Edited version of private advice

Authorisation Number: 1052335661668

Date of advice: 25 November 2024

Ruling

Subject: Residency of Australia for taxation purposes

Question 1

Are you a resident of Australia for tax purposes?

Answer 1

No.

Question 2

Is your employment income subject to tax only in Country Z under the double tax agreement between Australia and Country Z?

Answer 2

Yes.

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 Z.

You migrated to Australia a number of years ago and became an Australian Citizen several years later.

You have lodged income tax returns as an Australia tax resident for a number of years.

You have been working full time for your Australian employer on a PAYG salary.

A couple of years ago you went to Country Z to live closer to your parents and family without the intention of permanently moving there.

You travelled to Country Z with your spouse and children.

You have continued to work for the same Australian employer since you moved to Country Z.

Your employer has no branches or offices in Country Z and the work you do is totally remote.

You are a tax resident of Country Z from a prior year.

Your Australian employer withholds tax, and you lodged a tax return for the relevant financial year which included your employment income.

You and your spouse have a residential property where you lived in Australia, which was rented out after you left Australia.

You sold your furniture in your home in Australia.

You use your address in Country Z as your mailing address however, you use email or online options for any Australian institutions that maintain your Australian address as they don't accept a Country Z address.

You are paying the mortgage on your Australian property.

You and your sibling own a residential property in Country Z which you and your family have lived in since your return to Country Z.

You have a bank account in Australia and Country Z.

You have no plans to move back to Australia for the next few years.

You and your children have a lifetime visa to live in Country Z and your spouse is a Country Z citizen.

You, your spouse and children were not Commonwealth of Australia Government employees or a Public Sector or Commonwealth Superannuation Scheme members.

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

You have an Australian and Country Z driver's license.

You do not have private health insurance in Australia.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 995-1

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.

Only one of the tests needs to be met for an individual to be a resident of Australia for tax purposes.

Our interpretation of the law in respect of residency is set out in Taxation Ruling TR 2023/1 Income tax: residency tests for individuals.

The resides 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'.

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 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

In your case, you have relocated to another country with your family and have established a home in that country. You have no plans to return to Australia for the next few years.

Therefore, you are no longer residing in Australia and are not a resident of Australia under this test.

The 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 parent 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 Z. You migrated to Australia in a number of years ago and became an Australian Citizen a few years later. Therefore, it is considered that you acquired a domicile of choice in Australia on or after the time you became an Australian citizen.

Although you have been living in Country Z with your family and have established a home in Country Z, it is considered that you have not yet abandoned your Australian domicile and established a domicile of choice in Country Z.

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

•                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

In your case, you have relocated to another country with your family and have established a home in that country. While you do have a home in Australia which you rent, you have no plans to move back to Australia for the next few years.

Consequently, the Commissioner is satisfied that you have a permanent place of abode outside of Australia.

Therefore, you are not a resident of Australia under this test.

The 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

In your case, you were not present in Australia for more than 183 days in the relevant financial year.

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.

You are not a resident under this test.

Residency Conclusion

As you do not satisfy any of the residency tests, you are not a resident of Australia for income tax purposes for the relevant financial year.

Question 2

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

DTAs are tax treaties between Australia and its treaty partners 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 on royalties, business profits, interest, dividends, and employees, among others.

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.

You are a resident of Country Z for the purposes of the DTA between Australia and Country Z.

Article 15 of the DTA deals with dependent personal services:

Subject to the provisions of Articles 16, 17, 18, 19 and 20, 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.

In your case, as you are a resident of Country Z for the purposes of the DTA and exercise your employment in Country Z, your employment income is taxable only in Country Z and Australia does not have a taxing right.