Edited version of private advice

Authorisation Number: 1052313326675

Date of advice: 10 October 2024

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for tax purposes as defined by subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

Question 2

Is your foreign employment income assessable income in Australia under Articles 15 and 22 of the double tax agreement between Australia and Country A (the Convention)?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

Your country of origin is Australia.

You are a citizen of Australia.

You have an Australian driver's license.

You do not have a spouse or dependants.

You were in Australia for more than 183 days for each of the income years ended 30 June 20XX, 20XX, and 20XX.

From XX XXXX 20XX to XX XXXX 20XX, you received income from employment in your family business as an electrician in Australia.

Prior to XX XXXX 20XX, you lived with your parents.

You do not own any property.

You have an Australian and a Country A bank account.

On XX XXXX 20XX, you travelled to Country A on an working holiday visa. This visa allows you to travel and work in Country A for up to XX years.

Prior to leaving for Country A, you did not inform the following organisations that you were departing overseas:

•         Electoral commission.

•         Medicare.

•         Financial institutions.

•         Private health.

No family accompanied you to Country A.

When traveling to Country A, you left your household and personal effects at your parents' house.

From XX XXXX 20XX to XX XXXX 20XX, you were employed by employer A in Country A. You worked in client services.

While in Country A you did not maintain any professional, social or sporting connections in Australia.

You did not develop any professional, social or sporting connections in Country A.

In XXXX 20XX, your parents informed the electoral commission that you were overseas.

On XX XXXX 20XX, you retuned to Australia.

From XX XXXX 20XX to XX XXXX 20XX, you received income from employment in your family business as an electrician in Australia.

On XX XXXX 20XX, you travelled to Country A for a working holiday under the same visa.

On XX XXXX 20XX, you will return to Australia.

When completing incoming and outgoing passenger cards, you state Australia as your residency status and provide an Australian address on these documents.

You did not apply for citizenship or residency in Country A.

You intend to return to Australia permanently after your work visa expires and resume living with your parents.

You are not a member of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990 or the Commonwealth Superannuation Scheme (CSS) which was established under the Superannuation Act 1976.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 6(1)

Income Tax Assessment Act 1997 section 995-1

International Tax Agreements Act 1953

Reasons for decision

Question 1

Are you a resident of Australia for tax purposes as defined by subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Summary

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

Detailed reasoning

For tax purposes, you are a resident of Australia if you meet at least one of the following tests. You are not a resident of Australia if you do not meet any of the tests.

•         The resides test (otherwise known as the ordinary concepts test)

•         The domicile test

•         The 183 day test

•         The Commonwealth superannuation fund test.

We have considered your circumstances, and conclude that you are a resident of Australia for the income year ended 30 June 2024 and the income year ending 30 June 2025, as follows:

•         You are a resident of Australia according to the resides test.

•         You do meet the domicile test because your domicile is in Australia and the Commissioner is not satisfied that your permanent place of abode is outside Australia.

•         You do not meet the 183-day test because you were not in Australia for 183 days or more during the income year ended 30 June 20XX and income year ending 30 June 20XX.

•         You do not fulfill the requirements of the Commonwealth Superannuation test.

For more information about residency, see Taxation Ruling TR 2023/1 Income tax: residency tests for individuals.

Question 2

Is your Country A employment income assessable income in Australia under Articles XX and XX of the double tax agreement between Australia and Country A (the Convention)?

Summary

Accordingly, Australia has the primary taxing right over all income, however, income from employment exercised in Country A may also be taxed in Country A under article XX of the Convention. As the income is assessable in both countries, you can claim a Foreign Income Tax Offset (FITO) as a credit in relation to tax payable in relation to the Country A income under article XX(1) the Convention.

Detailed reasoning

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian taxpayer includes the ordinary income derived directly or indirectly from all sources, whether in or out of Australia during the income year.

Salary and wages are ordinary income under subsection 6-5(2) of the ITAA 1997.

In determining an employee's liability to pay tax in Australia, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (the Agreements Act).

Sections 4 and 5 of the 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.

Double Tax Agreements (DTAs) are tax treaties between Australia and other countries which are designed to alleviate international double taxation and prevent tax avoidance. The DTAs allocate taxing rights to income derived by residents of either country in accordance with specified articles.

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.[1]

You are a tax resident of Australia for the purposes of the Convention. You have also stated you are not a tax resident of Country A.

Under article XX(1) of the Convention, it states:

1. Subject to the provisions of Articles 16, 18 and 19, 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. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in that other State.

Article XX(2) does not apply in your circumstances because you are present in Country A for more than 183 days in the income years ended 30 June 20XX and 20XX.

Under article XX(1) of the Convention, it states:

1. Income derived by a resident of one of the Contracting States which, under any one or more of Articles 6 to 8 and 10 to 18 may be taxed in the other Contracting State, shall for the purposes of Article 23, be deemed to be income from sources in that other State.

Under article XX(1), of the Convention, it states:

1. Subject to the provisions of the law of Australia from time to time in force which relate to the allowance of a credit against Australian tax of tax paid in a country outside Australia (which shall not affect the general principle hereof), tax paid in XX, whether directly or by deduction, in respect of income derived by a person who is a resident of Australia from sources in XX (not including, in the case of a dividend, tax paid in respect of the profits out of which the dividend is paid) shall be allowed as a credit against Australian tax payable in respect of that income.

Accordingly, Australia has the primary taxing right over all income, however, income from employment exercised in Country A may also be taxed in Country A under article XX of the Convention. As the income is assessable in both countries, you can claim a Foreign Income Tax Offset (FITO) as a credit in relation to tax payable in relation to the Country A income under article XX(1) the Convention.

[1] See also ATO ID 2003/1195.