Private ruling: Residency
Date of advice: 17 August 2022
Published: November 2022
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you a resident of Australia for taxation purposes? | A1: Yes. | Q2: Are you required to declare your income derived in Country Z in your Australian tax return? | A2: Yes. | Q3: Are you entitled to a Foreign Income Tax Offset (FITO) for tax paid in Country Z? | A3: Yes.

Relevant facts and circumstances: You were born in Australia. You are an Australian citizen. You are also a Country Y citizen. You are not a permanent resident of any other country. You are currently living in Australia on a permanent basis in your family home. Your anticipated departure from Australia is later this year. Your destination overseas is Country Z. You intend on leaving Australia on a temporary basis only. You are going to Country Z for work purposes. You are a sole trader. You are in the final stages of negotiating an employment contract with an overseas organisation. The contract is for a specific period of time and is for a locally engaged staff member. You will have a work visa to enter Country Z. The visa allows you to live and work in Country Z long-term for the duration of your employment contract or as extended. You will be employed as a staff member of the overseas organisation in Country Z. The role is a long-term engagement to support projects and technical assistance activities. The contract/offer is for an annual salary for a full-time position including superannuation, health insurance, paid vacation and sick leave days. The employment contract is initially for a specific period of time, however, the prospect of renewal/extension of your employment will be included in the contract. Given the nature of your employment contract, you will be based in Country Z. You will rent accommodation in Country Z and your employer will provide you with a periodic accommodation allowance. The income you derive under the employment contract will be subject to the income tax rules in Country Z; and you will be provided with a Country Z taxpayer number. There is no double tax agreement between Australia and Country Z. You do not intend on leaving Australia on a permanent basis. Your spouse and children will remain in Australia due to your children's schooling. Your family will remain living in your family home in Australia. You intend to return to Australia to visit your family throughout the year where possible. Your intention is to return to Australia at the end of your employment contract. The contract can be extended. You have the following assets in Australia: • House and household effects jointly owned with your spouse • Car (jointly owned with your spouse) • Bank accounts - home loan, offset, and savings accounts (jointly held with your spouse); savings account (jointly held with your spouse); savings and transaction accounts (individually held for the purpose of your work). You do not have any assets overseas. Your social connections in Australia will be with your family and friends remaining in Australia. You have no ongoing sporting connections in Australia. You will have the general social interaction and connections associated with colleagues and counterparts in the course of your employment overseas. You hold a consultancy contract in Australia for limited ad hoc/periodic inputs. Your work will be to remotely provide technical/capacity building support to certain countries, with some limited face-to-face inputs. You will not remove your name from the electoral roll in Australia. You will maintain your Medicare and private health insurance. Neither you nor your spouse are eligible to contribute to the PSS or the CSS Commonwealth super funds.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 770-10 | Income Tax Assessment Act 1997 section 770-15 | Income Tax Assessment Act 1997 section 770-130 | Income Tax Assessment Act 1997 section 995-1

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 (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 IT 2650 Income tax: residency - permanent place of abode and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia. We have considered the statutory tests listed above in relation to your situation. | Detailed Reasoning - 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... [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. 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 ordinary concepts test is 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: Logan J in Pike v Commissioner of Taxation [2019] FCA 2185 at 57 reminds us that 'it is no part of the ordinary meaning of reside in the 1936 Act that there be a "principal" or even "usual" place of residence. ... It is important that ... "resident" not be construed and applied as if there were such adjectival qualifications.' For this reason, the test is not about dominance or exclusivity. We have taken the following into consideration when determining whether you meet the resides test: • It is your intention to take up an employment contract in Country Z for a period of time with the possibility of an extension. • You do not intend on leaving Australia on a permanent basis. • Your spouse and children will remain in Australia living in the family home. • You will leave the majority of your belongings in Australia in the family home. • You will visit your family once a year or as often as possible. • You are residing in Australia according to ordinary concepts for the period you are working in Country Z. Therefore, you are a resident under this test. Although the law only requires you to be considered a resident under one test, for completeness the other tests are also considered. | 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 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. In your case your domicile is Australia as you were born in Australia and you are a citizen of Australia. You have not taken any steps to change your domicile. You are a resident under this test. | 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 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, and • 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: (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. We have taken the following into consideration when deciding whether your permanent place of abode is outside Australia: • Your spouse and children will remain living in the family home in Australia. • You do not intend on leaving Australia on a permanent basis. • You will return to your family home in Australia at the end of your contract in Country Z. • Your employer will provide you with an accommodation allowance to rent accommodation in Country Z. • You will only take some of your belongings to Country Z and leave the rest in your home in Australia The Commissioner is not satisfied that your permanent place of abode is outside Australia. Therefore, you are a resident of Australia under the domicile test. | Detailed Reasoning - 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. You will not be in Australia for 183 days or more in the relevant income years. Therefore, you are not a resident under this test. | 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 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 are a resident of Australia for taxation purposes for the period you are in Country Z. | Detailed Reasoning - Country Z income: Section 6-5 of the 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. As a resident of Australia for taxation purposes you are required to declare your income derived from all sources in Australia and overseas. This means income derived from your employment in Country Z will be included in your assessable income when you lodge your Australian tax return. | Detailed Reasoning - Foreign income tax offset rules: The purpose of the foreign income tax offset (FITO) rules in Division 770 of the ITAA 1997 is to protect a taxpayer from the double taxation that may arise where the taxpayer pays foreign tax on income that is also taxable in Australia. Subsection 770-10(1) of the ITAA 1997 provides that you are entitled to a tax offset for an income year for foreign income tax. An amount of foreign income tax counts towards the tax offset for the year if you paid it in respect of an amount that is all or part of an amount included in your assessable income for the year. The offset is for the income year in which your assessable income included an amount in respect of which you paid foreign income tax - even if you paid the foreign income tax in another income year. Foreign income tax is a tax imposed by a law other than an Australian law, on income, profits or gains - section 770-15 of the ITAA 1997. A taxpayer is deemed to have paid the foreign income tax if the foreign tax has been withheld from the income at its source - section 770-130 of the ITAA 1997. The general guidelines including the record keeping requirements are contained in the Guide to foreign income tax offset rules 2022, ATO document QC 67996. | Detailed Reasoning - Application to your circumstances: The income you derive under the employment contract will be subject to the income tax rules in Country Z; and you will be provided with a Country Z taxpayer number. There is no double tax agreement between Australia and Country Z. As a resident of Australia for taxation purposes, you are assessable in all your income derived from Australia and overseas. However, under the foreign income tax offset rules, you will be entitled to a tax offset for the income year in which your assessable income included an amount in respect of which you paid foreign income tax, even if you paid the foreign income tax in another income year.