Edited version of private advice

Authorisation Number: 1052353976328

Date of advice: 5 February 2025

Ruling

Subject: Residency of Australia for taxation purposes

Question 1

Will the employment income you derive from working for Entity A while living in Country B be subject to tax in Australia?

Answer 1

No.

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 will not be a resident of Australia for the tax years ending XX XX 20XX to XX XX 20XX, as follows:

•                     You will not be a resident of Australia according to the resides test.

•                     You will not meet the domicile test because your domicile will not be in Australia.

•                     You will not meet the 183 day test because you will not be in Australia for 183 days or more during the 20XX to 20XX income years.

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

Double taxation agreement

The double taxation agreement between Australia and Country B is contained in the International Tax Agreements Act 1953, being the Convention between The Government of Australia and Country B for the Avoidance of Double Taxation with respect to taxes on income and fringe benefits and the Prevention of Fiscal Evasion (the DTA).

Article 14 of the DTA provides the following in relation to payments made in relation to employment:

Article 14

INCOME FROM EMPLOYMENT

(1)           Subject to the provisions of Articles 15, 17, and 18, remuneration derived by an individual who is a resident of a Contracting State 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.

Application to your situation

In your case, you will receive remuneration from carrying out employment services and it is evident that the remuneration is ordinary income for the purposes of subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997).

However, as you will be a resident of Country B carrying out your employment duties in Country B, your employment income will only be subject to tax in Country B under Article 14(1) of the DTA.

The income you receive from your Australian employer should be reported only on your Country B tax return for years ending XX XX 20XX to XX XX 20XX. Your rental income from your Australian property will be reported on both the Australian tax return as well as the Country B tax return.

As the Australian income is not exempted income you will be taxed at non-resident tax rates.

A non-resident individual who lives and works abroad with no intention of returning to Australia is liable to Australian income tax only on income derived from sources in Australia except for interest, dividends and royalties which are subject to withholding tax, and certain statutory income that is taxable on a basis other than source such as certain capital gains.

This ruling applies for the following period:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are currently employed full time at Entity A.

You and your spouse are Australian Citizens, but you were born in Country B and wish to return.

In approximately XX 20XX, you and your family (including your spouse and young children) will relocate to country B for family and job reasons.

This relocation will be for a few years.

Until XX 20XX, you will retain your full-time employment at Entity A. After that, it is unlikely.

You currently live with your spouse, in a property you jointly own.

You intend to keep ownership of this house and derive income from renting it. It will be rented as soon as possible after you leave Australia.

You plan to lodge non-resident tax returns in Australia to declare the rental income from the 20XX income year onwards.

You do not have or intend to have other meaningful sources of income in Australia other than employment and future rental income.

The new home in Country B will be a long-term leased property. You and your spouse hope to investigate purchasing afterwards.

Your children will attend school locally.

You will have minimal social ties with Australia after you leave. In contrast, the significant family and social ties in Country B will assist with the upbringing of your young children.

You will be a tax resident of Country B once you relocate there.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 6(1)

International Tax Agreements Act 1953