Private ruling: Residency status and assessability of employment income
Published: December 2014
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2014

Ruling: Questions and answers | 1. Are you a resident of Australia for income tax purposes under the domestic law of Australia? | Yes. | 2. Are you solely a resident of country X under the double tax agreement between Australia and country X? | Yes. | 3. Is your employment remuneration solely taxable in country X under the double tax agreement between Australia and country X? | Yes.

Relevant facts and circumstances: You are an Australian citizen. You have a spouse and children (your family). Your spouse is a citizen of country Z and your children are Australian citizens. Your children also qualify for country Z citizenship. Your family commenced living in country Y several years ago. While your family was based in country Y, you were employed by an Australian company which involved carrying out some duties outside Australia and you spent five to ten days a month in Australia. You took up a new permanent employment role with a related company which was a resident entity of country X. You have obtained a renewable 24 month employment permit in country X. You will be a tax resident of country X. You will be living in a rented flat when working in country X. The flat will be available for your immediate use at all times. You are currently occupying a furnished flat in country X; however, you may move elsewhere. You are purchasing your own groceries and cooking your own meals. You send out some of your clothing to the dry cleaners. As part of your employment role, you are required to travel to and work in different countries where your employer operates. The time you spend in country Y will primarily comprise of weekends with your family. You do not expect to carry out much in the way of employment duties in country Y. You estimate that you will spend the following days in these countries per year: • 130 to 170 days in country Y; • 70 to 100 days in country W; • 30 to 60 days in country X; • up to 50 days in Australia, including 10 to 20 days for holidays; and • up to 30 days in other countries. You established a new family home in country Y. You took out a ten year lease, paid in advance. Even though you rent the country Y dwelling, because it is a ten year lease, you have been allowed to renovate the dwelling. To date, you have added balconies, a car port, replaced doors and completed general upgrading and garden work. You enter and exit country Y with a business travel card. The business travel card allows you to enter and stay in member countries for a certain number of days. You are allowed to spend up to XX days at a time in country Y under this arrangement. Your family have business visas valid for 12 months that allow them to stay in country Y. It is a condition of the visas that they have to leave the country every six months. Your spouse has a visa that allows them to visit you in country X and your family visits you in country X on a regular basis. When carrying out your employment duties in Australia, you will be setting strategy, implementing global policy, meeting with customers and ensuring compliance with the corporate direction. You will stay at hotels when you are in Australia. It is likely you will visit your parents and sibling during visits to Australia on holiday. During the next 12 months, you and your family will return to Australia for one week over Christmas and perhaps one more week later next year. You will be provided with temporary accommodation when working in country W. You do not require a visa for temporary stays in country W. You and your family do not intend to relocate back to Australia for the foreseeable future. You do not have an employment position being held for you in Australia. Neither you nor your spouse has ever been employed by the Australian Commonwealth government. You have a dwelling in Australia that you lived in prior to leaving Australia. The Australian dwelling is being renovated and will be rented out on a commercial basis. There is a mortgage over the property. You took some small pieces of furniture to country Y, used some others to furnish the dwelling and stored some other pieces. You are in the process of trying to sell the stored items. You have bank accounts in Australia. You have informed your bank that you are a non-resident for tax purposes. You have established a bank account and retirement fund in country X. You do not have any social associations with Australia. Your parents and a sibling live in Australia. Your spouses' parents live in the country Z. You have arranged to have your name removed from the Australian electoral roll. You indicated that you were leaving Australia permanently on your Australian immigration outgoing passenger card.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1936 Subsection 6(1) | International Tax Agreements Act 1953

Reasons for decision: Detailed Reasoning - Residency under Australia's domestic tax law: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source. The terms 'resident' and 'resident of Australia', in regard to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are: • the 'resides' test; • the 'domicile' and 'permanent place of abode' test; • the 183 day test; and • the superannuation test. The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word 'resides'. However, where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for tax purposes if they meet the conditions of one of the other three tests. | Detailed Reasoning - The resides test: The ordinary meaning of the word 'reside', according to the Macquarie Dictionary , 2001, rev. 3 rd edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; having one's abode for a time', and according to the Compact Edition of the Oxford English Dictionary (1987), is 'to dwell permanently, or for a considerable time, to have one's settled or usual abode, to live in or at a particular place'. In your case, there are several factors that indicate that you are no longer residing in Australia. Specifically: • you left Australia to take up a permanent employment position based in country X; • the term of your contract is open ended; • you have no intention of returning to Australia to live in the foreseeable future; • your family are residing outside Australia; and • you do not have an Australian residence available for you to stay in. Although you may spend up to 50 days per year in Australia for both business and personal reasons, it is considered that you ceased to reside in Australia from the time you left Australia. Therefore, you are not a resident of Australia under this test. | Detailed Reasoning - The domicile and permanent place of abode test: Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia, unless the Commissioner is satisfied that their permanent place of abode is outside of Australia. | Detailed Reasoning - Domicile: A person's domicile is generally their country of birth. This is known as a person's domicile of origin. A person may acquire a domicile of choice in another country if they have the intention of making their home indefinitely in that country. The intention needs to be demonstrated in a legal sense, for example, by way of obtaining a migration visa, becoming a permanent resident or becoming a citizen of the country concerned. In your case, you are an Australian citizen so your domicile is Australia. Although you have relocated overseas, there is no evidence to suggest that you have taken any steps to change your legal domicile to any other country. Therefore, your domicile is still Australia. | Detailed Reasoning - Permanent place of abode: It is clear from the case law that a person's 'permanent place of abode' cannot be ascertained by the application of any hard and fast rules. It is a question of fact to be determined in the light of all the circumstances of each case. A permanent place of abode does not have to be 'everlasting' or 'forever'. It does not mean an abode in which a person intends to live for the rest of his or her life. Even an intention to return to Australia in the foreseeable future to live does not necessarily prevent the taxpayer in establishing that they have set up a permanent place of abode elsewhere. The courts have considered a person's 'place of abode' is where they consider 'home'. In R v Hammond (1982) ER 1477, Lord Campbell CJ stated that "a man's residence, where he lives with his family and sleeps at night, is always his place of abode in the full sense of that expression." A place of abode must exhibit the attributes of a place of residence or a place to live, as contrasted with the overnight, weekly or monthly accommodation of a traveller. The Commissioner's view on what constitutes a permanent place of abode is contained in Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650). Clearly, the longer an individual stays in any one particular place, the more permanent in nature is likely to be the stay in that place of abode. An individual's intention regarding the duration of the stay in the overseas country and the duration and continuity of the individual's presence in the country can be significant factors in deciding whether they have set up a permanent place of abode in that place. Case law has shown that it is generally difficult for an individual who has a spouse and children to demonstrate that they have established a permanent place of abode in a place in which the individual does not actually live with his or her family. | Detailed Reasoning - Do you have a permanent place of abode in country X?: In your case, there are several factors that indicate that you may have established a permanent place of abode in country X. Specifically, you: • left Australia to take up a permanent employment position based in country X; • obtained a renewable 24 month employment permit; • established your own rental accommodation in country X; • do not have an Australian residence available for you to stay in; and • have no intention of returning to Australia to live in the foreseeable future. However, your family has been residing in Country Y for several years and your intended stay of up to 60 days per year in country X only represents a small proportion of the entire year. Consequently, the Commissioner is not satisfied that you have established a permanent place of abode in country X. | Detailed Reasoning - Do you have a permanent place of abode in country Y?: In your case, there are several factors that indicate that you may have established a permanent place of abode in country Y. Specifically, • your family has been living in country Y for several years; • you established a new family home in country Y; • you paid for a ten year lease in advance; • you have carried out alterations and improvements to the property; • you intend to spend weekends with your family in country Y; • you intend to spend over 100 days per year in country Y and • you do not have an Australian residence available for you to stay in. Although you clearly have a place of abode in country Y, your business travel card does not allow you to spend more than XX days at a time in country Y and your family has to leave the country every six months to comply with the conditions of their visas. It is the Commissioner's view that an individual cannot demonstrate that they have a 'permanent place of abode' in a country in which the continuity of their presence is limited by restrictive visa or entry permit conditions. Compared to a citizen or permanent resident of the country, their presence in the country is seen to be more of a transitory or temporary one. In your circumstances, we appreciate that these restrictive conditions may not impact negatively on you as you will be regularly travelling for work and your family will be leaving country Y occasionally to visit you in country Y and to travel with you to Australia. However, it does not alter the fact that you are subject to these conditions. Consequently, based on the information you have provided, the Commissioner is not satisfied that you have established a 'permanent place of abode' in country Y. Therefore, as you have an Australian domicile and the Commissioner is not satisfied that you have a 'permanent place of abode' in any country outside Australia, you will remain a resident of Australia under the domicile and permanent place of abode test. As you are a resident of Australia under this test, neither of the other two tests of residency need to be considered. You are a resident of both Australia and country X for tax purposes under the domestic laws of each country. Therefore, your residency status under the double tax agreement between Australia and country X needs to be considered. | Detailed Reasoning - Residency under double tax agreement: In determining liability to Australian tax on foreign sourced income received by a resident it is necessary to consider not only the income tax laws but also any double tax agreement contained in the International Tax Agreements Act 1953 (Agreements Act). Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 and ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions). The double tax agreement with country X (the Agreement) is listed in section 5 of the Agreements Act. The Agreement operates to avoid the double taxation of income received by residents of Australia and country X. In your situation, you are a resident of both country X and Australia for tax purposes under the domestic laws of each country. Therefore, it is necessary to refer to the 'tiebreaker' rules contained in the Agreement to determine whether you will be treated solely as a country X resident or an Australian resident. The Agreement states that where an individual is both a country X resident and an Australian resident: (a) they shall be treated solely as a country X resident- (i) if they have a permanent home available to them in country X and has not a permanent home available to them in Australia; (ii) if sub-paragraph (a)(i) of this paragraph is not applicable but they have an habitual abode in country X and has not an habitual abode in Australia; (iii) if neither sub-paragraph (a)(i) nor sub-paragraph (a)(ii) of this paragraph is applicable but the Contracting State with which their personal and economic relations are closest is country X. Taxation Ruling TR 2001/13 Income tax: Interpreting Australia's Double Tax Agreements states that the OECD Model Tax Convention and Commentary (OECD Commentary) provides appropriate guidance when interpreting the terms used in double tax agreements. In relation to a 'permanent home', the OECD Commentary states that: ….this home must be permanent, that is to say, the individual must have arranged and retained it for his permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be of short duration. As regards the concept of home, it should be observed that any form of home may be taken into account (house or apartment belonging to or rented by the individual, rented furnished room). But the permanence of the home is essential; this means that the individual has arranged to have the dwelling available to him at all times continuously…. In your situation, you have leased an apartment in country X where you stay when you are working in country X and are renting out your former residence in Australia. Consequently, you no longer have a home available to you in Australia. Based on the above, it is evident that you have a permanent home available to you in country X and do not have a permanent home available to you in Australia. Consequently, you will be treated solely as resident of country X under the Agreement. | Detailed Reasoning - Assessability of employment remuneration: An article of the Agreement deals with the taxation of remuneration in respect of personal services, and states: ……. remuneration or other income derived by an individual who is a resident of one of the Contracting States in respect of personal (including professional) services shall be subject to tax only in that Contracting State unless the services are performed or exercised in the other Contracting State. If the services are so performed or exercised such remuneration or other income as is derived therefrom shall be deemed to have a source in, and may be taxed in, that other Contracting State. Further, another article of the Agreement states: Remuneration or other income derived by an individual who is a resident of one of the Contracting States in respect of personal (including professional) services performed or exercised in the other Contracting State shall be exempt from tax in the other Contracting State if: (a) the recipient is present in the other Contracting State for a period or periods not exceeding in the aggregate 183 days in the year of income or in the basis period for the year of assessment as the case may be of that other Contracting State; (b) the services are performed or exercised for or on behalf of a person who is a resident of the first-mentioned Contracting State; and (c) the remuneration or other income is not deductible in determining the profits for tax purposes in the other Contracting State of a permanent establishment in that other Contracting State of that person. In your situation, you are a resident of country X under the Agreement, are employed by a country X company and will return to Australia from time to time as part of your employment duties. Applying the relevant article to your situation, the remuneration you derive from your employer will only be subject to tax in country X unless you perform services in Australia that meet the criteria specified in the other article. However, the other article will not apply to you as: (a) you will not be present in Australia in any of the relevant income years for 183 days or more; (b) you will perform the services for or on behalf of an employer who is a resident of country X; and (c) the remuneration will not be deductible in determining the profits for tax purposes in Australia of a permanent establishment in Australia of your employer. Therefore, the remuneration you derive in country X from your employer will only be subject to tax in country X and will be exempt from tax in Australia under the agreement.