Edited version of private advice

Authorisation Number: 1052170321932

Date of advice: 19 September 2023

Ruling

Subject: Residency - foreign income

Question 1

Are you a resident of Australia for taxation purposes from when you relocated to Country B?

Answer

No.

Summary

Having considered your circumstances as a whole and the residency tests, it has been determined that you are not a resident of Australia for income tax purposes for the relevant ruling period.

Question 2

Is the income you derive from your employment duties carried out in Country B assessable in Australia?

Answer

No.

Summary

Having considered your circumstances, it has been determined that the income you derive from your employment duties carried out in Country B are not assessable in Australia

This private ruling applies for the following period:

Year ending 30 June 20XX.

The scheme commenced on:

1 July 20XX.

Relevant facts and circumstances

You were born in Country B in 19XX.

You and your parents immigrated to Australia in 19XX.

Your spouse was also born in Country B in 19XX.

Your spouse immigrated to Australia in 19XX.

While in Australia, you resided in the home of your father in law with your family.

While in Australia you were employed by an Australian company until July 20XX, when you resigned from that position to move your family back to Country B.

You unenrolled your children from the Australian school they were attending and have sold your car and furniture.

In August 20XX, you moved your family back to Country B with the intention of relocating there permanently.

Your Australian bank accounts will remain open, and your Australian investment property will continue to be rented out.

You have enrolled your children in a school in Country B.

You have signed a 2 year lease agreement for a property in Country B.

You have obtained a driver's licence in Country B.

You have obtained private health cover in Country B.

When you obtained citizenship in Australia, you renounced your citizenship in Country B as duel-citizenships were not available. You and your spouse are submitting an application to obtain citizenship in Country B.

You have obtained employment in Country B as a contractor for an agency that services a company for Australia on a contract that is to end X January 20XX.

Your employer will pay you in Australian dollars into your Australian bank account.

Relevant legislative provisions

Income Tax Assessment Act section 6(1)

Domicile Act 1982

International Tax Agreements Act 1953 Section 4

International Tax Agreements Act 1953 Section 5

Detailed reasoning

For tax purposes, whether you are a resident of Australia is defined by subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

The definition has four tests to determine your residency for income tax purposes. These tests are:

•         the resides test

•         the domicile test

•         the 183 day test, and

•         the Commonwealth superannuation fund test.

It is sufficient for you to be a resident under one of these tests to be a resident for tax purposes.

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.

The resides test

The resides test is the primary test of tax residency for an individual. If you reside in Australia according to the ordinary meaning of the word resides, you are considered an Australian resident for tax purposes.

Some of the factors that can be used to determine whether you reside in Australia include:

•         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.

No single factor is decisive, and the weight given to each factor depends on your specific circumstances.

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

Under the domicile test, if your domicile is in Australia, you are a resident of Australia unless the Commissioner is satisfied that your permanent place of abode is outside Australia.

Whether your domicile is Australia is determined by the Domicile Act 1982 and the common law rules on domicile. For example, you may have a domicile by origin (where you were born) or by choice (where you have changed your home with the intent of making it permanent).

Whether your permanent place of abode is outside Australia is a question of fact to be determined in light of all the facts and circumstances of each case. Key considerations in determining whether you have your permanent place of abode outside Australia are:

•         whether you have definitely abandoned, in a permanent way, living in Australia

•         length of overseas stay

•         nature of accommodation, and

•         durability of association.

The 183-day test

Under the 183 day test, if you are present in Australia for 183 days or more during the income year, you will be a resident, unless the Commissioner is satisfied that both:

•         your usual place of abode is outside Australia, and

•         you do not intend to take up residence in Australia.

The question of usual place of abode is a question of fact and generally means the abode customarily or commonly used by you when are physically in a country.

The Commonwealth 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 circumstances

Residency

We have considered each of the statutory tests listed above in relation to your particular facts and circumstances. We conclude that you are not a resident of Australia as follows:

Taking into account your individual circumstances, we have concluded that you are not a resident of Australia according to ordinary concepts.

We also consider that your domicile is in Australia, but the Commissioner is satisfied that your permanent place of abode is outside Australia. We considered the following factors in forming our conclusion:

•         you have moved your family to Country B

•         you have enrolled your children at school in Country B

•         you intend to settle in Country B permanently

•         you have signed a 2-year lease agreement in Country B.

You will not be in Australia for 183 days or more during the 20XX/20XX income year; therefore; you are not a resident of Australia under the 183-day test.

You do not fulfil the requirements of the Commonwealth Superannuation test and are therefore not a resident under this test.

Having considered your circumstances as a whole and the residency tests, it has been determined that you are not a resident of Australia for income tax purposes from when you relocated to Country B.

Employment and income

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 incorporate that Act with the ITAA 1936 and the Income Tax Assessment Act 1997 (ITAA 1997) and provide that the provisions of a double tax agreement have the force of law.

Article X of the Double Tax Agreement (DTA) of Country Boutlines that 'a person is a resident of one of the Contracting States if that person is a resident of that State of the purposes of its tax'.

It has been determined that, upon relocation to Country B, you are no longer a resident of Australia for taxation purposes.

Article X of the DTA of Country B deals with the income from employment. Article X subsection 1 states:

'...salaries, wages and other similar remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State'.

In your case, you carry out your employment duties in Country B therefore the income you derive from your employment as a contractor of a company in Australia is not assessable in Australia.