ATO Interpretative Decision
ATO ID 2006/127 (Withdrawn)
Income taxDual residency under the double tax agreement between Australia and New Zealand (the New Zealand Convention)
FOI status: may be released
This ATO ID is withdrawn. General guidance on the issue contained in this ATO ID can be found at Residency requirements for companies, corporate limited partnerships and trusts (QC 16953). However, this advice is modified by the double tax agreement between Australia and New Zealand which can be found at What are tax treaties (QC 17925).This document has changed over time. View its history.
Status of this decision: Decision withdrawn 19 April 2018.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Will a company that is a resident of both Australia and New Zealand under their domestic law, be deemed a resident solely of New Zealand when its place of effective management is situated in New Zealand?
Yes. Where a company is a resident of both Australia and New Zealand under their domestic law, it will be deemed to be a resident solely of New Zealand when its place of effective management is situated in New Zealand.
The taxpayer is a company incorporated in Australia and is a resident of Australia for income tax purposes.
The taxpayer will be treated as a resident of New Zealand for the purposes of New Zealand domestic tax law and will be assessable in New Zealand on its worldwide income.
The taxpayer is wholly owned by a New Zealand company.
The taxpayer has one Australian resident director and the majority of the directors will be residents in New Zealand.
The taxpayer is in the money lending business.
The taxpayer does not have any employees in Australia.
All loan applications are reviewed and approved in New Zealand.
The practical day to day management /business operations (including accounting and administration, instructing Australian lawyers to prepare loan and mortgage documents and commencing debt recovery proceedings, maintaining relationships with existing clients, generating new business by advertising for and locating new clients) will be conducted in New Zealand.
All meetings of the Board of Directors, general and special meetings of shareholders will be held in New Zealand.
The central management and control will be exercised in New Zealand where all the major decisions are made.
Reasons for decision
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 Income Tax Assessment Act 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).
Schedule 4 to the Agreements Act contains the double tax agreement between Australia and New Zealand (the New Zealand Convention). the New Zealand Convention operates to avoid the double taxation of income received by Australian and New Zealand residents.
Article 4(1) of the New Zealand Convention provides that a person is a resident of New Zealand if the person is resident in New Zealand for the purposes of New Zealand tax and a resident of Australia if the person is a resident of Australia for the purposes of Australian tax.
The taxpayer is a resident of New Zealand because it will be treated as a resident of New Zealand for the purposes of New Zealand domestic tax law, and will be assessable in New Zealand on its worldwide income.
The taxpayer is incorporated in Australia and therefore is a resident of Australia under subsection 6(1) of the ITAA 1936.
For the periods of dual residency, it is necessary to consider the tie breaker rules in the New Zealand Convention.
Article 4(3) of the New Zealand Convention provides that
Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the State in which its place of effective management is situated. If the State in which the place of effective management is situated cannot be determined, or the place of effective management is in neither State, then the competent authorities of the Contracting States shall endeavour to determine by mutual agreement in accordance with Article 25 the Contracting State of which the person shall be deemed to be a resident for the purposes of the Convention, having regard to its places of management, the place where it is incorporated or otherwise constituted and any other relevant factors. In the absence of such agreement, such person shall not be entitled to any relief or exemption from tax provided by this Convention.
The term 'effective management' is not defined in the New Zealand Convention.
In interpreting the wording of the DTA, the Commissioner in Taxation Ruling TR 2001/13 accepts that it is appropriate to have reference to the OECD Commentary on the Model Tax Convention on Income and on Capital (Condensed Version 2010) (the OECD Commentary.
The OECD Commentary states at paragraph 24 on Model Article 4 that:
As a result of these considerations, the "place of effective management" has been adopted as the preference criterion for persons other than individuals. The place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the entity's business as a whole are in substance made. All relevant facts and circumstances must be examined to determine the place of effective management. An entity may have more than one place of management, but it can have only one place of effective management at any one time.
In the present case, the key management and commercial decisions of the taxpayer are made in New Zealand. All loan applications are processed and approved in New Zealand. The taxpayer's Board of Directors and shareholders also meet in New Zealand.
Therefore, the company's place of effective management is in New Zealand and the company will be deemed to be a resident solely in New Zealand for the purposes of the New Zealand Convention.Date of decision: 13 April 2006
Year of income: Year ended 30 June 2006 Year ended 30 June 2007 Year ended 30 June 2008
Income Tax Assessment Act 1936
Schedule 4 Article 4(1)
Schedule 4 Article 4(3)
Related Public Rulings (including Determinations)
Taxation Ruling 2001/13
OECD Commentary on the Model Tax Convention on Income and Capital (Condensed Version 2010)
Double Tax Agreements