Edited version of your written advice

Authorisation Number: 1013122234716

Date of advice: 15 November 2016

Ruling

Subject: Residency

Question 1

Will you have a habitual abode in Country X under the residence article of the Double Tax Agreement (the DTA)?

Answer:

Yes

Question 2

Will you have a habitual abode in Australia under the residence article of the DTA?

Answer:

Yes.

This ruling applies for the following periods:

Year ended 30 June 2017

Year ended 30 June 2018

Year ended 30 June 2019

The scheme commenced on

1 July 2016

Relevant facts and circumstances

You were born in Australia. You are an Australian citizen and not a dual national.

You are the founding shareholder and executive director of a foreign company incorporated and based in Country X.

You hold shares not in excess of 50% in the foreign company.

In the past you moved to Country X to establish a facility of the foreign company and subsequently returned to live permanently in Australia. Your spouse and family lived between Country X and Australia during this time.

You lodged your Australian tax returns as a non-resident for the relevant income years.

You lodged your Australian income tax returns for the subsequent income years as a resident and declared foreign employment income each year as well as other foreign sourced income and Australian sourced rental income.

Since returning permanently to Australia you spent a number of days outside Australia not exceeding 183 days. Your destinations included various countries.

Recently the foreign company's board requested that you return to Country X to live and work on a full-time, permanent basis. You agreed and took up the position during the current income year.

For the current income year so far you have spent considerably less than 183 days in Australia.

You do not have an employment contract with the foreign company. You are free to alter this arrangement at any time and free to determine when you travel and when you take time off. You do not have designated holidays or a roster that determines your time off.

You entered into an agreement to purchase a new apartment in Country X. The apartment was not completed in time and has still not yet received government building certification. You have leased another apartment in the interim. The apartment is furnished and kept for your exclusive use.

Your spouse has not accompanied you to live in Country X and has no plans to do so. You explained that this is because your spouse is responsible for the care of an elderly relative who lives in Australia. For the same reason, you propose to visit your spouse in Australia more than your spouse visits you in Country X.

Your adult children have not accompanied you to Country X and do not plan to do so.

Before moving to Country X you and your spouse lived in your property (property 1) in Australia. Since then your spouse has moved to another property in the same state (property 2), in order to be closer to the elderly relative.

You own rental properties in Australia.

You are the trustee and a contributing member of a complying superannuation fund in accordance with Division 295 of the Income Tax Assessment Act 1997 (ITAA 1997).

You are the trustee of a discretionary trust.

The proposed arrangement for the three income-year period 1 July 2016 to 30 June 2019:

● You will continue living in Country X throughout the relevant income years working on a full-time permanent basis for the foreign company.

● You will continue to be free to determine when you travel and when you take time off. You will not have designated holidays or a roster that determines your time off.

● You will spend the majority of your time throughout each of the three income years in Country X.

● At all times throughout the relevant income years you will either lease or own an apartment or condominium in Country X, which is furnished and permanently available for your exclusive use. It will be your home when you are in Country X and you will stay in it for in excess of 183 days per income year throughout the relevant period.

● You will engage in international business travel for less than 183 days per income year for the relevant income years.

● Your spouse will not accompany you to live in Country X. Your spouse will continue living in property 2 due to its proximity to your elderly relative.

● Your adult children will not accompany you to live in Country X.

● You will return to Australia as your work commitments allow and require but will be physically present in Australia for less than 183 days in any income year throughout the period.

● You will continue having two permanent homes available to you in Australia: property 1, which is where you resided with your spouse before departing for Country X, and your spouse's property 2, which is where your spouse is living now.

● When you return to Australia, you will be more likely to stay at property 2 than property 1 for the following reasons: your spouse resides there; it is close to your elderly relative and its close proximity to an international airport.

● You will not sell or lease property 1. Your spouse and children will stay there if they visit the area, but not on a regular basis.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1997 Division 295

Income Tax Assessment Act 1936 Subsection 6(1)

International Agreements Act 1953 Section 4

International Agreements Act 1953 Section 5

Reasons for decision

Section 4 of the International Agreements Act 1953 requires that the ITAA 1936 and the ITAA 1997 be incorporated and read as one with it. Section 5 of the International Agreements Act 1953 gives the double taxation agreement between Australia and Country X (the DTA) the force of law. The DTA operates to avoid the double taxation of income and the prevention of fiscal evasion.

The Commissioner may make a private ruling on the way in which he considers the residence article in the double tax agreement (DTA) applies or would apply to you in relation to a specified scheme but may decline to rule where the correctness of the ruling depends on assumptions made as to future events and other matters. Rather than decline to rule in this instance, the Commissioner considers it appropriate to make this ruling on the basis of the assumptions as requested by you.

Questions 1 and 2

You have requested that the Commissioner rule as to whether you will have 'an habitual abode' in Country X and/or Australia under the residence article of the DTA throughout the relevant income years under the proposed scheme.

The Commissioner considers that under the scheme you will have an habitual abode in both Country X and Australia for the purposes of the residence article of the DTA for the relevant income years. The reasons are as follows.

'An habitual abode' is not defined in the residence article in the relevant DTA and so it has the same meaning as under Australia's domestic tax laws as exist when the treaty is applied unless the context requires otherwise. It is also not defined in either the Income Tax Assessment Act 1936 (ITAA 1936) or the Income Tax Assessment Act 1997 (ITAA 1997), and so takes its ordinary meaning as determined by the rules of interpretation recognised by international lawyers, which are explained further below.

International law principles of treaty interpretation

The ATO view, as explained in Taxation Ruling 2001/13 Interpreting Australia's Double Tax Agreements (TR 2001/13), is that the interpretation of treaties, including agreements for the avoidance of double taxation and the prevention of fiscal evasion, incorporated into Australian taxation law requires a different conceptual approach than is required for construing domestic statutes. The broader principles of international law that must be applied include the following:

● Treaty provisions should be interpreted more liberally than those in domestic legislation, in the sense that gaps and inconsistencies should be smoothed over in a way that addresses the context and meets the object and purpose of the treaty.

● The Vienna Convention on the Law of Treaties ('the Vienna Convention'), which entered into force in 1980, applies to tax treaties as to other treaties, in particular:

● Article 31 of the Vienna Convention requires a 'holistic' approach to treaty interpretation that includes a simultaneous examination of the 'ordinary meaning' of the relevant words, their 'context' and the 'object and purpose' of the treaty they form part of, while keeping in mind that the text of the treaty is the starting point and has primacy in terms of the interpretation process.

● In accordance with Article 32 of the Vienna Convention, recourse may be had to supplementary means of interpretation to confirm a meaning reached from the application of Article 31, or to determine the meaning when the interpretation according to Article 31 leaves it ambiguous or obscure.

● Article 33 of the Vienna Convention provides that the different language texts of a treaty authenticated in two languages are equally authoritative, unless the treaty provides to the contrary.

● The official OECD Model Tax Convention and Commentaries may be relevant to the interpretation of taxation treaties that are based on the model. They may be relevant as a supplementary means of interpretation under Article 32 of the Vienna Convention, either to confirm a meaning reached from the application of Article 31, or to determine its meaning when interpretation according to Article 31 leaves it ambiguous. They may be relevant as primary material to be considered in the application of Article 31 even where there is no ambiguity. In addition, they provide part of the historical context to the treaty negotiations and have a role in testing the interpretation reached by other means.

● Foreign court decisions (except certain decisions of the House of Lords) are not binding on Australian courts or the Commissioner. Although they may give valuable guidance in the interpretation of double tax treaties to the extent that their reasoning is persuasive, they may be founded on different interpretative principles or approaches and so should be treated with caution.

Ordinary meaning of 'an habitual abode'

The Oxford English Dictionary (3^rd edition) defines the words 'abode', 'habitual' and 'habitually' to mean:

abode: noun formal or literary a place of residence; a house or home: my humble abode. [mass noun] residence: their right of abode in Britain. archaic a stay; a sojourn.

habitual: adjective done constantly or as a habit: his habitual use of heroin this pattern of behaviour can become habitual. doing something constantly or regularly: a habitual late sleeper. regular; usual: his habitual dress.

habitually: adverb by way of habit; customarily: he habitually carried a pocket knife / does he lie habitually?

A person therefore has an 'abode' in a particular country if he actually lives there (whether in his own house or not), or if he has a house there (whether he actually lives in it or not). It follows that he has 'an habitual abode' in a country if it is customary, regular or usual for him to live in that country, whether in a particular establishment or not. A person's 'habitual abode' refers to the place he normally lives, in the same way as his 'habitual dress' refers to the type of clothes he normally wears. Just as a person can have more than one such piece or style of clothing, so too can a person have more than one habitual abode. It therefore follows that he can have 'an habitual abode' in a country at a given time even though he is not physically present there at that moment, if his conduct establishes that it is regular, usual, customary or normal for him to live there. On this basis, the Commissioner's view is that a person can have more than one habitual abode at a time. In the same vein, a place may be acquired or discarded by a person as an habitual abode either suddenly or gradually over time.

That a person can have more than one habitual abode at a time is confirmed by the use of the indefinite article 'an' to introduce the term 'habitual abode' in the DTA's residence article. If this had not been the intention, the article could have been drafted instead to deem the person to be a resident solely of the Contracting State 'in which is located the person's usual place of abode' or 'in which the person stays more frequently'. In addition, the residence article in the DTA expressly acknowledges that a person may have 'an habitual abode' in both states by providing an additional tie-breaker test for situations where the person has an habitual abode in both or neither state.

How Australian courts have interpreted similar expressions

Although there are no Australian judicial decisions on the expression 'an habitual abode', Australian courts have construed the expressions 'abode', 'place of abode, 'permanent place of abode' and 'usual place of abode' in the context of the statutory definition of 'resident' in section s6(1) of the ITAA 1936.

In Federal Commissioner of Taxation v Applegate (1979) 38 FLR 1, Fisher J (at 16) described a "place of abode" as 'the physical surroundings in which a person lives' and “permanent place of abode” as follows:

To my mind the proper construction to place upon the phrase “permanent place of abode" is that it is the taxpayer's fixed and habitual place of abode. It is his home, but not his permanent home. It connotes a more enduring relationship with the particular place of abode than that of a person who is ordinarily resident there or who has there his usual place of abode. Material factors for consideration will be the continuity or otherwise of the taxpayer's presence, the duration of his presence and the durability of his association with the particular place.

In Commissioner of Taxation v Executors of the Estate of Subrahmanyam (2001) 116 FCR 180, 197-198 Emmet J at [78] defined 'usual place of abode' as follows:

When comparing two places of abode of a particular person, in order to determine whether one is the usual place of abode, it is necessary to examine the nature and quality of the use to which the person makes of each particular place of abode. It is then possible to determine which is the usual one, as distinct from the other or others which, while they may be places of abode, are not properly characterised as the usual place of abode.

The expression 'usual place of abode' was construed recently by Deputy President Deutsch in the AAT in order to determine the domestic residency status of three foreign nationals who entered Australia on 'working holiday visas' and stayed here for more than 183 days in an income year. After quoting the authorities referred to above he said at [34]:

All these comments seem to point in the same direction in that the usual place of abode refers one to the place where the person usually or customarily dwells. Thus, a person who lives at a place in Country X and travels to Australia for a seven month working holiday while retaining a street address in Country X to which he always intends to return to, would clearly have a usual place of abode in Country X

Deutsch concluded that it is not possible for a person to have two or more usual places of abode at the same time, explaining that 'where there are two competing places of abode it needs to be assessed based on all the available facts as to which one is 'usual'. However, he was of the view that it is possible for there to be two different usual places of abode at different times.

Thus, a person can have a usual place of abode in one location for half the tax year and because of changed circumstances that same person can have a different usual place of abode for the other half of the year.

While these definitions are helpful to a certain extent, and may be relevant to determining the applicant's residency status under Australia's domestic taxation law, it is important to construe the habitual abode test in the DTA according to its context. Importantly, the fact another test must be applied to decide residency if the person has 'an habitual abode' in both or neither states distinguishes it from the '183 day test' for domestic residency, which asks only whether 'the person's usual place of abode is outside Australia'.  In other words, the habitual abode test expressly accepts that a person can have 'an habitual abode' in both states at the same time. This is consistent with the object and purpose of the residence article in the DTA and the broader international law principles of interpretation, as discussed further below.

How Australian courts have applied similar expressions

In order to determine whether a person has an habitual abode in a particular country during a given period of time, the Commissioner considers that it may be necessary to consider the person's conduct before and after the period in question, in addition to during the given period. This is consistent with the approach taken by Australian courts (in accordance with the principles established by British courts) in interpreting and applying the expressions 'resident', 'person residing' and 'ordinary resident'. Such decisions are relevant given the overlap in the ordinary meaning of the words 'residence' and 'abode'. A leading Australian authority for this approach is the High Court decision of Dixon J in Gregory v DFCofT (1937) 57 CLR 774. His Honour held that:

.. the English cases show that events which occurred before and after a given period may be considered as throwing light on and disclosing the significance of habits and conduct within the period.

He then concluded that the taxpayer:

… had done nothing that would be enough to divest himself of the character of a resident of Broome which, speaking figuratively, clung to him from long association and usage, an association and usage which he had done nothing to dissolve or destroy. But I think he did most definitely acquire the concurrent character of a resident of Darwin.

In deciding whether 'a person's usual place of abode' was outside Australia during a particular income year for the purpose of the definition of 'resident' in section 6(1) ITAA 1936, DP Deutsch considered the quality of the person's accommodation and the pattern of their movements during both the relevant, preceding and subsequent income years. In respect to the quality of accommodation, he considered whether it was a place the person treated as home or whether it had a temporary quality.

OECD Model Tax Convention and Commentaries

Although Country X is not a member of the OECD and the residence article in the DTA differs from the OECD Model Tax Convention, the Commissioner considers that the OECD Model and its Commentaries are relevant to construing the habitual abode test in the DTA for the following reasons:

● Both the DTA and the OECD Model Tax Convention include the habitual abode test as a tie-breaker test for residence and give 'an habitual abode' its domestic law meaning.

● The term 'habitual abode' is intended to have fundamentally the same meaning in both the DTA and the Model Tax Convention. The differences in the relevant provisions relate to the order and circumstances in which the term 'an habitual abode' is construed, not the concept itself.

● The DTA, although different to the OECD Model Convention, is clearly based on it and so the OECD Commentary is relevant to understanding the object and purpose of the residence article and the habitual abode test in the DTA, as well as its context.

● The decision of the Canadian Tax Court in Lingle v The Queen 2009 TCC 435, the leading Canadian judicial decision on the 'habitual abode' test, relies on the OECD Convention and its Commentary as being relevant to applying the test, despite the residence article in the Canada-USA DTA differing from the OECD Model.

On this basis, it is significant that the French Version of the tie-breaker test used in the OECD Model Tax Convention deems a person to be resident for treaty purposes only of the state où elle séjourne de façon habituelle, meaning where one stays in an habitual way rather than where one stays more frequently or more often.

Preliminary remarks in the Commentary on the residence article (Article 4) of the OECD Model explain that, where a conflict exists between the residence rules of two states such that a person is fully liable to tax in both, the purpose of a double tax treaty is to establish special rules to determine which of the two concepts of residence is to be given preference.

Paragraph 10 of the Commentary explains that the preference criteria must:

(1) 'be of such a nature that there can be no question but that the person concerned will satisfy it in one State only'; and

(2) 'at the same time, reflect such an attachment that it is felt to be natural that the right to tax devolves upon that particularly State.'

Paragraph 14 of the Commentary describes the habitual abode test as a 'subsidiary criteria'. This is consistent with current Australian treaty practice, which is to exclude the habitual abode test from double tax treaties on the basis that it is, in effect, subsumed within the 'permanent home' and 'economic and personal relations' tests and so is unnecessary. Where Australia does accept the habitual abode test, it does so on the basis that the economic and personal relations test remains the final test. Interpreting the habitual abode test as proposed by the applicant would give undue preference to the country in which a person spends more time for work purposes, over the country in which he spends less time but has almost always lived and continues to live with his family, thereby making the economic and personal relations test redundant in exactly the type of situation it is intended to be a primary preference criteria. This is confirmed by paragraph 15 of the Commentary, which details which facts must be taken into account to ascertain a person's centre of vital interests. Paragraph 15 states:

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 consideration based on the personal acts of the individual must receive special attention. If a person who has a house in one State sets up a second in the other State while retaining the first, the fact that he retains the first in the environment where he has always lived, where he has worked, and where he has his family and possessions, can, together with other elements, go to demonstrate that he has retained his centre of vital interests in the first State.

In Article 4.2 of the OECD Model, the habitual abode test is applied in two distinct cases: (1) if a permanent home is available in both states, in the case where the individual's centre of vital interests cannot be determined; and (2) in the case where the individual does not have a permanent home available in either Contracting State. Paragraphs 17 to 19 provide guidance as to how to apply the habitual abode test in both these cases:

17. In the first situation, the fact of having an habitual abode in one State rather than in the other appears therefore as the circumstance in which, in the case of doubt as to where the individual has his centre of vital interest, tips the balance towards the State where he stays more frequently. For this purpose regard must be had to stays made by the individual not only at the permanent home in the State in question but also at any other place in the same State.

18. The second situation is the case of an individual who has a permanent home available to him in neither Contracting State, as for example, a person going from one hotel to another. In this case also all stays made in a State must be considered without it being necessary to ascertain the reasons for them.

19. In stipulating that in the two situations which it contemplates preference is given to the Contracting State where the individual has an habitual abode, subparagraph (b) does not specify over what length of time the comparison must be made. The comparison must cover a sufficient length of time for it to be possible to determine whether the residence in each of the two States is habitual and to determine also the intervals at which the stays take place.

In contrast to the OECD Model, the habitual abode test of the residence article in the DTA is applied in cases where the taxpayer has a permanent home in both Australia and Country X, or in neither of them. If it fails to decide the issue, then the centre of vital interests test is applied. The residence article in the DTA stipulates that nationality and citizenship are relevant factors for the purpose of the final test. With these differences in mind, it is important to note the following in regard to paragraph 17 of the Commentary:

● The intention of paragraph 17 is not to dictate that preference be given to the contracting state in which the person spends more time but rather to observe that this will necessarily be the case where (1) the person has a permanent home available in both states; (2) his centre of vital interests is inconclusive; and (3) he has an habitual abode in one of the states but not the other.

● The situation described in paragraph 17 cannot arise under the DTA because the habitual abode test comes before the centre of vital interests test, meaning that the latter is only applied if both the permanent home and the habitual abode tests fail to establish upon which state the right to tax naturally devolves.

Apart from the differences noted in paragraph 17, the Commissioner considers that the guidance given in the OECD Commentary is consistent with his view of how to apply the habitual abode test.

Canadian decisions on the 'habitual abode' test

Allchin and Yoon

The applicant relied on Canadian decisions, particularly the decisions in Allchin v The Queen 2005 DTC 603 and Yoon v The Queen 2005 TCC 366, as authority for the proposition that an individual who is physically present in a country for less than 100 days in any income year cannot have an habitual abode in that country. In both of these cases the court applied the 'habitual abode' test by asking in which of the two states it was 'most usual' for the person to live. However, both of these cases were decided before the Federal Court of Appeal decision in Lingle v The Queen 2010 FCA 152, which is considered to be the Canadian authority on the 'habitual abode' test as used in tax conventions.

In Allchin, the Canadian court held that Mrs Allchin did not have an habitual abode in Canada under the Canada-USA DTA, despite being 'resident' in Canada during the income years in question in accordance with the ordinary meaning of that word. However, the Canada-USA DTA differs from both the DTA and the OECD Model in that, if the individual has a permanent home in both states or in neither, he is deemed a resident of the state in which his personal and economic relations are closer. If that is inconclusive, he is resident solely in the state in which he has an habitual abode. If he has an habitual abode in both states or in neither then he is resident in the state of which he is a citizen. Failing that, the Contracting States must settle the question by mutual agreement.

As a result of the difference between the Canada-USA DTA and the OECD Model Convention,
Bell J held (at paragraph 51) that the latter was not useful in interpreting the habitual abode test in the former.

Bell J relied on a narrow dictionary definition of the word 'habitual' as meaning 'usual, constant, continual', rather than 'customary' or 'normal' to inform his understanding of the term 'habitual abode'. He said (at paragraph 52):

The New Shorter Oxford English Dictionary describes 'abode' as, inter alia, 'a habitual residence'. It describes 'habitual' as: 'Of the nature of habits fixed by habit; constantly repeated or continued …. Given to a specific habit, that habitually does or is what is denoted by the noun …. Usual, constant, continual.'

Bell J noted that for the three income years in question, the taxpayer spent 100 days in Canada (nearly every weekend) and approximately 265 days in the US. He then concluded (at [54]) that: '

The combination of evidence describing the nature of the Appellant's lifestyle and activities in the US and the information contained in the foregoing chart make it clear that during the years in question her habitual abode was in the US.

Bell J's reasoning is neither binding on the Commissioner, nor persuasive in the context of the DTA for the following reasons: Bell J relied on a narrow definition of 'habitual'; he considered the OECD Commentary irrelevant; the Canada-USA DTA applied the centre of vital interests test before the habitual abode test, which would never be the case under the DTA; and finally, his reasoning has been superseded by the reasoning in Lingle v The Queen 2009 TCC 435.

In Yoon the applicable double tax convention was the Canada-Korean Convention, which the court held could not be distinguished from the OECD Convention as could the Canada-US Convention. In 2001, the taxpayer spent 224 days in Korea and 135 days in Canada. The court held that her habitual abode was Korea not Canada on the basis that she stayed more frequently in Korea. However, as pointed out by Campbell J in Lingle, the decision as to the tie-breaker test was obiter, the court having decided that the taxpayer was not a resident in Canada under the common law. Again, the decision in Yoon is neither binding on the Commissioner nor is its reasoning persuasive in the context of the DTA.

Lingle

The decision of the Canadian Tax Court in Lingle v The Queen 2009 TCC 435, as approved by the Federal Court of Appeal in Lingle v The Queen 2010 FCA 152, is the leading Canadian authority on the application of the habitual abode test in tax conventions.

In Lingle, it was held that the taxpayer had an habitual abode in Canada but not in the US. Mr Lingle had spent only 69 out of 623 days in the US (he visited roughly once a month) and had weak connections to the US. Although he had a house in each country, he had separated from his wife, who lived in the US home during the relevant tax year (2004), and the US house was sold two years later (in 2006).

In Lingle the Respondent argued that whether a person had an habitual abode in a country depended on where he 'stayed more frequently'. Campbell J, the judge at first instance, rejected that interpretation as being too narrow and unsupported by the Commentary on the OECD Model but emphasised that 'frequency' was not irrelevant, particularly given the context of the habitual abode test. After quoting paragraphs 9 and 10 of the Commentary, which explain the purpose of the tie-breaker rules in the Model Convention, she said (at [28]):

This Commentary is equally applicable to the tie-breaker rules in Article IV(2) of the Treaty. It follows logically that if an individual stays in one State consistently and repeatedly one day every year, although in one sense those stays are in the nature of a habit or of a customary nature, those stays would not reflect such an attachment to that State that it would be natural for the right to tax to devolve upon that particular State, where the tests for permanent home and centre of vital interests were inconclusive. This approach would align closely with the objects and purposes of the provisions in the Treaty which in part are meant to resolve cases of potential double taxation.

She then concludes (at [30]):

It follows that the proper approach to determining whether the Appellant had an habitual abode in the United States is to enquire whether he resided there habitually, in the sense that he regularly, customarily or usually lived in the United States. Paragraphs 27 to 32 of the Agreed Statement of Facts and Issue contain pertinent statements which assist in the determination of whether the Appellant “normally lived” in the United States. It was agreed between the parties that the Appellant “consistently and repeatedly returned to his home in Canada for the majority of the days in this period.” In the settled routine of his life “he regularly, normally and customarily lived in Canada.” He “did not have any other contracts clients or business in the USA.” In addition, he spent only 69 days out of 623 days in the relevant period at his home in the United States. It is interesting that these agreed statements explicitly state that the Appellant “normally … lived in Canada” - which answers the definition that the Avery Jones article suggested for the expression “habitual”. The Appellant's stays at the Ransom House were in the nature of periodic visits with his “normal” place of residence being in Canada throughout the period. He did not have an habitual abode in the United States for the purposes of the Treaty because he did not regularly, customarily or normally live in the United States. Considering all the facts before me, his connections with the United States were weak when compared to his settled routine in Canada. Accordingly, the Appellant was a resident in Canada during this period and as such he is taxable on his business income earned as a consultant.

The Federal Court of Appeal, in Lingle v The Queen 2010 FCA 152, upheld the Tax Court's decision, confirming that the

… concept of “habitual abode”, as evidenced by the clearer French version of the text (où elle séjourne de façon habituelle) involves notions of frequency, duration and regularity of stays of a quality which are more than transient. To put it differently, the concept refers to a stay of some substance in the jurisdiction as a matter of habit, so that the conclusion can be drawn that this is where the taxpayer normally lives.

The Commissioner considers that, although the reasoning in Lingle is persuasive and likely to inform how an Australian court would apply the habitual abode test, the following distinctions between the facts and provisions in Lingle and the facts and provisions being ruled on here need to be highlighted:

● Under the scheme being ruled on, the applicant is not separated from their spouse, but continues to live with their spouse in Australia in their two homes, neither of which have been, or will be sold. She or he returns to Australia as their work allows and requires. She or he continues to have strong connections with Australia, her or his adult children live in Australia and stay at her or his home when they are in the area. She or he owns less than five investment properties in Australia and is the trustee and contributing member of an Australian complying superannuation fund.

● In the Canada-USA DTA, the order of the tie-breaker tests differs from in the Country X DTA. If the permanent home test is inconclusive, then the centre of vital interests test is applied; if the centre of vital interest test is inconclusive, then the 'habitual abode' test is applied. This means that the context in which the habitual abode test is applied in the Canada-USA DTA is different to that in which it is applied in the Country X DTA, requiring a different purpose to be taken into account in the latter. This in turn requires consideration of whether the quality and frequency of the applicant's stays in both Australia and Country X reflect an attachment to both states such that it would be natural for the right to tax to be determined by the centre of vital interest test. The Commissioner considers that the answer is 'yes' in respect of the scheme being ruled on.

Applying the reasoning in Lingle to the proposed arrangement, the Commissioner is of the view that, for the purposes of the Country X DTA, the applicant will have acquired an habitual abode in Country X for the relevant income years, having stayed there consistently and repeatedly in his permanent home for in excess of 183 days per income year, without having divested himself of his habitual abode in Australia.

Trieste

In Trieste v The Queen 2012 TCC 91 the taxpayer was a US citizen who worked on a contract basis in Canada during the income years 2000 to 2003. During that time he was in Canada for more than 183 days each year. Despite accepting that the proper test for determining whether an individual has an habitual abode in a particular state is to ask whether the individual resided 'regularly, customarily or usually' in that state, Lamarre J concluded that the taxpayer had an habitual abode in only Canada despite his close personal and economic ties to both Canada and the US. Lamarre J explained his decision as follows:

[30] As Campbell J concluded, the Federal Court of Appeal subsequently approving, the proper approach to determining whether the appellant had an habitual abode in the US is to enquire whether he resided there habitually in the sense that he regularly, customarily or usually lived there during the period at issue. Here, the appellant spent a lot more time in Canada, did not work elsewhere during that period, and, in the settled routine of his life, regularly and customarily lived in Canada while periodically returning to the US. As stated by the Federal Court of Appeal, “[t]he concept of “habitual abode” … refers to a stay of some substance in the jurisdiction as a matter of habit, so that the conclusion can be drawn that this is where the taxpayer normally lives” (paragraph 6). I find that, even though the appellant returned periodically - once a month and for holidays - to the US, his settled routine was, during the years at issue, in Canada and not in the US. As was found with regard to the taxpayer in Lingle¸ supra, the appellant in the present case likewise did not have n habitual abode in the US for the purposes of the Convention.

Federal Court of Appeal in Trieste v The Queen 2013 DTC 5020 upheld Lamarre J's decision on the basis that he had not made an error of law in applying the habitual abode test as explained in Lingle, nor had he made 'a palpable and overriding error' applying that test to the facts.

International law commentator, David Duff, argues that Lamarre J, despite seeming to accept the habitual abode test as explained in Lingle, incorrectly applied it as a comparative test, giving undue importance to paragraph 17 of the OECD Commentary and to the fact that the taxpayer stayed in Canada more frequently during the relevant income years. Duff suggests that, if the judge had asked whether living in each state was normal, he would have concluded that the taxpayer had an habitual abode in both Canada and the US. In Duff's opinion, Lamare J made an error of law in Trieste and his decision should have been reversed on appeal. He summarises his reasons as follows:

Whether his conclusion is consistent with the concept of an habitual abode and purpose of the tiebreaker rules to “reflect such an attachment that it is felt to be natural that the right to tax devolves upon that particular state” is doubtful. That this conclusion turned on the court's understanding of the law as well as the facts is indisputable. For these reasons, this part of the tax court decision should also have been reversed on appeal.

Whether the court applied the test incorrectly in Trieste or not, there are some key distinctions between the facts in Trieste and the applicant's circumstances, including:

● In Trieste, the taxpayer worked in Canada as a contractor and did not work while in the US.

● In the scheme being ruled on, the applicant has moved to Country X as senior office holder of a company and holds shares not in excess of 50%. Since returning to Australia, the applicant has returned foreign employment income in his Australian tax returns in relation to the role held at the foreign company. There is nothing to prevent the applicant from working for the foreign company during return trips to Australia during the relevant income years. The applicant is free to work in either Country X or Australia depending on the circumstances. Under the scheme, he will return to Australia as his work commitments allow and require.

The Commissioner's view as to how to apply the habitual abode test in the context of the Agreement:

Applying the broader principles of international law as discussed above, the Commissioner considers that determining whether a person has 'an habitual abode' under the residence article in the DTA during a particular period of time requires asking, in respect of each of the contracting states, whether actually living in that state during that time can be described as habitual, customary, regular, usual or normal for the particular taxpayer, as opposed to being, for example, temporary, unusual or extraordinary. This is different to asking in which of the two states the taxpayer stays more frequently during that period of time or in which of the two states it is 'more usual' or 'more normal' for him to live during that time.

The Commissioner is of the view that, to determine whether a person has an habitual abode in either or both of the contracting states during one or more whole income years:

● The time spent in each country during the relevant income year(s) is an important consideration, but not the only consideration.

● The quality of the stays during that time must also be taken into account, as may the quality of the stays and the time spent in the country during preceding and subsequent income years, including the duration and frequency of the stays and the intervals between them.

● Stays at both the person's home and elsewhere in the state must be taken into account.

● In characterising the quality of the stays, it is relevant that the person treats the accommodation as home rather than as temporary accommodation.

● The quality of the stays is relevant, rather than the reason for them.

Depending on the facts, a person may have an habitual abode in both countries even if he spends substantially more time throughout the relevant income years in one country than the other. Determining whether this is the case in the context of the DTA requires asking whether the quality and frequency of the applicant's stays in the two countries reflect sufficient attachment to both such that it would be natural for the right to tax to be determined by the centre of vital interests test.

In the Commissioner's view, this will be the case where the person spends most of his time in Country A for work purposes during the relevant income years, but continues living with his family in Country B, particularly if he has lived in Country B for most of his life and the nature of his work means he can work in either depending on the circumstances at a given time.

The scheme being ruled on falls into this category, Country A being Country X and Country B being Australia. For these reasons the Commissioner considers that under the scheme the applicant has an habitual abode in both Australia and the foreign country during the relevant income years.

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