Edited version of private advice

Authorisation Number: 1052295636238

Date of advice: 22 August 2024

Ruling

Subject: Australian resident for tax purposes

Question 1

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

Answer

Yes.

Question 2

Are you a resident solely of Country X for the purposes of the Country X Agreement?

Answer

Yes.

Question 3

Is your income from your employment subject to tax in Australia and Country X under Article X of the Country X Agreement?

Answer

Yes.

Question 4

Are you entitled to a foreign income tax offset in Australia for Country X tax paid on your employment income?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were born in Country X and are a citizen of Country X.

Your spouse is a citizen of Country X and lives in Country X.

Your spouse will commence sabbatical leave from their employer on XX/XX/20XX and join you in Australia soon after.

You and your spouse have been together for several years.

You and your spouse both rent a property together in Country X. This lease ceases on XX/XX/20XX

You will financially support your spouse when they move to Australia.

You hold a Country X passport.

On XX/XX/20XX, you arrived in Australia.

Prior to your arrival in Australia, you had remained in Country X for several years.

Upon your arrival into Australia, you commenced a secondment at an educational institution.

You have been employed by Company A (an entity associated with the Country X government and funded by an associated department since XX/XX/20XX). The agency has no legal entity in Australia.

Your salary is paid by Company A. All decisions relating to your contract, salary and mission are made by the associated department of the Country X government and then implemented by Company A.

Your contract will expire on XX/XX/20XX.

You were granted a visa to enter Australia. This visa ceases on XX/XX/20XX.

Your visa was supported by your employer.

When your contract ends on XX/XX/20XX (if not renewed), you and your spouse will move back to Country X. Your spouse will be able to return to their employment in Country X.

Your visa required you to obtain private health insurance in Australia.

Your salary is paid in Country X currency and is deposited into one of your bank accounts in Country X.

You receive your payslips from your employer in Country X.

You intend to remain in Australia for the duration of your work contract.

You do not intend to reside in Australia permanently and intend to depart when your visa expires, however, you may consider staying in Australia if your employer renews your contract.

You have leased an apartment in Australia for a period.

In the future, you intend to take some holidays overseas for several weeks at a time.

When completing incoming passenger cards, you state that you are a temporary resident and provide your Australian address.

You are a resident of Country X for taxation purposes for the tax year ended XX/XX/20XX.

You are also a tax resident of Country X for the year ended XX/XX/20XX. This is because you worked for a former employer in XX/20XX and your spouse will work until XX/XX/20XX and you declare taxes together as a household.

You have not lodged any foreign tax returns while living in Australia.

In Country X, you are a member of some organisations.

In Australia, you are a member of an organisation.

You hold both an Australian driver's licence and a Country X driver's licence.

You have a bank account in Australia which you use to pay for your rent and expenses.

You have several bank accounts in Country X.

You do not own any household effects as the apartment you are renting in Country X was fully furnished.

You shipped your personal effects to Australia prior to your departure from Country X.

You receive mail in Australia and Country X.

In XX/20XX, you commenced a course, and you completed this course in XX/20XX.

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

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 XX/XX/20XX for the 20XX income year based on the following:

•         You have a settled purpose in Australia.

•         You have leased a property in Australia for one year.

•         You are undertaking your employment duties in Australia.

•         You have private health insurance in Australia.

•         You are a member of an organisation in Australia.

•         You have a bank account in Australia.

•         You have shipped your personal effects to Australia.

•         You receive some of your mail in Australia.

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 did not abandon your domicile of origin in Country X and acquire a domicile of choice in Australia. You were not entitled to reside in Australia indefinitely and while living in Australia, you only hold a certain visa which is valid until XX/XX/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 have not been present in Australia for 183 days or more during the 20XX income year. 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.

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 satisfy the resides test of residency, you are a resident of Australia from XX/XX/20XX for income tax purposes for the year ended 30 June 20XX.

Question 2

Country X Agreement

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.

You were a tax resident of Country X for the year ended XX/XX/20XX. You will also be a tax resident for the year ended XX/XX/20XX as you worked for a former employer in XX/20XX and your spouse is working there until XX/XX/20XX and you both declare taxes together as a household.

You are also a tax resident of Australia from XX/XX/20XX.

Taxation Ruling TR 2001/13 Income tax: Interpreting Australia's Double Tax Agreements 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.

Article X of the Country X Agreement 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 a double tax agreement. The tiebreaker rules do not change a taxpayer's residency status for domestic law purposes.

Permanent home

Permanent home is not defined in the Country X 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.
2. 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 have a permanent home in Country X based on the following considerations:

•         You are currently renting a property in Country X with your spouse with the lease ending on XX/XX/20XX.

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

•         You have been renting a property in Australia since XX/XX/20XX.

Personal and economic ties (centre of vital interests)

The OECD commentary states that regard should be had to the taxpayer's family and social relations, their political, cultural or other activities, their place of business, the place from which they administer their property etc. As noted in Pike v Commissioner of Taxation [2020] FCAFC 158 at [39], personal factors do not have greater weight than economic factors. In each case it will be a matter of fact and degree whether a taxpayer's personal and economic relations, viewed as a whole, support ties closer to one contracting state over the other contracting state.

We have concluded that your personal and economic ties were closer to Country X based on the following considerations:

•         You were born in Country X and are a citizen of Country X.

•         Your spouse is residing in Country X.

•         You do not have any assets in Australia with the majority of your bank accounts being located in Country X

•         You will only be in Australia for the length of the secondment and do not intend to become a permanent resident of Australia.

•         You are a member of X organisations in Country X.

•         You have a Country X employer and receive your employment income into your Country X bank account.

Conclusion

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

Question 3

Article X of the Country X Agreement deals with remuneration from employment.

Relevantly, Article X(x) states:

•         that remuneration 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 employment 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 state.

According to Article X(x), you are a resident of Country X for the purpose of the Country X Agreement, and you are exercising employment in Australia, therefore both Australia and Country X have the right to tax your employment income.

Question 4

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

Foreign income tax is a tax imposed by a law other than an Australian law, on income, profits or gains (section 770-15 of the ITAA 1997). You must have paid the foreign income tax before an offset is available.

In considering your entitlement to a foreign income tax offset for Country X tax paid, it is necessary to also consider the provisions of the Country X Agreement.

Article X of the Country X Agreement on source of income provides that income, such as employment income, derived by a resident of Country X (for the purposes of the Country X Agreement) that may be taxed in Australia shall be deemed to be from sources in Australia.

As Article X deems the source of income to be in Australia, Article X(x) of the Country X Agreement states:

•         that Australian tax paid in accordance with the Agreement, shall be taken into account for the computation of Country X tax where the beneficiary is a resident of Country X, and the income is not exempted by Country X domestic law shall not be deductible from such income, but the resident of Country X shall, subject to conditions and limits be entitled to a tax credit against Country X tax.