Edited version of private advice

Authorisation Number: 1052260408139

Date of advice: 7 June 2024

Ruling

Subject: Residency

Question 1

Are you an Australian resident for tax purposes from XX/20XX?

Answer

No.

Question 2

Is your employment income taxable in Australia under Article X of the double tax agreement between Australia and Country X from the time you became a tax resident of Country X?

Answer

No.

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 were born in Australia and are an Australian citizen.

You have a spouse who is a dual citizen of Australia and Country X.

Your spouse lived in Australia from 20XX.

You have dependent children.

On XX/XX/20XX, you commenced full time work as an Australian government employee.

In XX/20XX, your spouse accepted an employment opportunity in Country X.

On XX/XX/20XX, you took annual leave from your employment position to depart Australia and travel to Country X to visit your spouse.

You did not require a visa to visit Country X.

Prior to your departure to Country X, you and your spouse lived with your relative at your relative's main residence.

Prior to departing for Country X, you travelled to Continent A in late 20XX and early 20XX for a holiday. In early 20XX, you visited Country Y for a holiday.

In late 20XX and early 20XX, you and your spouse travelled to Country A, Country B and Country C for a holiday.

In March 20XX, when Covid-19 became prevalent, you and your spouse decided to remain in Country X due to travel restrictions and your spouse's health condition.

In 20XX, you contacted your bank to advise them that you were living overseas.

Following your decision to remain in Country X, your employer offered you the opportunity to work remotely from Country X. You used your own equipment to undertake your role and your employer treated you as an Australian employee.

You are a resident of Country X for taxation purposes.

In XX/20XX, you became pregnant with your first child, and you did not consider travelling to Australia during this time.

In XX/20XX, you commenced maternity leave, and your first child was born in XX/20XX. You did not wish to travel until your child had been fully vaccinated.

In XX/20XX, you became pregnant with your second child and your doctor advised you not to travel.

Your spouse's family and some of your spouse's friends live in Country X.

You currently hold a visa allowing you to live and work in Country X. This visa expires on XX/XX/20XX.

You are not a member of any clubs in Country X.

Most of your connections in Country X are through your spouse.

Your extended family, friends and colleagues live in Australia.

You have an Australian driver's licence.

You informed the Australian Electoral Commission that you had departed Australia. On XX/XX/20XX, you were informed by the AEC that you had been removed from the electoral roll.

You are currently living in a property in Country X that your spouse is renting. You also lived in a previous property rented by our spouse and with your sister-in-law for several months under an informal arrangement.

You own a motor vehicle in Australia.

You have several bank accounts in Australia.

You have shares in Australia with several entities.

You do not own any assets outside of Australia.

You receive your mail in both Australia and Country X.

You have not returned to Australia since departing in 20XX.

You intend to remain in Country X until your youngest child has received their full course of infant vaccinations and you consider it to be safe for you to travel to Australia with your children.

You are considering applying for permanent residency in Country X to remain there with your children and maintain your health insurance.

Your personal items including your musical instruments, furniture, jewellery, and clothing remain at your relative's residence in Australia.

You have been a member of the Public Sector Superannuation Accumulation Plan since XX/XX/20XX, and this is where your superannuation is currently held.

You lodged your income tax returns for the 20XX to 20XX income years as a resident of Australia.

In XX20XX, the Country X Government issued notices of assessment for fiscal years 20XX and 20XX and asked you to pay tax on employment income you earned from your Australian employer while in Country X.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

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

International Tax Agreements Act 1953

Reasons for decision

Detailed reasoning

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 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 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:

•         In XX/20XX, you and your spouse decided to remain in Country X for the foreseeable future.

•         You are currently living in a property in Country X that your spouse is renting.

•         You are undertaking your work in Country X.

•         You are considering obtaining permanent residency in Country X.

•         You have not returned to Australia since departing in 20XX.

•         You do not own or lease a place of abode in Australia.

You are not a resident of Australia under the resides test from XX/20XX.

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

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 Australia and your domicile of origin is Australia.

It is considered that you did not abandon your domicile of origin in Australia and acquire a domicile of choice in Country X. You were not entitled to reside in Country X indefinitely and whilst you are living in Country X, you only hold a visa that allows you to live and work in Country X until XX/XX/20XX.

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:

•         the intended and actual length of the taxpayer's stay in the overseas country;

•         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;

•         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;

•         whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;

•         the duration and continuity of the taxpayer's presence in the overseas country; and

•         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:

•         In XX/20XX, you and your spouse decided to remain in Country X for the foreseeable future.

•         You are currently living in a property in Country X that your spouse is renting.

•         You are undertaking your work in Country X.

•         You are considering obtaining permanent residency in Country X.

•         You have not returned to Australia since departing in 20XX.

•         You do not own or lease a place of abode in Australia.

The Commissioner is satisfied that your permanent place of abode is outside Australia.

Therefore, you are not a resident of Australia under the domicile test from XX/20XX.

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 have not been present in Australia for 183 days or more during the 20XX, 20XX, 20XX and 20XX income years. Therefore, you are 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. This test does not apply if you are a member of the PSSAP.

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 until XX/XX/20XX.

Question 2

In determining your liability to pay tax in Australia, it is necessary to consider any applicable double tax agreement. 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.

The Country X Agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The Country X agreement operates to avoid the double taxation of income received by residents of Australia and Country X.

Article X of the Country X Agreement deals with government service and states that salaries, wages and other similar remuneration, other than a pension, paid in Australia or, in the case of the Federal Republic of Country X, to an individual in respect of services rendered in Australia shall be taxable only in Australia.

However, under paragraph (b), such salaries, wages and other similar remuneration shall only be taxable in Country X if the services are rendered in Country X and the individual is a resident of Country X who is a national or did not become a resident of Country X solely for the purpose of rendering the services.

In your case, you are working as an Australian government employee and you have been undertaking your work in Country X. Therefore, from the time you became a tax resident of Country X, your income is only taxable in Country X under Article X as you are an Australian government employee and did not become a resident of Country X solely for the purpose of rendering the services.