Edited version of private advice

Authorisation Number: 1052393058961

Date of advice: 8 May 2025

Ruling

Subject:Exempt income

Question 1

Are you a resident of Australia for tax purposes from your arrival date?

Answer

Yes.

Question 2

Is the income you derive from your employment with the Employer A assessable income in Australia under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 3

Is the income you derive from your employment with Employer A exempt in Australia under Article X of the DTA with Country A

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

You were born in Country A, and you are a Country A citizen.

Your extended family and friends live in Country A.

In Country A you:

•           Have a driver's license.

•           Have expatriate insurance.

•           Have a bank account.

•           Do not own property or shares.

On XX XXXX 20XX, you ceased working for an employer in Country A.

On XX XXXX 20XX, you were granted a working holiday visa in Australia.

Under the visa, you were allowed to stay in Australia for X months from the date of arrival.

On XX XXXX 20XX, you finalised your rental agreement in Country A.

On XX XXXX 20XX, you travelled with your spouse to Australia.

When you travelled to Australia, you moved all your personal belongings into storage.

From XX XXXX 20XX to XX XXXX 20XX, you stayed in Australian rental property A.

From XXXX 20XX, Employer A has had a presence in Australia. Employer A is a public broadcaster established by the Government of Country A.

Your spouse's visa was tied to their employment contract with Employer A in Australia.

On XX XXXX 20XX, you made your first contact with Employer A regarding your potential employment.

Before commencement with Employer A, you had no other employment in Australia.

From XX XXXX 20XX to XX XXXX 20XX, you entered Contract 1 with Employer A.

From XX XXXX 20XX to XX XXXX 20XX, you entered Contract 2 with Employer A.

From XX XXXX 20XX to XX XXXX 20XX, you entered Contract 3 with Employer A.

On XX XXXX 20XX, you were granted a temporary skill shortage visa, sponsored by Employer A.

Your visa is valid until XX XXXX 20XX.

Since XX XXXX 20XX, you reside in Australian rental property B. You have been renewing this lease periodically.

For less than a week, you travelled to Country B for a holiday.

From XX XXXX 20XX to XX XXXX 20XX, you travelled to Country A to visit family.

From XX XXXX 20XX to XX XXXX 20XX, you returned to Australia.

From XX XXXX 20XX to XX XXXX 20XX, you entered Contract 4 with Employer A.

For a couple weeks, you travelled to Country C for a holiday.

Since XX XXXX 20XX, you have physically been in Australia.

When travelling outside of Australia, you list your Australian address and that you are a resident returning to Australia on incoming and outgoing passenger cards.

You are employed as a freelancer in all your contracts with Employer A.

As a freelancer, you are not obligated to be available for Employer A during your contract periods.

Your job requires you to work nighttime shifts in Country A (which is daytime in Australia).

You have not applied for permanent residency in Australia.

On completion of your assignment to Australia, you will return to Country A.

You do not own any property or shares in Australia.

You own a bank account in Australia and Country A.

You have 2 Australian Superannuation funds.

You have an Australian driver's licence.

You do not have private health insurance in Australia.

You and your spouse are not a member of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990.

You and your spouse are not an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS) which was established under the Superannuation Act 1976.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 subsection 6-15(2)

Income Tax Assessment Act 1997 subsection 6-20(2)

Income Tax Assessment Act 1997 section 995-1

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 for the period since your arrival date in Australia based on the following:

•            Physical presence

-           You have been physically present in Australia for more than 183 days in both the income years ended 30 June 20XX and 20XX.

•           Intention or purpose

-           You initially came to Australia on a visa with your spouse. Your intention was to remain in Australia for the duration of your spouse's contract with Employer A.

-           Your visa is valid until XX XXXX 20XX.

-           You have stated on completion of your assignment in Australia, you will return to Country A.

•            Behaviour

-           You have entered into an ongoing rental agreement in Australia.

-           You have not applied for permanent residency in Australia.

-           When travelling outside of Australia, you list your Australian address and that you are a resident returning to Australia on incoming and outgoing passenger cards.

-           You ceased employment in Country A before moving to Australia.

•            Family or employment ties

-           You travelled to Australia with your spouse, who is contracted to Employer A.

-           Employer A sponsors your temporary skill shortage visa in Australia.

-           Your extended family lives in Country A.

•            Maintenance and location of assets

-           You do not own property or shares.

-           When you travelled to Australia, you moved all your personal belongings into storage.

•            Social connections

-           You have developed social and community connections within Australia.

-           You have retained your social and community connections in Country A.

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 A and your domicile of origin is Country A.

It is considered that you did not abandon your domicile of origin in Country A and did not acquire a domicile of choice in Australia. You are not entitled to reside in Australia indefinitely and while living in Australia, you only hold a work permit which was valid until XX XXXX 20XX.

Therefore, your domicile is Country A

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 been in Australia for 183 days or more in the 20XX and 20XX income years. Therefore, you will be a resident under this test unless the Commissioner is satisfied that your usual place of abode was outside Australia and you do not have an intention to take up residence in Australia.

Usual place of abode

In the context of the 183-day test, a person's usual place of abode is the place they usually live, and can include a dwelling or a country. A person can have only one usual place of abode under the 183-day test. However, it is also possible that a person does not have a usual place of abode. This is the case for a person who merely travels through various countries without developing any strong connections.

If a person has places of abode both inside and outside Australia, then a comparison may need to be made to determine which is their usual place of abode. When comparing two places of abode of a particular person, we will examine the nature and quality of the use which the person makes of each particular place of abode. It may then be possible to determine which is the usual one, as distinct from the other or others which, while they may be places of abode, are not properly characterised as the person's usual place of abode: Emmett J at [78] in Federal Commissioner of Taxation v Executors of the Estate of Subrahmanyam [2001] FCA 1836.

Application to your situation

The Commissioner is not satisfied that your usual place of abode was outside Australia for the income years ended 30 June 20YY and 20YY, based in the following:

•            You have an ongoing rental agreement in Australia.

•            You do not own property in Country A.

•            You only visit Country A for vacation or to visit family.

Intention to take up residency

To determine whether you intend to take up residence in Australia, we look at evidence of relevant objective facts. 'Intend to take up residency' does not merely mean intend to stay for a long time. It means intending to live here in such a manner that you would reside here.

Application to your situation

The Commissioner is satisfied that you did intend to take up residence in Australia for the income years ended 30 June 20XX and 20XX, because:

•            You entered long term rental agreements.

•            You visa is valid until XX XXXX 20XX.

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

You satisfy the resides and 183-day tests of residency and so are a resident of Australia since XX XXXX 20XX for income tax purposes for the years ended 30 June 20XX and 20XX.

Questions 2 to 3

Double tax agreement

The assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year (section 6-5 of the ITAA 1997).

Income derived from rendering personal services is ordinary income for the purposes of section 6-5 of the ITAA 1997.

Therefore, the income you derived from your employment with XXXX is assessable income and forms part of your taxable income, unless it is made non-assessable or exempt by another provision of the tax law.

Subsection 6-15(2) of the ITAA 1997 states that if an amount is exempt income, then it is not assessable income.

Subsection 6-20(2) of the ITAA 1997 states that ordinary income is exempt income to the extent that 'this Act' excludes it (expressly or by implication) from being assessable income.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act therefore forms part of 'this Act'. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

The Double Tax Agreement (DTA) is the agreement which operates to avoid the double taxation of income received by residents of Australia and Country A by allocating taxing rights between the two countries.

Article X of the DTA

Article X deals with 'Government service' and reads as follows:

1. Remuneration (other than a pension or annuity) paid by one of the Contracting States or a political sub-division or local authority of that State to any individual in respect of services rendered in the discharge of governmental functions shall be taxable only in that State. However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that other State and the recipient is a resident of that other State who:

(a)•            is a citizen of that State; or

(b)•            did not become a resident of that State solely for the purpose of performing the services.

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.

Paragraph 2 of the OECD Commentary concerning Government service states that the Article is based on the principle that the paying State shall have an exclusive right to tax the payments:

The principle of giving the exclusive taxing right to the paying State is contained in so many of the existing conventions between OECD member countries that it can be said to be already internationally accepted. It is also in conformity with the conception of international courtesy which is at the basis of the Article and with the provisions of the Vienna Conventions on Diplomatic and Consular Relations. It should, however, be observed that the Article is not intended to restrict the operation of any rules originating from international law in the case of diplomatic missions and consular posts.........but deals with cases not covered by such rules. (emphasis added)

Paragraph 4 of the OECD Commentary confirms that there is an exception from the principle of giving exclusive taxing power to the paying State:

It is to be seen against the background that, according to the Vienna Conventions mentioned above, the receiving State is allowed to tax remuneration paid to certain categories of personnel of foreign diplomatic missions and consular posts, who are permanent residents or nationals of that State.

Taxation Ruling TR 2002/9 Income tax: withholding from payments where recipient does not quote ABN at paragraphs 106 to 107 state:

106. Income will also be exempt where it is not taxable by virtue of the provision of one of the International Treaties. Subsection 6-20 (2) provides that ordinary income is exempt to the extent that this Act excludes it from being assessable income. 'This Act' is defined to include the Income Tax Assessment Act 1936. Subsection 4(1) of the International Tax Agreement Act 1953 (ITA Act 1953) provides that 'the Assessment Act is to be incorporated and shall be read as one with this Act'. This means that the provisions of the two Acts are to be considered as if they are all in the one Act.

107. The 'Assessment Act' is defined to mean the ITAA 1936 or the ITAA 1997. This means that where the ITAA 1936 or the ITAA 1997 provides that income is not taxable in Australia, it will satisfy the definition of exempt income and section 12-190 will not require a withholding.

Application to your circumstances

Question 2

Income derived from rendering personal services is ordinary income for the purposes of section 6-5 of the ITAA 1997. Therefore, the income you derived from your employment with Employer A is assessable income and forms part of your taxable income, unless it is made non-assessable or exempt by another provision of the tax law.

Question 3

In your case, paragraph 1 of Article X reads that remuneration paid to you in respect of services rendered in the discharge of governmental functions to Country A may be taxed in Country A.

However, as per paragraph 1(a) and paragraph 1(b) of Article X, any such remuneration will be taxable only in Australia if the services are rendered in Australia and you are either: a resident of Australia who is a citizen of Australia or you did not become a resident of Australia solely to perform the services.

Our view on the application of Article X to your circumstances is based on a plain reading of the Article and we do not believe that there is anything in the OECD Commentary that indicates that this should not be the case.

Employer A is wholly owned, controlled and funded by Country A's government. Therefore, Article X of the DTA may apply to you as you are you are providing services rendered in the discharge of governmental functions.

You are a citizen only of Country A, residing in Australia on a visa sponsored by your employer. As such, Article X of the DTA provides that income you earn from this employment may be taxable only in Country A. However, when you travelled to Australian on XX XXXX 20XX, you were on a working holiday visa. It wasn't until later on XX XXXX 20XX, that you were granted the temporary skill shortage visa, sponsored by Employer A.

We have determined that you are an Australian tax resident since the date of your arrival. This means under subparagraph X(1)(b), you did not become a resident of Australia solely for the purpose of performing your services for Employer A. Therefore, your income derived from rendering personal services for Employer A will not be exempt under Article X of the DTA, and will be taxable in Australia.