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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your private ruling

Authorisation Number: 1012466774463

Ruling

Subject: Residency for tax purposes

Question

Are you a resident of Australia for taxation purposes?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You are an Australian citizen.

Your spouse and children live in Australia.

You have a contract with a Country X business.

You work in country X for the majority of the financial year.

You return to Australia to spend time with your family for a few weeks each year.

You intend to return to Australia once your contract ends.

You have the following assets in Australia:

Your pay goes into an Australian bank account.

All income is sourced from country X.

You have been assessed by country X as a resident of country X for taxation purposes.

You rent a fully furnished apartment in Country X.

You have your clothes, phone and bike and computer at the apartment.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 6-1.

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Section 995

International Agreements Act section 4

International Agreements Act section 5

Reasons for decision

Residency

Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident as a person who is a resident of Australia for the purpose 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. These tests are:

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. However, where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be an Australian resident for tax purposes if they satisfy the conditions of one of the three other tests.

The resides test

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3rd 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 focuses on the quality and character of an individual's behaviour while in Australia (which includes, in addition to family and business ties, factors such as intention or purpose of presence, social and living arrangements, and maintenance and location of assets), in conjunction with the period of physical presence in Australia.

Taxation Ruling IT 2650 emphasises the intended and actual length of the individual's stay in an overseas country, any intention to return to Australia or travel elsewhere, the establishment or abandonment of any residence, and the durability of association that the individual maintains with a particular place in Australia as the main factors to be considered when determining the residency status of individuals leaving Australia.

In the recent case of Iyengar v FCT 2011 ATC 10-222, the Administrative Appeals Tribunal held that the taxpayer was a resident of Australia, even though he was working overseas. The taxpayer's family ties, his intention (to complete his contract) and motive (to pay off his mortgage), and his maintaining an Australian place of abode while working overseas, were all indicative that he was an Australian resident during the relevant period.

In your case, you have ties to both Australia and country X.

Although you have work ties to country X, your ties to Australia are stronger because your spouse and children reside in Australia, and you return to your family home in Australia when you are not working. The main purpose of your presence in Australia is to be with your family, whereas the main purpose of your presence in country X is to work. This indicates that you are residing in Australia according to the ordinary meaning of resides.

As you are residing in Australia, you are a resident of Australia under the resides test.

It is therefore not necessary to consider whether you are a resident of Australia under any of the three statutory tests.

You are a resident of Australia for taxation purposes.

Residency under the double tax agreement

As the country X authorities have determined you are also a resident of country X for taxation purposes it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

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 ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The country X Agreement (the Agreement) is listed in section 5 of the Agreements Act. The Agreement operates to avoid the double taxation of income received by residents of Australia and country X.

Paragraph Y of Article Z of the Agreement sets out the factors to be considered when determining a person's residence for the purpose of the agreement, where the person is a resident of both Australia and country X under domestic laws.

The status of an individual who, by reason of the preceding provisions of this Article is a resident of both Contracting States, shall be determined as follows:

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.

In your case you have a home available to you in both Australia and country X.

Therefore, we need to consider to which country your personal and economic relations are closer.

You have the following personal and economic relations in Australia:

You are physically present in Australia for a few weeks each year

Your spouse and children live in Australia

When you are in Australia you return to your family home

Your income from Australian sources comprise dividends (franked), interest and a rental property

You have the following personal and economic relations in country X:

You are physically present in country X for the majority of the year

You work in country X

In considering your personal and economic relations to both Australia and country X as listed above, the facts of your situation show that you have stronger ties to Australia because your spouse and children live in Australia in your family home and you have significant assets in Australia.

As your personal and economic relations are stronger in Australia than in country X, therefore for the purposes of the double tax agreement you are a resident of Australia.

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