Edited version of private advice

Authorisation Number: 1052199998304

Date of advice: 20 December 2023

Ruling

Subject: Non-resident - working holiday maker

Question 1

Are you a resident of Australia for tax purposes?

Answer

No.

Question 2

Is your worldwide income taxable in Australia?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2022

Year ended 30 June 2023

The scheme commenced on:

1 July 2021

Relevant facts and circumstances

You are a country A national currently on a working holiday visa in Australia. You work as a farmer and hold an ABN.

You were not in Australia in the 2021-22 financial year and for less than 183 days in the 2022-23 financial year.

Your purpose of being in Australia was for a working holiday.

You lived at an address in Australia when you were working on a farm here. You then left Australia for country B as a working holiday visa holder. You have no family or business ties in Australia. You do not own any houses in country A or Australia. You rent storage for furniture and home appliances. You have savings accounts in country A and Australia.

You did not join any communities in Australia, just part of your work group.

You subcontract for clients in country A and have reported the income from that in your tax return in that country for the period 1 January to 31 December 2022.

You will be filing a tax return 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 subsection 995-1(1)

Income Tax Rates Act 1986 section 7

Reasons for decision

Question 1

Are you a resident of Australia for tax purposes?

Summary

You were not a resident of Australia for the 2021-22 and 2022-23 financial years.

Detailed reasoning

An Australian resident is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to be 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', in regard to an individual, are defined in subsection 6(1) of the ITAA 1936 while Taxation Ruling TR 2023/1 Income tax: residency tests for individuals outlines the guidelines used to determine whether the individual is a resident.

The definition provides 4 tests to ascertain if an individual is a resident of Australia for income tax purposes. These tests are:

1. the resides test (residence according to ordinary concepts)

2. the domicile test

3. the 183-day test

4. the superannuation test.

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides. However, where the individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for income tax purposes if they meet the conditions of one of the other three tests.

The resides test

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary 2001, rev. 3rd edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; having one's abode for a time', and according to the Compact Edition of the Oxford English Dictionary (1987), is 'to dwell permanently, or for a considerable time, to have one's settled or usual abode, to live in or at a particular place'.

TR 2023/1 considers the residency status of individuals entering Australia and states that the period of physical presence or length of time in Australia is not, by itself, decisive when determining whether an individual resides here (paragraph 26). However, an individual's behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here.

The Commissioner's view of the law is that 6 months is a considerable time when deciding whether an individual's behaviour is consistent with residing here (paragraph 29 of TR 2023/1).

Paragraph 20 of TR 2023/1 also states that when assessing whether an individual's behaviour is consistent with residing here, the following factors are taken into account:

•         intention or purpose of presence

•         family and business/employment ties

•         maintenance and location of assets, and

•         social and living arrangements.

No single factor is necessarily decisive. The weight given to each factor varies depending on individual circumstances.

Intention or purpose of presence

A settled purpose, such as employment or education, may support an intention to reside in Australia (paragraph 33 of TR 2023/1). However, the intention must be more than merely being a traveller or visitor who may supplement their savings by obtaining casual employment.

The visa notation on the passport is an indicator of the individual's purpose for being in Australia but it is not the only consideration in determining residency for tax purposes (paragraph 36 of TR 2023/1).

In your case, you came to Australia on a working holiday visa. According to the Department of Immigration and Border Protection, the main purpose of a working holiday visa is to allow you to have an extended holiday while supplementing your funds with short-term work.

You were in Australia on a working holiday. You were not in Australia in the 2021-22 financial year and only in Australia for less than 183 days of the 2022-23 financial year.

The Commissioner is satisfied that you did not intend to stay in Australia on a long-term basis.

Maintenance and location of assets

Occupation of a dwelling in Australia, that the individual owns or is purchasing, suggests establishment of a home in Australia. Other assets in Australia, such as motor vehicles and bank accounts, add further weight to the individual having established behaviour consistent with residing here (paragraph 51 of TR 2023/1).

You rent storage for your furniture and home appliances. You have a savings account in country A and Australia.

Social and living arrangements

Paragraph 53 of TR 2023/1 provides that social and living arrangements such as joining sporting or community organisations, redirecting mail to Australia or committing to a residential lease during the individuals stay in Australia may indicate they are residing here.

You lived at an address in Australia when you were working on a farm here. You have no family or business ties in Australia.

Summary

Based on the facts and information you have provided, it is not considered that you have established a degree of continuity, routine or habit over a considerable time during the 2021-22 and 2022-23 financial years that is consistent with residing here.

Accordingly, you were not a resident of Australia for income tax purposes under the resides test for the 2021-22 and 2022-23 financial years.

The domicile test

If a person is considered to have their domicile in Australia they will be considered a resident of Australia unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

A person's domicile is in their country of origin unless they acquire a different domicile of choice or operation of law. To obtain a different domicile of choice, a person must intend to make their home indefinitely in another country and also be able to prove this (usually by applying for a permanent residency visa).

In your case, you are a citizen of country A. You came to Australia on a working holiday visa. This visa does not allow you to stay in Australia permanently. You are now in country B on your working holiday visa.

As you have not (as yet) applied to stay in Australia indefinitely you have retained your overseas domicile.

You are not a resident of Australia for income tax purposes under the domicile test.

The 183 days test

Where a person is present in Australia for 183 days during the year of income the person will be a resident, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

If the precondition for the application of the 183-day test is met, i.e. being in Australia for more than one half of the year of income, there is a presumption that the person is a resident. This presumption will only be defeated if the prescribed exception applies; that is, the Commissioner is satisfied that the person's usual place of abode is outside Australia and that person does not intend to take up residence in Australia.

You were not in Australia for more than 183 days in the 2021-22 or the 2022-23 financial years. You were not a resident under this test as the Commissioner is not satisfied you have a usual place of abode in Australia or that you intend to take up residence in Australia.

The superannuation test

This test is not relevant in your situation as it only applies to persons eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person.

You were not a member of the PSS or the CSS, a spouse of such a person, or a child under 16 of such a person.

Residency status

As you do not satisfy at least one of the tests of residency outlined in subsection 6(1) of the ITAA 1936, you were not a resident of Australia for income tax purposes for the 2021-22 and 2022-23 financial years from the date of your arrival in Australia.

Question 2

Is your worldwide income taxable in Australia?

Summary

You only pay tax on income earned in Australia in the 2021-22 and 2022-23 financial years as you were not a resident.

Detailed reasoning

Section 6-5 of the 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 Australian sources.

As you are not a resident of Australia for tax purposes for the 2021-22 and 2022-23 financial years, you do not report the income earned in country A in your Australian tax return.

Note that there is a special rate of tax that applies for working holiday makers under section 7 of the Income Tax Rates Act 1986. The rate is 15% for taxable income earned in Australia which does not exceed $45,000 for the year.