Edited version of your written advice

Authorisation Number: 1012902308676

Date of advice: 27 October 2015

Ruling

Subject: Residency

Question and answer

Are you a resident of Australia for taxation purposes?

Yes.

Are you a resident of Australia under the double tax agreement between Australia and Country Y?

No.

Is your salary from your work in Country Y assessable in Australia?

Yes.

Are the dividends and interest received from a company in Country Y assessable in Australia?

No.

Is the interest derived on your Australian bank account assessable in Australia?

Yes.

This ruling applies for the following periods:

Year ending 30 June 20YY

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were born in Country Y.

You are a citizen of Country Y.

You are a resident of Country Y for taxation purposes.

Your visa allows you to stay permanently in Australia.

You intend on coming to Australia to live when you and your spouse retire.

You will be in Australia for more than 183 days in the 20YY income year.

You have not exceeded 183 days in any other 12 month period.

You stay at your child's holiday home when you are in Australia.

This home is your permanent residence in Australia.

You keep personal items at this home in Australia.

You have a bank account and a car in Australia which are both held jointly with your spouse.

Your spouse accompanies you to Australia each time you come to Australia.

You have a number of apartments in Country Y which you do not rent out while you are in Australia.

One of the apartments is your permanent home in Country Y.

You have less than five bank accounts and a car in Country Y.

You have a XX % interest in a Country Y investment company.

This investment company is not a resident of Australia for taxation purposes and does not have a permanent establishment in Australia.

You are employed in Country Y.

This company is not a resident of Australia for taxation purposes and does not have a permanent establishment in Australia.

Your receive salary income from your employment along with dividend and bank interest income from Country Y.

You work remotely in Australia for the company; you use skype for meetings, answer e-mails and make phone calls to be able to perform your work duties in Australia.

You have family in Country Y.

You are not eligible to contribute to the relevant Commonwealth super funds.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Subsection 995-1(1).

Income Tax Assessment Act 1936 Subsection 6(1).

Reasons for decision

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. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source.

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.

The definition offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the:

• resides test

• domicile and permanent place of abode test

• 183 day test and

• Commonwealth superannuation fund test.

The primary test for deciding the residency status of each individual is whether they reside 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 resides (ordinary concepts) test

The outcomes of several Administrative Appeals Tribunal (AAT) cases have determined that the word 'resides' should be given the widest meaning and there have been a number of factors identified which can assist in determining if a particular taxpayer is a resident of Australia under this test.

Recent case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the 'resides' test:

(i) Physical presence in Australia

(ii) Nationality

(iii) History of residence and movements

(iv) Habits and "mode of life"

(v) Frequency, regularity and duration of visits to Australia

(vi) Purpose of visits to or absences from Australia

(vii) Family and business ties to different countries

(viii) Maintenance of place of abode.

These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in IT 2650 and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.

It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances.

You will be in Australia for more than 183 days in the 20YY income year.

You live in a house which is owned by your child.

Your spouse accompanies you to Australia.

You carry out your work duties from your home in Australia.

You have a visa which allows you to stay permanently in Australia.

Based on the facts above you are residing in Australia according to ordinary concepts in the 20YY income year.

The domicile test

If a person's domicile is Australia they will be an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

In order to show that a domicile of choice in a country other than your domicile of origin has been adopted, the person must be able prove an intention to make his or her home indefinitely in that new country.

The expression 'place of abode' refers to a person's residence, where they live with their family and sleep at night. In essence, a person's place of abode is that person's dwelling place or the physical surroundings in which a person lives.

A permanent place of abode does not have to be 'everlasting' or 'forever'. It does not mean an abode in which a person intends to live for the rest of his or her life. An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a permanent place of abode elsewhere.

Your domicile of origin is Country Y. You have a visa which allows you to stay permanently in Australia but you did not intend to make Australia your permanent home in this period.

You are not a resident under this test.

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 be in Australia for more than 183 days in the 20YY income year.

You do intend on living permanently in Australia.

You are a resident under this test.

The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the PSS or the CSS, or that person is the spouse or child under 16 of such a person. To be eligible to contribute to those schemes, you must be or have been a Commonwealth Government employee.

You are not eligible to contribute to the relevant Commonwealth super fund.

You are not a resident under this test.

Your residency status

You are a resident of Australia for taxation purposes.

In determining your liability to pay tax in Australia 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 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 y Agreement is listed in section 5 of the Agreements Act.

The Country Y agreement operates to avoid the double taxation of income received by residents of Australia and Country Y.

In your case you are a resident of both Australia and Country Y for taxation purposes according to each countries domestic law.

Paragraph 3 of Article 4 of the double tax 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 Y under domestic law.

(a) The person shall be deemed to be a resident solely of the Contracting State in which a permanent home is available to the person;

(b) If a permanent home is available to the person in both Contracting States, or in neither of them, the person shall be deemed to be a resident solely of the Contracting State with which the person's economic and personal relations are the closer.

You have a permanent home available to you in both Australia and Country Y. Therefore, we need to consider which country your personal and economic relations are closer.

You have the following personal and economic relations in Australia:

• you will be physically present in Australia for more than 183 days in the 20YY income year

• your spouse accompanies you to Australia

• when in Australia you will stay in a property owned by your Child

• your child resides in Australia

• you receive bank interest in Australia

You have the following personal and economic relations in Country Y:

• Your Country Y assets include a number of bank accounts, a car, a number of apartments and a XX % share in a company

• You have family members in Country Y

In considering your personal and economic relations to both Australia and Country Y as listed above, the facts of your situation show that you have stronger ties to Country Y you have family in Country Y and you have significant assets in Country Y.

Therefore for the purposes of the double tax agreement you are a resident of Country Y because your personal and economic ties are stronger with Country Y.

Article 15 of the agreement between Australia and Country Y considers the assessability of dependant personal services.

Article 15 says:

1. Subject to the provisions of Articles 16, 18, 19, 20 and 21, salaries, wages and other similar remuneration derived by an individual who is a resident of a Contracting State in respect of an employment shall be taxable only in that Contracting State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in that other State.

2. Notwithstanding the provisions of paragraph (1), remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

(a) The recipient is present in the other Contracting State for a period or periods not exceeding in the aggregate 183 days in any consecutive period of 12 months;

(b) The remuneration is paid by, or on behalf of, an employer who is not a resident of that other State; and

(c) The remuneration is not borne by a permanent establishment or a fixed base which the employer has in that other State.

The source of a taxpayer's income is the place where the services are performed: French v. FC of T (1957) 98 CLR 398.

In your case, your salary has an Australian source as you were physically present in Australia during the 20YY income years you carry out your day to day work via phone and internet from your home in Australia.

Accordingly, your salary is assessable under section 6-5 of the ITAA 1997.'

Article 10 of the DTA between Australia and Country Y considers the assessability of dividends.

Article 10 says:

1. Dividends which are paid by a company which is a resident of a Contracting State and which are beneficially owned by a resident of the other Contracting State may be taxed in that other State.

The dividend income will only be taxed in Country Y.

Article 11 considers the assessability of interest.

Article 11 says:

1. Interest arising in a Contracting State, being interest of which a resident of the other Contracting State is the beneficial owner, may be taxed in that other State.

2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

The interest you receive from your bank account in Australia is taxed in Australia.

The interest you receive from your bank accounts in Country Y is taxed only in Country Y.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).