Private ruling: Residency and source of income
Date of advice: 7 June 2018
Published: August 2018
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 income tax purposes? | A1: Yes | Q2: Is the income you earned from working a company based in Country A deemed to be Australian sourced? | A2: Yes

Relevant facts and circumstances: Residency You were born in the Country A and you are a citizen of that country. You are a qualified solicitor in Country A and you moved to a city in Australia with your partner early in 20XX. You and your partner arrived in Australia early in 20XX. You were living in Country A for the five years prior to arriving in Australia. Upon arriving in Australia you were granted a 12 month Working Holiday Visa which permits you to live and work in Australia for 12 months from the date of first arrival. The initial purpose of your visit to Australia was to join your partner, as they have an employment contract with an Australian employer. Your partner has been sponsored by their Australian employer on a temporary working visa for two years. Following your decision to come to Australia you terminated your employment in Country A, however your employer offered you a role working remotely for them whilst you were living in Australia. As such the initial purpose of your visit to Australia changed to include working remotely in Australia for your former employer in Country A. You and your partner intend on living in Australia for 12 months before returning to Country A. You have only left Australia once since arriving here, and that was for a short holiday in Country C. You and your partners families (parents and siblings) reside in Country A and will remain there during the time you will be living and working in Australia, although they may come to visit you in Australia for holidays. You do not have any dependents. You have not established any professional, social or sporting connections in Australia, nor have you maintained any of these in Country A. You and your partner have signed a 12 month lease to rent an apartment in Australia and you have purchased furniture and a car. You have opened an Australian bank account. You and your partner have mobile phone contracts in Australia. You and your partner do not own any residential property in Australia or Country A. Prior to arriving in Australia, you were leasing the same apartment in Country A for over a considerable period of time, and you ended the lease in order to move to Australia. You have stored your furniture and personal effects with family in Country A. You do not have a permanent home available for use in any other country. You maintain bank accounts and mobile phone contracts in Country A. You have not lodged any overseas income tax returns since you have arrived in Australia. Your employment arrangement You are engaged to work remotely in Australia for your former employer, a firm in Country A (the firm). You signed a new agreement with the firm early in 20XX, and commenced working for them after arriving in Australia. You provide support to the firm, working remotely from Australia, providing your services to the firm’s office in Country A. You conduct your services from your home in Australia, providing assistance remotely via email and phone calls. The firm is based in Country A and has no presence in Australia. All of your work is specific to the firm, and you are working exclusively for the firm. You do not provide any services in Australia and you are not seeking to conduct any business in Australia. You are not running any sort of consultancy business. You are paid a daily rate by the firm based on the number of hours worked. You do not have any employment positions or jobs being held open for you in any other country. You are paid in the local currency of Country A into your bank account held in Country A.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 995-1(1). | Income Tax Assessment Act 1936 Subsection 6(1). | Income Tax Assessment Act 1997 Subsection 6-5(2).

Reasons for decision: Detailed Reasoning - Residency: 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’, in regard to an individual, are defined in subsection 6(1) of the ITAA 1936. The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. The tests are: ● the resides test, ● the domicile (and permanent place of abode) test, ● the 183 day test, and ● the superannuation test. An individual need only satisfy the conditions of one of the four tests to be deemed a resident of Australia for income tax purposes. The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word ‘reside’. As the word ‘reside’ is not defined in Australian taxation law, it takes its ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936. The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3rd edition , 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: ● you arrived in Australia from Country A with your partner on a 12 month working holiday visa early in 20XX. ● you and your partner intend on living and working in Australia for 12 months before returning to Country A. ● the sole purpose of your visit was to live and work in Australia for 12 months. ● you and your partner have signed a 12 month lease to rent an apartment in Australia. ● you have purchased furniture and a car in Australia. ● You have no dependants that have remained in Country A. Based on these facts, you are residing in Australia according to the ordinary meaning of the word. Therefore, you meet the ‘resides test’ and are a resident of Australia for tax purposes. Whilst it is not necessary to meet more than one test to determine residency for tax purposes (we have already established that you are a resident under the ‘resides’ test), we will also include a discussion of the ‘183 day’ test as an alternative argument. | Detailed Reasoning - The 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 will not be physically present in Australia for more than 183 days during the 20XX-XX financial year, however you will be physically present in Australia for more than 183 days in the 20XX-XX financial year. You do not have a permanent home available for use in any other country. As you were not physically present in Australia for more than 183 days in the 20XX-XX financial year, you are a non-resident under this test for the 20XX-XX financial years. However, as you will be physically present in Australia for more than 183 days in the 20XX-XX financial year, and as your usual place of abode is not outside of Australia, you are also a resident under this test for the 20XX-XX financial year. | Detailed Reasoning - Your residency status: As you meet the resides test for the 20XX-XX financial year, you are a resident of Australia for income tax purposes for the 20XX-XX financial year under subsection 6(1) of the ITAA 1936. Also, as you have met the resides test and the 183 day test for the 20XX-XX financial year, you are also a resident of Australia for income tax purposes for the 20XX-XX financial year under subsection 6(1) of the ITAA 1936. | Detailed Reasoning - Question 2: 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. The source of a taxpayer's income (derivation) is the place where the services are performed: French v. FC of T (1957) 98 CLR 398. In your case, the income you earn while carrying out the duties of your work with your former employer in Country A has an Australian source as you are physically present in Australia when you carry out your duties.