Edited version of private advice

Authorisation Number: 1052327448528

Date of advice: 22 November 2024

Ruling

Subject: Tax residency

Question 1

Were you an Australian resident for tax purposes?

Answer 1

No

Question 2

Will your employment income related to services performed in Australia by you be assessable in Australia by operation of subsection 6-5(3) of the Income Tax Assessment Act 1997?

Answer 2

Yes

Question 3

Did you meet the requirements of section 770-10 of the Income Tax Assessment Act 1997?

Answer 3

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

1.            You were born in Australia and are an Australian citizen. Your parents and extended family live in Australia.

2.            Your spouse is also an Australian citizen.

3.            You moved to a foreign country (Country A) on DD MM 20XX, together with your family, in order to undertake an employment opportunity. You were employed by an entity on a contract with no end date. The contract was a Country A contract however the entity employing you was not a resident of Country A.

4.            Under the contract, you held three different roles. You did not have personal control over the place where you should perform your work duties. Your travel internationally was controlled by your employer and they instructed you to make visits to different locations to attend the business needs.

5.            As part of these roles, you were required to travel to Australia for business trips.

6.            While in Australia, you not only performed your responsibilities under your regional role but also your employment duties for other non‐Australian markets on a 'remote working' basis.

7.            Your remuneration for your workdays physically performed in Australia (both for Australian and non‐Australian duties) were reported via an Australian payroll (under a shadow payroll process) and PAYG taxes were remitted to the ATO. In addition, employer superannuation guarantee contributions were made based on your physical Australian workdays.

8.            Apart from the business trips, you also visited your parents and other family members in Australia on separate occasions for family events about X times per year. You visited them only once during Covid.

9.            Your child was due to start boarding school in 20XX at an Australian school and this was delayed into 20XX due to the Australian borders being closed for Covid. At the time of Australia reopening its borders, your spouse was worried about them closing again and decided to move back to Australia with your child in 20XX. You continued to live and be based in Country A.

10.         When your family originally moved back to Australia, there was a consideration that your spouse would return to Country A with your child attending the Australian boarding school.

11.         Your personal belongings were based in Country A. You maintained ties with the local community, including medical practitioners.

12.         You were not on the Australian electoral roll and did not hold a valid Medicare card.

13.         For the ruling income year, you were physically present in Australia for XX days. Out of these days, there were XX days for work purposes (including weekends) and XX days for vacation and holidays (including weekends). You spent XXX days in Country A and the remaining XX days travelling internationally.

14.         You are required to pay income tax in Country A on the workdays you spend in Australia. This imposition does not occur as a result of status as a resident of Country A.

15.         You entered Australia XX times during the ruling income year. Out of the total, there were X times substantially for visiting your family. You preferred to meet them on festivals and family functions. You had never extended your business trip purely for the purpose of spending time with your family.

16.         Your family also visited you in Country A X times and stayed a total of X days over the last 12 months.

17.         After the ruling income year you returned to Australia to take up residence and work for an Australian entity. This happened after discussions took place between you and your employer for X months. Prior to this, you did not form an intention to end your Country A based employment.

18.         You used to own a property in Australia. You rented the property out at your departure in 20XX then sold it in 20XX.

19.         In MM 20XX, you jointly acquired an Australian property with your spouse. You rented the property out up until the time your family took occupancy from MM 20XX.

20.         You stayed with your family in the Australian property while you were in City A and in hotels when you visited other cities.

21.         You have stayed in X different rental properties during your time in Country A. The most recent one you had taken was a X-year lease from MM 20XX to MM 20XX.

22.         You cancelled your lease on DD MM 20XX due to your relocation back to Australia. You were liable for paying $X for the early termination of the lease.

23.         Over the last X years, you have used your savings and salary from Country A to meet your family's financial needs in Australia.

24.         You held a Country A work visa, which needs a renewal every X years. You had held the visa until your date of departure on DD MM 20XX. You didn't renew the visa after its expiration.

25.         You never pursued permanent residency status in Country A as it is not permanent and needs to be renewed every X years. You saw no advantage over your work visa.

26.         You used to own a vehicle but sold it in 20XX before you moved to Country A. Your spouse bought a car in MM 20XX.

27.         You held both a Country A's and Australian driver's licence. You gave up your car in 20XX for economic reasons and let your Country A's driver's licence expire in 20XX.

28.         You have an Australian superannuation fund and a joint bank account. You and your spouse are not members of the superannuation scheme established by deed under the Superannuation Act 1990 or an eligible employee for the purposes of the Superannuation Act 1976.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 subsection 6-5(3)

Income Tax Assessment Act 1997 subsection 770-10(1)

Income Tax Assessment Act 1997 subsection 770-10(3)

Income Tax Assessment Act 1997 subsection 770-10(4)

Income Tax Assessment Act 1997 subsection 770-10(5)

Income Tax Assessment Act 1997 subsection 770-15(1)

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

Domicile Act 1982 subsection 3(2)

Domicile Act 1982 section 10

International Tax Agreements Act 1953 subsection 3AAA(1)

International Tax Agreements Act 1953 section X

Reasons for decision

Question 1

Were you an Australian resident for tax purposes?

Detailed reasoning

29.         Subsection 6(1) of the Income Tax Assessment Act 1936 provides:

"resident or resident of Australia" means:

(a) a person, other than a company, who resides in Australia and includes a person:

(i) whose domicile is in Australia, unless the Commissioner is satisfied that the person's permanent place of abode is outside Australia;

(ii) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and that the person does not intend to take up residence in Australia; or

(iii) who is:

                                       (A)                a member of the superannuation scheme established by deed under the Superannuation Act 1990; or

                                       (B)                an eligible employee for the purposes of the Superannuation Act 1976; or

                                      (C)                the spouse, or a child under 16, of a person covered by sub-subparagraph (A) or (B); and

...

30.         From this provision, we derive four tests of residency:

•                     Ordinary concepts test

•                     Domicile test

•                     183-day test

•                     Commonwealth superannuation fund test.

31.         Taxation Ruling TR 2023/1 Income tax: residency tests for individuals (TR 2023/1) provides at paragraph 15:

You are a resident if you meet any one of the tests. It does not matter if you do not meet any of the other tests. You are not a resident if you do not meet any of the tests. This means that you must consider all applicable tests before concluding you are a non-resident.

Ordinary concepts test

32.         TR 2023/1 provides at paragraphs 17 to 21:

17. Under the ordinary concepts test, you are a resident if you reside in Australia.

18. The term 'reside' is not defined in the Australian income tax law and has its ordinary meaning.

19. The ordinary meaning 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'.

20. The ordinary concepts test is asking whether your presence in Australia is usual and settled in contrast to temporary and casual. This is informed by both the nature, duration and quality of the person's physical presence and an intention to treat Australia as home. Factors that commonly inform the relevant association with Australia are:

•                     period of physical presence in Australia

•                     intention or purpose of presence

•                     behaviour while in Australia

•                     family, and business or employment ties

•                     maintenance and location of assets, and

•                     social and living arrangements.

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

33.         On consideration of the relevant facts and circumstances surrounding your presence in Country A against the relevant factors, especially the time you had already resided in Country A and your continued presence there after your family returned to Australia, it is considered that you did not reside in Australia during the period to which this ruling applies and consequently will not meet the ordinary concepts test.

Domicile test

34.         TR 2023/1 provides at paragraph 55:

Under the domicile test, you are an Australian resident when your domicile is in Australia, unless the Commissioner is satisfied that your permanent place of abode is outside Australia.

35.         TR 2023/1 provides at paragraphs 57 and 58:

57. Domicile considers whether there is a legal relationship between a person and Australia. There are 3 types of 'domicile':

•                     A 'domicile of origin', which is attributed to each individual at birth.

•                     A 'domicile of dependence', which is relevant where a person (such as a minor) lacks capacity to acquire their own domicile and their domicile is determined by reference to someone else's domicile (such as a parent).

•                     A 'domicile of choice', which is the domicile a person, with the capacity to do so, acquires voluntarily.

58. You always have a domicile and you can only have one domicile at any point in time. Your particular domicile continues until you acquire a different one, either by choice or operation of the law. You cannot abandon a domicile of origin without replacement.

36.         Your domicile of origin will be Australia.

37.         Subsection 3(2) of the Domicile Act 1982 (Cth) provides:

For the purposes of the application of this Act in relation to the laws of the Commonwealth, this Act has effect to the exclusion of the laws of any State, any Territory or any other country relating to any matters dealt with by this Act.

38.         Section 10 of the Domicile Act 1982 (Cth) provides:

The intention that a person must have in order to acquire a domicile of choice in a country is the intention to make his or her home indefinitely in that country.

39.         TR 2023/1 provides at paragraph 59:

To acquire a domicile of choice you must have both lawful physical presence in a foreign country and an intention to make your home indefinitely in that country.

40.         TR 2023/1 provides at paragraphs 61 and 62:

61. Obtaining a visa to migrate to a particular country would be consistent with an intention to make your home indefinitely in that country. A working visa, even for a substantial period of time, would usually not be sufficient evidence of an intention to acquire a new domicile of choice.

62. If you have an Australian domicile and you are living outside Australia, you will retain your Australian domicile if you intend to return to Australia on a clearly foreseen and reasonably anticipated contingency (for example, at the end of your employment contract), even if you stay overseas for a substantial period. This is because you lack the necessary intention to settle in that country indefinitely. On the other hand, if you only have in mind a vague possibility of returning to Australia, such as making a fortune or some sentiment about dying in the land of your forebears, such a state of mind is consistent with the intention required by law to acquire a domicile of choice in the foreign country.

41.         It is considered that by relocating your family to Country A, subsequently selling the family home and not returning to Australia with your family, you acquired a domicile of choice in Country A. This is despite never seeking permanent residency because that decision was a result of you determining there to be no advantage over your work visa. Country A will have remained your domicile of choice until the point you again commenced a lawful physical presence in Australia.

42.         Consequently, you will not meet the domicile test.

183-day test

43.         TR 2023/1 provides at paragraphs 83:

Under the 183-day test, you are a resident if you have been present in Australia for 183 days or more in an income year, unless the Commissioner is satisfied that both:

•                    your usual place of abode is overseas, and

•                    you do not have an intention to take up residency in Australia.

44.         You did not spend 183 days in Australia during the ruling income year, therefore you will not meet the 183 day test.

Commonwealth superannuation fund test

45.         You and your spouse are not members of the superannuation scheme established by deed under the Superannuation Act 1990 or an eligible employee for the purposes of the Superannuation Act 1976. Therefore, you do not meet this test.

Question 2

Will your employment income related to services performed in Australia by you be assessable in Australia by operation of subsection 6-5(3) of the Income Tax Assessment Act 1997?

Detailed reasoning

46.         Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides:

If you are a foreign resident, your assessable income includes:

(a) the ordinary income you derived directly or indirectly from all Australian sources during the income year; and

(b) other ordinary income that a provision includes in your assessable income for the income year on some basis other than having an Australian source.

47.         Subsection 995-1(1) provides that:

"foreign resident" means a person who is not a resident of Australia for the purposes of the Income Tax Assessment Act 1936.

48.         As a consequence of the answer to question 1 of this ruling, you will be considered a foreign resident for the period to which this ruling applies.

49.         It is considered that the amounts paid to you for services performed in Australia will be ordinary income and Australian sourced.

50.         As a result of the International Tax Agreements Act 1953, Australia's double tax agreement with Country A (the DTA) have the force of law so as its provisions affect Australian tax.

51.         The DTA has an exemption which would afford an exemption from Australian tax on your income related to services performed in Australia. The Commissioner has considered that exemption and determined it does not apply.

Conclusion

52.         Your employment income related to services performed in Australia by you will be assessable in Australia under subsection 6-5(3) of the ITAA 1997.

Question 3

Did you meet the requirements of section 770-10 of the Income Tax Assessment Act 1997?

Detailed reasoning

53.         Subsection 770-10(1) of the ITAA 1997 provides:

You are entitled to a tax offset for an income year for foreign income tax. An amount of foreign income tax counts towards the tax offset for the year if you paid it in respect of an amount that is all or part of an amount included in your assessable income for the year.

Note 1: The offset is for the income year in which your assessable income included an amount in respect of which you paid foreign income tax--even if you paid the foreign income tax in another income year.

54.         Subsection 770-15(1) of the ITAA 1997 provides:

Foreign income tax means tax that:

(a) is imposed by a law other than an Australian law; and

(b) is:

(i) tax on income; or

...

Note: 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 tax treaty with Australia (having the force of law under the International Tax Agreements Act 1953), has been correctly imposed in accordance with that tax treaty.

55.         During the ruling income year, you will include amounts in your assessable income attributable to work you performed in Australia.

56.         You will be required to, and will, pay income tax on those amounts in Country A. Consequently, the requirements of subsection 770-10(1) of the ITAA 1997 have been met.

57.         Subsection 770-10(3) of the ITAA 1997 provides:

An amount of foreign income tax you paid does not count towards the tax offset for the year if you paid it:

(a) to a foreign country because you are a resident of that country for the purposes of a law relating to the foreign income tax; and

(b) in respect of an amount derived from a source outside that country.

58.         The tax imposed by Country A is not as a consequence of your residency status. The exception in subsection 770-10(3) will therefore not apply.

59.         The exceptions in subsections 770-10(4) & (5) do not apply.

Conclusion

60.         For the ruling income year, you can claim a foreign income tax offset for the income tax paid in Country A on income attributable to your Australian workdays that occurred during the ruling income year.