. Although you were performing the role whilst you were in Australia, the role itself is relevant to Country Y.

The income that you derived from your employment whilst you were in Australia does not have an Australian source and is therefore foreign sourced income.