Edited version of private advice

Authorisation Number: 1052205614728

Date of advice: 19 December 2023

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for tax purposes from XX February 20XX?

Answer

Yes.

Question 2

Are you a resident only of Australia under Article 4 of the double tax agreement between Australia and the Country X from XX February 20XX?

Answer

Yes.

Question 3

Is the income you derive from your Country X employer from XX February 20XX subject to tax only in Australia under Article 14 of the double tax agreement between Australia and Country X?

Answer

Yes.

Question 4

Are you entitled to a foreign income tax offset for Country X tax paid on the income you derive from your Country X employer?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

XX February 20XX

Relevant facts and circumstances

You were born in Country X.

You are a citizen of Country X and you are unsure if you are a resident of Country X for tax purposes.

On XX February 20XX, you arrived in Australia to accompany your spouse on a 2 Year Temporary Skill Shortage visa 482.

Your spouse arrived on XX January 20XX and is being sponsored to work here.

You have no dependent children.

You intend to remain in Australia until your visa expires which is XX August 20XX.

You also intend to extend your stay in Australia if your visa can be extended for a further two years.

In Australia, you are living in a rental property. The current lease is until February 20XX.

In Australia, you have a driver's license and a bank account.

In Country XX, you jointly own a property which has been rented out since February 20XX. The current tenancy is due to end on XX September 20XX.

You have set up a redirection for your mail to be sent to Australia from your Country X property.

You moved a large amount of your furniture from Country X to Australia, some of your personal belongings remain in Country X.

You moved your pets to Australia.

In Country X, you have a driver's license and two bank accounts.

You are working remotely for your Country X employer, Company Y.

Your employer has continued to withhold Country X income tax and National Insurance contributions from your employment income and has also continued to contribute into your private Country X pension fund.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

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

Income Tax Assessment Act 1997 Section 770-10

Income Tax Assessment Act 1997 Section 770-15

International Tax 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 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... 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 resides test is about 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. The ordinary meaning of reside does not require an individual to have a principle or usual place of residence in Australia.

Application to your situation

You are a resident of Australia under the resides test from 23 February 2023 based on the following:

•         You have been living in Australia since XX February 20XX.

•         You accompanied your spouse on a 2 Year Temporary Skill Shortage visa 482.

•         You intend to remain in Australia until your visa expires on XXAugust 20XX.

•         You also intend to extend your stay in Australia for a further two years if it is possible.

•         You have lived in a rental property since you arrived in Australia.

•         You are working remotely for your Country X employer from Australia.

•         You moved a large amount of your furniture from Country X to Australia.

•         You also moved your pets to Australia.

•         You have setup a redirection for your mail to be sent to Australia from your Country X property.

•         You rented out your residency property in Country X and the lease agreement is due to end on XX September 20XX.

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 X and your domicile of origin is Country X.

It is considered that you have not abandoned your domicile of origin in Country X and acquired a domicile of choice in Australia. You are not entitled to reside in Australia indefinitely and only hold a work permit which is valid until XX September 20XX.

Therefore, your domicile is Country X 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 183 days or more during the 20XX income year. Therefore, you are not a resident under this test.

You will be present 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 is 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

The Commissioner is not satisfied that your usual place of abode will be outside Australia for the relevant income year based on the following:

•         You have lived in a rental property since you arrived in Australia. The current lease is due to February 20XX.

•         You have moved a large amount of your furniture and pets from Country X to Australia.

•         You have setup a redirection for your mail to be sent to Australia.

•         You rented out your residence in Country X and the lease is due to end on XX September 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.

Application to your situation

The Commissioner is satisfied that you intend to take up residence in Australia for the relevant income year because:

•         You accompanied your spouse to Australia and intend to stay in here until your visa expired on XX August 20XX.

•         You intend to extend your visa if you can.

•         You have moved a large amount of furniture and your pets from Country X to Australia.

•         You have lived in one place since you arrived in Australia.

You will be a resident under this test for 20XX income year.

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 of residency for the 20XX income year. You satisfy the resides and the 18- day tests of residency for the 20XX income year and so are a resident of Australia for income tax purposes for the year ended 30 June 20XX and the year ending 30 June 20XX.

Question 2

It is possible to be a resident for tax purposes of more than one country at the same time in respect of an income year or part of an income year. If this is the case, 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 (Agreements Act) incorporate that Act with the ITAA 1936 and the ITAA 1997 and provide that the provisions of a double tax agreement have the force of law.

Taxation Ruling TR 2001/13 discusses the Commissioner's views about interpreting double tax agreements. Paragraph 104 provides that the OECD Model Tax Convention and Commentary will often need to be considered in interpreting double tax agreements.[1]

Article 4 of Country X sets out the tiebreaker rules for residency for individuals. The tiebreaker rules ensure that the individual is only treated as a resident of one country for the purposes of working out liability to tax on their income under the double tax agreement. The tiebreaker rules do not change a taxpayer's residency status for domestic law purposes.

1.   For the purposes of this Convention, a person is a resident of a Contracting State:

(a) in the case of the Country X, if the person is a resident of the Country X for the purposes of Country X tax; and

(b) in the case of Australia, if the person is a resident of Australia for the purposes of Australian tax.

A Contracting State or a political subdivision or local authority of that State is also a resident of that State for the purposes of this Convention.

2.   A person is not a resident of a Contracting State for the purposes of this Convention if that person is liable to tax in that State in respect only of income or gains from sources in that State.

3.   The status of an individual who, by reason of the preceding provisions of this Article is a resident of both Contracting States, shall be determined as follows:

(a) that individual shall be deemed to be a resident only of the Contracting State in which a permanent home is available to that individual; but if a permanent home is available in both States, or in neither of them, that individual shall be deemed to be a resident only of the State with which the individual ' s personal and economic relations are closer (centre of vital interests);

(b) if the Contracting State in which the centre of vital interests is situated cannot be determined, the individual shall be deemed to be a resident only of the State of which that individual is a national

Permanent home

Permanent home is not defined in the Double Tax Agreement. Therefore, recourse can be made to supplementary materials in order to aid construction. The OECD commentary to the Model Tax Convention provides that in relation to a 'permanent home':

1. for a home to be permanent, an individual must have arranged and retained it for his or her permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be of short duration. The dwelling has to be available at all times continuously and not occasionally for the purposes of a stay, which owing to the reasons for it is necessarily of short duration (e.g. travel for pleasure, business travel, attending a course etc) For instance, a house owned by an individual cannot be considered to be available to that individual during a period when the house has been rented out and effectively handed over to an unrelated party so that the individual no longer has possession of the house and the possibility to stay there.

b.    any form of home may be taken into account, including a house or apartment belonging to or rented by the individual and a rented furnished room.

We have concluded that you didn't have a permanent home in Country X based on the following considerations:

•         You have rented out your property and the current tenancy agreement due to end on XX September 20XX.

We have concluded that you have a permanent home in Australia based on the following considerations:

•         You have lived in a rental property since XX February 20XX.

Conclusion

We have concluded that the tiebreaker tests in Article 4 of Country X Agreement apply so that you are deemed to be a resident only of Australia for treaty purposes. The provisions of Country X Agreement will therefore apply on the basis that you are a resident of Australia and not of Country X.

Question 3

Article 14 of Country X agreement deals with remuneration or other income derived in respect of personal (including professional) services. This includes income derived from employment.

Relevantly, Article 14(1) states that remuneration or other income derived by an individual who is a resident of one of the Contracting States shall be subject to tax only in that State unless the services are performed or exercised in the other Contracting State. If the services are so performed or exercised such remuneration or other income as is derived therefrom shall be deemed to have a source in, and may be taxed in, that other Contracting State.

In your case, you are a resident of Australia for the purposes of Country X Agreement from XX February 20XX and you carried out your employment services solely in Australia from that date.

Therefore, your employment income is subject to tax only in Australia under Article 14 of Country X Agreement. Country X would only have the right to tax your employment income if you physically carried out your work duties in Country X.

Question 4

Section 770-10 of the ITAA 1997 provides that you are entitled to claim a foreign income tax offset for foreign income tax paid in respect of an amount that is included in your assessable income.

Section 770-15 of the ITAA 1997 specifies that foreign income tax means tax that is imposed under a law other than an Australian law and is:

•         tax on income

•         tax on profits or gains, whether of an income or capital nature, or

•         any other tax that is subject to a double tax agreement covered by the International Tax Agreements Act 1953.

Foreign income tax includes only that which has been correctly imposed in accordance with the relevant foreign law or, where the foreign jurisdiction has a double tax agreement with Australia, has been correctly imposed in accordance with that agreement.

In considering the entitlement to a foreign tax credit for Country X tax paid, it is necessary to consider not only Australia's domestic income tax law but also Country X Agreement.

Article 22 of Country X Agreement deals with the allowance of a credit of tax paid in a country outside Australia.

Under Article 22-(1) of Country X Agreement, you are entitled to a credit for any tax you have paid in Country X and in accordance with the Agreement in relation to the income you have derived from your employment.

In your case, the amount of tax you have paid in Country X is not in accordance with this Convention as discussed at Question 3 above.

Therefore, you are not entitled to a foreign income tax offset for the 20XX and 20XX Australian income years for the tax you have paid in Country X.

You will need to seek a refund of tax withheld in Country X from Country X tax authorities.

[1] See also ATO ID 2003/1195.