Private ruling: Residency and employment income
Date of advice: 3 December 2021
Published: March 2022
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you a resident of Australia for taxation purposes for the earlier relevant period? | A1: No. | Q2: Are you a resident of Australia for taxation purposes for the later relevant period? | A2: Yes. | Q3: Is your employment income derived in the earlier period non-assessable in Australia? | A3: Yes.

Relevant facts and circumstances: You were born in Australia. You are a citizen of Australia. You went to Country Y to work. You ceased being an Australian resident for taxation purposes at the date of departure. You worked for Employer Z. You intended on being in Country Y for several years. Your spouse accompanied you to Country Y. You and your spouse returned to Australia to deal with some financial matters. You intended on being in Australia for a couple of weeks and your spouse intended on being in Australia for a few weeks. You both had booked to return to Country Y. Your return flights were cancelled due to the government lock down and you could not return to Country Y. You worked remotely for your Country Y employer in Australia. You were paid by Employer Z while in Australia. This income was not charged to a permanent establishment in Australia. The terms and conditions of your contract remained the same. At no time while working for Employer Z in Australia did you do any work for Employer X. Employer Z made you aware of an offer they were making to you for early retirement which would take affect later in the year. You decided to accept the offer and not return to Country Y and remain living in Australia. You received confirmation that your early retirement had been accepted. You and your spouse engaged a Country Y removalist to pack up your house in Country Y. You and your spouse proceeded to cancel any memberships you had in such as gym, health insurance, phones etc. You sold your vehicles in Country Y. You took a voluntary redundancy and formally retired from Employer Z. You and your spouse are not eligible to contribute to the PSS or the CSS.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1997 section 6-5 | International Tax Agreements Act 1953 section 4

Reasons for decision: Summary: 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, • the domicile test, • the 183 day test, and • the superannuation test. The primary test for deciding the residency status of an individual is whether they reside 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. | 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'. These definitions have been highlighted in cases as being definitive observations of the meaning of resides (see Viscount LC in Levene v Commissioners of Inland Revenue [1928] AC 217 and Logan J in Stockton v Federal Commissioner of Taxation [2019] FCA 1679). 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... [W]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. Case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the 'resides' test: • Physical presence • Intention or purpose of presence • Family and business/employment ties • Maintenance and location of assets, and • Social and living arrangements These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in IT 2650 and Taxation Ruling TR 98/ 17 Income tax: residency status of individuals entering Australia . It is important to note that not one single factor is decisive, and the weight given to each factor depends on each individual's circumstances. We consider that your circumstances are consistent with you not residing in Australia. You returned to Australia on to deal with some financial matters. You only intended on being in Australia for a couple of weeks. Due to the pandemic the government closed its borders and you were not able to leave Australia. You decided to remain in Australia permanently and applied for an early retirement from your employer. You arranged with a Country Y removalist to have all your belongings sent to Australia. Therefore, for the earlier relevant period you were not residing in Australia according to ordinary concepts. However, you are a resident of Australia for taxation purposes for the later period as you decided on this date to remain living in Australia on a permanent basis and not to return to Country Y. | Detailed Reasoning - 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. | Detailed Reasoning - Domicile: Whether your domicile is 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 acquired a domicile of choice elsewhere. To acquire a domicile of choice of a particular country you must be lawfully present there and you must 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. You are a citizen of Australia. You did not change your domicile to Country Y. Your domicile is still Australia. | Detailed Reasoning - 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 courts have held that the phrase 'permanent place of abode' calls for a consideration of the town or country where a person is located. 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 his or her permanent place of abode outside Australia are: (a) whether the taxpayer has definitely abandoned, in a permanent way, living in Australia; and (b) whether the taxpayer is living permanently in a specific country. Paragraph 23 of Taxation Ruling IT 2650 Residency - Permanent place of abode outside Australia sets out the following factors which are used by the Commissioner in reaching a state of satisfaction as to a taxpayer's permanent place of abode: (a) the intended and actual length of the taxpayer's stay in the overseas country; (b) 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; (c) 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; (d) whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence; (e) the duration and continuity of the taxpayer's presence in the overseas country; and (f) 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. The Commissioner is satisfied that your permanent place of abode was outside Australia for the earlier period. This takes into account that: • you had been living and working in Country Y since your departure • you had a home in Country Y • you were caught in Australia due to border closures and could not return to Country Y • it was initially your intention to return to Country Y and you had a return flight booked which was cancelled due to the pandemic Therefore, you were not a resident of Australia for taxation purposes in the earlier period. However, you became a resident of Australia in the later period when you formed the intention to remain in Australia. | Detailed Reasoning - 183-day test: Where a person is present in Australia for 183 days during the year of income the person will be a resident, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia. You were not in Australia for more than 183 days in the earlier income year and were not a resident under this test for that year. You were present in Australia for more than 183 days in the later income year and the Commissioner is not satisfied that your usual place of abode was outside Australia for the year and that you did not intend to reside in Australia. You are a resident under this test for the later income year. | Detailed Reasoning - 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. You are not a contributing member of 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. | Detailed Reasoning - Conclusion: For the earlier period you were not a resident of Australia for taxation purposes. In the later period you became a resident of Australia for taxation purposes when you and your spouse decided to remain living in Australia. | Detailed Reasoning - Employment income: In determining your 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. Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations). Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country Y is listed in section 5 of the Agreements Act. Article 15 considers dependant personal services. It states: (1) Subject to the provisions of Articles 18 (Pensions, annuities, alimony and child support) and 19 (Governmental remuneration), 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 or in respect of services performed as a director of a company shall be taxable only in that State unless the employment is exercised or the services performed in the other Contracting State. If the employment is so exercised or the services so performed, such remuneration as is derived from that exercise or performance may be taxed in that other State. (2) Notwithstanding the provisions of paragraph (1), remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment exercised in the other Contracting State or in respect of services performed in the other Contracting State as a director of a company shall be taxable only in the first-mentioned State if: (a) the recipient is present in that other State for a period or periods not exceeding in the aggregate 183 days in the taxable year or year of income of that other State; (b) the remuneration is paid by, or on behalf of, an employer or company who is not a resident of that other State; and (c) the remuneration is not deductible in determining taxable profits of a permanent establishment, a fixed base or a trade or business which the employer or company has in that other State. The income derived by you for Employer Z while working remotely in Australia due to the pandemic is only assessable in Country Y and not Australia as you were a non-resident of Australia for this period and you were not in Australia for more than 183 days in either of the relevant income years. Your renumeration was paid by Employer Z while in Australia working remotely and the renumeration was not charged to a permanent establishment in Australia.