ATO Interpretative Decision
ATO ID 2011/53
Income TaxDual resident of Australia and the UK: centre of vital interests
FOI status: may be released
This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade. The ATO ID is current in relation to the re-enacted or remade provisions.
Australia's tax treaties and other agreements except for the Taipei Agreement are set out in the Australian Treaty Series. The citation for each is in a note to the applicable defined term in sections 3AAA or 3AAB of the International Tax Agreements Act 1953.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.
Are the taxpayer's personal and economic relations (centre of vital interests) under Article 4.3(a) of the 2003 United Kingdom Convention and Notes (UK Convention) in Schedule 1 to the International Tax Agreements Act 1953 closer with Australia or with the UK?
The taxpayer's personal and economic relations (centre of vital interests) under Article 4.3(a) of the UK Convention are closer with Australia.
The taxpayer is an individual who, during the 18 month period in question, was a resident of Australia for the purpose of Australian tax and also a resident of the UK for the purpose of UK tax.
The taxpayer and his spouse and children initially lived in the United Kingdom.
The taxpayer accepted employment in Australia for a period of 18 months, which is the period in question.
The taxpayer and his spouse and children moved to Australia for that period.
The taxpayer and his spouse own family homes both in Australia and in the UK, and each home is maintained so that it can be used by the taxpayer or his family at any time.
Prior to, and during, the period in question, the taxpayer had business interests in both the UK and Australia.
While the taxpayer lived in Australia, he managed both his Australian and UK business interests from Australia, but he made occasional short trips to the UK when it was necessary.
The taxpayer is a member of several clubs in the UK. When he was living in the UK or visiting the UK he would regularly socialise with friends and with members of his extended family.
While he was living in Australia the taxpayer did not join any clubs, and he did not socialise as regularly, as he did not have many friends or any extended family members in Australia.
The taxpayer's hobby is attending cooking classes, and he attended cooking classes as often as he could, both in Australia and in the UK.
During the 18 months that the taxpayer lived in Australia, he remained on the electoral roll in the UK but he was not on the Australian electoral roll.
The taxpayer's children have a cat, which remained in the UK with friends while the taxpayer was living in Australia.
At the end of the 18 months, the taxpayer and his spouse and children returned to the UK to live.
Reasons for Decision
Article 4.3(a) of the UK Convention provides the first tie-breaker rule for determining residence for the purpose of the Convention when an individual taxpayer is a resident of Australia for the purpose of Australian tax and also a resident of the UK for the purpose of UK tax.
Article 4.3(a) of the UK Convention provides:
that individual shall be deemed to be a resident only of the Contracting State in which a permanent home is available to that individual; but if a permanent home is available in both States, or in neither of them, that individual shall be deemed to be a resident only of the State with which the individual's personal and economic relations are closer (centre of vital interests).
Hence the centre of vital interests test is relevant only where a taxpayer has a permanent home available in both Australia and the UK, or does not have a permanent home available in either Australia or the UK.
In Thiel v. Federal Commissioner of Taxation (1990) 171 CLR 338; 90 ATC 4717; (1990) 21 ATR 531, all of the members of the High Court accepted that the OECD Model Taxation Convention's official Commentaries may be relevant to the interpretation of tax treaties based on the OECD Model.
Article 4.3(a) of the UK Convention is based on Article 4(2)(a) of the OECD Model. Consequently the OECD Commentary on Article 4 of the OECD Model can be considered in interpreting the term 'personal and economic relations (centre of vital interests)' in Article 4.3(a) of the UK Convention.
Paragraph 10 of the OECD Commentary on Article 4 states that the facts to which the special rules in Article 4(2) of the OECD Model will apply are those existing during the period when the residence of the taxpayer affects tax liability. In this case the relevant period is the 18 months that the taxpayer lived in Australia.
In relation to Article 4(2)(a) of the OECD Model, the OECD Commentary states:
15. If the individual has a permanent home in both Contracting States, it is necessary to look at the facts in order to ascertain with which of the two States his personal and economic relations are closer. Thus, regard will be had to his family and social relations, his occupations, his political, cultural or other activities, his place of business, the place from which he administers his property, etc. The circumstances must be examined as a whole, but it is nevertheless obvious that considerations based on the personal acts of the individual must receive special attention (emphasis added).
This means that the taxpayer's relations with Australia must be weighed against the taxpayer's relations with the UK, with more weight being given to the taxpayer's personal acts.
Klaus Vogel on Double Taxation Conventions, Third Edition, Kluwer Law International 1997, is consistent with paragraph 15 of the OECD Commentary on Article 4(2)(a) and states that 'personal relations encompass a taxpayer's entire way of life' (emphasis added). This includes family and social, political and cultural relations. At paragraphs 74 and 74a of page 249, Vogel suggests that factors that are part of a person's personal relations include intention to spend their old age at a certain place; possession of an identity card; enlistment on the electoral roll; and relations to a thing or to an impersonal entity such as a private collection or membership in a club or the exercise of a hobby.
As the taxpayer pursued his hobby in both Australia and the UK, the hobby is not significant in deciding the centre of vital interests.
The registration on the electoral roll; the club memberships; the presence of friends and extended family members and the family's cat; and the active social life when he visits the UK, are factors which point to the UK as the taxpayer's centre of vital interests during the 18 months that he is living in Australia.
However, at page 249, paragraph 74a, Vogel states that the most significant factor in establishing to which state a taxpayer's personal relations are closer is where the taxpayer regularly lives with his family. Where a taxpayer lives alone, the location of any family members will be relevant if the taxpayer maintains relations with them.
The taxpayer lived with his family in Australia during the 18 months in question. Even though he had strong ties with the UK during that time, the presence of his spouse and children in Australia carries greater weight.
Regarding economic relations, the OECD Commentary on Article 4 at paragraph 15 refers to 'the place from which he administers his property, etc'.
Consistent with this, Vogel at page 249, paragraph 74b, states:
Economic relations will primarily exist with activities linked with a locality or with sources of income. ... A permanent home mainly serving the realization or maintenance of economic relations, would be a manifestation of special ties with a place to live. This, will as a rule, be that home from where the individual proceeds to perform his everyday work and from where he manages and controls his capital or income (emphasis added).
In this case, during the 18 months in question the taxpayer was employed in Australia so the home from where he proceeded to perform his everyday work was in Australia. In addition, although he made some trips to the UK when his business interests made it necessary, he generally managed his business interests from Australia during the time he lived in Australia.
For the 18 months in question the taxpayer lived with his spouse and children in Australia, and generally managed his business interests from Australia. Consequently, even though he also had ties with the UK, the taxpayer's personal and economic relations, during the 18 months in question, were closer with Australia than with the UK.
Year of income: Year ended 30 June 2011
International Tax Agreements Act 1953
Schedule 1, Article 4.3(a)
Thiel v. Federal Commissioner of Taxation
(1990) 171 CLR 338
90 ATC 4717
(1990) 21 ATR 531
2010 OECD Model Tax Convention on Income and on Capital, Article 4(2)(a)
2010 OECD Commentaries on the Articles of the Model Tax Convention
Klaus Vogel on Double Taxation Conventions, Third Edition, Kluwer Law International, 1997
Residence in Australia