Edited version of private ruling

Authorisation Number: 1011774084053

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Ruling

Subject: Residency - working in Australia

Questions

1. Are you a resident of Australia for income tax purposes?

Yes.

2. Do you cease to be a resident of Australia when you leave Australia on a permanent basis?

Yes.

This ruling applies for the following periods

Year ended 30 June 2008

The scheme commenced on

1 July 2007

Relevant facts

You arrived in Australia in the 20XX-XX income year on a 457 visa.

You are employed in Australia working for a private company.

Your employment contract is for a few years, and can be extended with no limit.

You plan to leave Australia when the visa expires.

You have obtained an equity share in a private company. These are not part of an employee share scheme.

You rent an apartment, and your family and property are still in country X.

You plan to return to country X at some point in time, but have no definite plans.

You left Australia during the 20XX-XX income year for several days for business purposes.

As you are heavily involved in the company, you plan to stay in Australia on a permanent basis.

The assets you have in Australia are share portfolio deriving dividends, and bank accounts deriving interest.

The assets you have in country X are your house, rental income, retirement account, investment account, dividends, and capital gains.

You do not have social or sporting connections with Australia.

Your family remains in the family home in country X.

You own the family home in country X and it is not being rented out.

None of your family members joined you in Australia.

You are a resident of country X for tax purposes.

You are a citizen of country X.

There is a tax treaty between Australia and country X.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1).
Income Tax Assessment Act 1997 Subsection 6-5(2).
Income Tax Assessment Act 1997 Section 995-1.
Income Tax Assessment Act 1997 Section 104-160.
Income Tax Assessment Act 1997 Subsection 104-165(2).
Income Tax Assessment Act 1997 Section 136-25.
Income Tax Assessment Act 1997 Subsection 103-25(1).
International Tax Agreements Act 1953 Section 4.
International Tax Agreements Act 1953 Schedule Sch2.
International Tax Agreements Act 1953 Section Sch2-Art3.
International Tax Agreements Act 1953 Sch2-Art4.
International Tax Agreements Act 1953 Section Sch2-Art22.
International Tax Agreements Act 1953 Section Sch2-Art15.
International Tax Agreements Act 1953 Sch2A.
International Tax Agreements Act 1953 Sch Art13.
International Tax Agreements Act 1953 Art13(2).

Reasons for decision

Residency and assessability of income

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are:

· the resides test

· the domicile test

· the 183 day test

· the superannuation test.

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides.  If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established.

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'.

Taxation Ruling TR 98/17 considers the residency status of individuals entering Australia and states that the period of physical presence or length of time in Australia is not, by itself, decisive when determining whether an individual resides here. However, an individuals behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here.

In your case, it is considered that you are an Australian resident for tax purposes under the resides test for the following reasons:

· you arrived in Australia on a 457 visa which allows you to work on a few years employment contract;

· you are staying in a rented apartment;

· you plan to leave Australia in a few years time when your visa expires, and

· you plan to stay in Australia on a permanent basis.

Based on the information you have provided, it is considered that you are an Australian resident for taxation purposes from the date of your arrival in Australia as your behaviour in Australia reflects a degree of continuity, routine or habit that is consistent with residing here. 

In determining liability to Australian tax on foreign sourced income it is necessary to consider not only the income tax laws, but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and the ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

A Schedule to the Agreements Act contains the tax treaty between Australia and country X (the country X Convention). A Schedule to the Agreements Act contains the country X Protocol amending the country X Convention (country X Protocol). The country X Convention and the country X Protocol operate to avoid the double taxation of income received by Australian and country X residents.

The country X Convention provides that a person is a resident of Australia for the purposes of the convention if the person is a resident of Australia for the purposes of Australian tax (a sub-subparagraph of an Article of country X Convention).

Similarly, the country X Convention provides that a person is a resident of country X according to domestic concepts (a sub-subparagraph of an Article of the country X Convention). A person is also a resident of country X if that person is a country X citizen, unless that person is a resident of a country other than Australia under a tax treaty between Australia and that country (a sub-subparagraph of an Article of the country X Convention).

As you are a citizen of country X and not a resident of another country other than Australia, you are also considered to be a resident of country X.

An Article of the country X Convention sets out the tiebreaker rules for residency for individuals. The tiebreaker rules ensure that the individual is only treated as a resident of one country for the purposes of working out liability to tax on their income under the country X Convention. The tiebreaker rules do not change a taxpayer's residency status for domestic law purposes.

An Article of the country X Convention provides that if an individual is a resident of both Australia and country X, he shall be deemed to be a resident of the country:

(a) in which he maintains a permanent home

(b) if the provisions of (a) do not apply, in which he has an habitual abode, or

(c) if the provisions of (a) and (b) do not apply, with which his personal and economic relations are closer.

An Article of the country X Convention further provides that in determining an individual's permanent home, regard shall be given to the place where the individual dwells with their family, and in determining the country with which an individual's personal and economic relations are closer, regard shall be given to their citizenship (if the individual is a citizen of one of the countries).

The terms 'permanent home', 'habitual abode' and 'personal and economic relations' are otherwise undefined in the country X Convention. An Article of the country X Convention provides that any term not defined shall, unless the context otherwise requires, have the meaning which it has under the law relating to taxes of the country applying the country X Convention.

Taxation Ruling TR 2001/13 discusses the Commissioner's views about interpreting tax treaties. Paragraph 104 of TR 2001/13 provides that the OECD Model Tax Convention and Commentary will often need to be considered in interpreting tax treaties.

The OECD Commentary provides that in relation to a 'permanent home':

(a) for a home to be permanent, an individual must have arranged and retained it for his or her permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be of short duration. The dwelling has to be available at all times continuously and not occasionally for the purposes of a stay, which owing to the reasons for it is necessarily of short duration (eg travel for pleasure, business travel, attending a course etc)

(b) any form of home may be taken into account, including a house or apartment belonging to or rented by the individual and a rented furnished room.

As you maintain residences in both countries which are available at all times continuously for your permanent use, you have a permanent home in Australia and in country X.

In relation to a habitual abode, the OECD Commentary provides that all stays in each country, regardless of the purpose for the stays, must be considered in order to assign a preference to a particular country. Further, the comparison must be made over a sufficient length of time for it to be possible to determine whether the residence in each country is habitual and to also determine the intervals at which the stays take place.

This is not simply a test of where a person stays more frequently but also looks to whether living in a particular country is normal or customary having regard to your circumstances.

In relation to your personal and economic relations, the OECD Commentary provides that regard should be had to factors such as family and social relations, occupation, political, cultural or other activities and place of business.

In your case, you live in Australia and the rest of your family and friends are in country X. You own your home in country X. You continue to work for your employer in country X and intend to return to country X after the contract. You are also a citizen of country X.

Therefore it is considered that your personal and economic ties are closer with country X than with Australia.

Accordingly, you will be treated as a resident of country X for the purposes of applying the provisions of the country X Convention.

An Article of the country X Convention provides that salaries, wages and other similar remuneration derived by an individual who is a resident of country X in respect of an employment shall be taxable only in country X unless the employment is exercised in Australia. If the latter applies, the income may also be taxed in Australia.

However, an Article of the country X Convention provides that income from employment exercised in Australia will not be taxed in Australia if:

(a) the individual is present in Australia for a period or periods not exceeding in the aggregate 183 days in the relevant Australian tax year; and

(b) the income is paid by, or on behalf of, an employer who is not a resident of Australia; and

(c) the income is not deductible in determining taxable profits of a permanent establishment or a fixed base which the employer has in Australia.

An Article of the country X Convention provides that income derived by a resident of country X which, under this Convention, may be taxed in Australia shall for the purposes of the income tax law of Australia and of this Convention be deemed to be income from sources in Australia.

As you are present in Australia for a period exceeding 183 days in the Australian tax year and the source of your employment income is deemed to be income from sources in Australia, the conditions for this exception to operate will not be met. The income may be taxed by both Australia and country X.

Accordingly, your employment income being a dual resident of Australia and country X is assessable under subsection 6-5(2) of the ITAA 1997.

An Article of the country X Convention provides that country X shall allow a resident or citizen of country X as a credit against country X tax the appropriate amount of income tax paid to Australia.

Leaving Australia permanently

You have advised that you will be leaving Australia permanently. You will be staying in your settled or usual place of abode in country X. All of your associations will be with country X as you will be residing and working full time there, maintaining your financial and social ties there. Therefore you would be considered to have a permanent or long-term residence outside of Australia.

The other residency test that is potentially relevant to your circumstances involves membership of superannuation scheme set up for employees of the Commonwealth.

As you are not a member of such a scheme, however, this test will not apply.

In view of the above, it is concluded that you will cease to be a resident of Australia for tax purposes from the date of your departure from Australia.

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