Edited version of your written advice

Authorisation Number: 1051452354198

Date of advice: 10 December 2018

Ruling

Subject: Residency of Australia for taxation purposes

Question 1

Will you be a tax resident of Australia upon application of Article 3 pf the Double Tax Agreement (DTA) between Australia and Country X?

Answer

Yes

Question 2

Assuming you are a non-resident per the DTA and earned salary and wage income as an employee of the Country X company, would the amount still be assessable in Australia if the taxpayer has been in Australia for more than 183 days in an income year?

Answer

Not applicable

This ruling applies for the following period:

Year ended 30 June 2018

Year ended 30 June 2019

Year ended 30 June 2020

Year ended 30 June 2021

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You are a resident of Australia for tax purposes.

You maintain a permanent home in both Country X and Australia.

The Country X residence is currently rented out.

You travel frequently between Country X and Australia for work and family reasons.

On average your travel out of Australia for approximately one week every two months.

You arrived in Australia in early 20XX with your spouse and children.

You provide financial support to your parents in Country X.

You are a senior employee of a Country X based company.

You have worked for the company for approximately X years.

You are based in City Y.

You work in accordance with the Country X time zone.

You are paid into a Country X bank account.

You have an Australian bank account.

You have lodged a tax return in Country X and paid the relevant tax in Country X.

You intend to stay in Australia until you return permanently to Country X in 20XX.

Neither you nor your spouse are eligible to contribute to the relevant Commonwealth superannuation funds.

Assumption

You area a resident of Country X for tax purposes

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

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.

In the 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.

Based on the facts above you have a connection with Australia as your spouse and children are living in Australia.

You are a resident under this test.

The domicile (and permanent place of abode) test

Under this test, a person whose domicile is Australia will be considered a resident of Australia for taxation purposes; unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. In order to show that an individual's domicile of choice has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that 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 Singapore in the foreseeable future to live does not prevent you from setting up a permanent place of abode in Australia in the meantime.

The Commissioner is not satisfied that you have a permanent place of abode outside of Australia for the following reasons:

● Your domicile of origin is Country X.

● You have chosen to move to Australia with your family

● Your domicile of choice therefore is Australia

● You intend to continue living in Australia with your family until 20XX

● You are renting out your previous place of abode in Country X.

You are a resident of Australia for taxation purposes under this test.

The superannuation test

The superannuation test is the third statutory test. This test covers current Australian government employees and states you are a resident if you are a member of the superannuation scheme established under the Superannuation Act 1990 or an ‘eligible employee’ for the purposes of the Superannuation Act 1976.

As neither you nor your spouse are eligible employees you are not a resident of Australia for taxation purposes under this test.

The 183 day test

As you have been in Australia for 183 days or more within the 2018 year you are a resident of Australia for taxation purposes under this test.

You are a resident of both Australia and Singapore for taxation purposes and it is necessary to consider the provisions of the Agreement between the Government of the Republic of Country X and the Government of the Commonwealth of Australia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (the Double Tax Agreement).

The tie-breaker rules in the Double Tax Agreement are contained in Article 3(2), as follows:

Where by reason of the provisions of paragraph 1 of this Article an individual is both a Country X resident and an Australian resident:

(a) they shall be treated solely as a Country X resident:

(i) if they have a permanent home available to them in Country X and has not a permanent home available to them in Australia;

(ii) if sub-paragraph (a)(i) of this paragraph is not applicable but he has an habitual abode in Country X and has not an habitual abode in Australia;

(iii) if neither sub-paragraph (a)(i) nor sub-paragraph (a)(ii) of this paragraph is applicable but the Contracting State with which their personal and economic relations are closest is Country X;

(b) they shall be treated solely as an Australian resident-

(i) if they have a permanent home available to them in Australia and have not a permanent home available to them in Country X;

(ii) if sub-paragraph (b)(i) of this paragraph is not applicable but he has an habitual abode in Australia and has not an habitual abode in Country X;

(iii) if neither sub-paragraph (b)(i) nor sub-paragraph (b)(ii) of this paragraph is applicable but the Contracting State with which their personal and economic relations are closest is Australia.

Permanent home

In Thiel v. Federal Commissioner of Taxation it was decided that the OECD Model Tax Convention and Commentary were relevant to interpreting any Australian double tax agreements which were based on the OECD model.

ATO Interpretative Decision 2012/93 Income Tax Dual Resident of Australia and Malaysia: permanent home available outlines ‘…the concept of the 'permanence' of the home set out in paragraphs 12 and 13 of the Commentary on Article 4 of the OECD Model’ as follows:

12. Subparagraph a) means, therefore, that in the application of the Convention...it is considered that the residence is that place where the individual owns or possesses a home; this home must be permanent, that is to say, the individual must have arranged and retained it for his permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be a short duration.

13. As regards the concept of home, it should be observed that any form of home may be taken into account (house or apartment belonging to or rented by the individual, rented furnished room). But the permanence of the house is essential; this means that the individual has arranged to have the dwelling available to him at all times continuously, and not occasionally for the purpose of a stay which, owing to the reasons for it, is necessarily of short duration (travel for pleasure, business travel, educational travel, attending a course at a school, etcetera.).' (emphasis added)

At all times from you arrival in Australia, you have had a permanent home available to you in both Australia (where your spouse and children have been living) and in Country X.

Therefore it is necessary to consider in which country you have a habitual abode, and if necessary where your personal and economic relations are closest.

Habitual abode

In part, Article 4 of the OECD Model Tax Convention states, in relation to residency, that:

b) if the State in which he has his centre of vital interests cannot be determined, or if

he has not a permanent home available to him in either State, he shall be deemed

to be a resident only of the State in which he has an habitual abode.

The OECD 'Glossary of tax terms' states in part, as follows:

HABITUAL ABODE -- In the context of the tie-breaker rule of the OECD model tax treaty, habitual abode is one of the criteria used to resolve the problem of dual residence. It refers to the period of time a taxpayer spends in each country.

Paragraph 19 of the Commentary on Article 4 'Concerning the definition of resident', further states that:

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.

However, the OECD commentary does not appear to provide any further guidance regarding the meaning of 'a sufficient length of time' for the purposes of the article.

ATO view of habitual abode

There are a number of ATO Interpretative Decisions which contain the ATO view regarding 'habitual abode'.

In ATO ID 2004/774, a taxpayer who spent time at their homes in both Australia and the US during a single income year was held to have a habitual abode in both Australia and the US because it was ‘part of their usual pattern of activity’.

ATO ID 2006/184 considers a taxpayer working in Australia for a period of four years, but 'spending time' in Italy during this period, and who had a home available to him there. The 'reasons for decision' in these ATOIDs state, in part, that:

The notion of an habitual abode 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 the taxpayer's circumstances. As it is usual or customary for the taxpayer to spend time in both countries, the taxpayer has a habitual abode in both countries.

By contrast, in ATO ID 2004/81, a German citizen was '…present in Australia for over 12 months. and did not return to Germany or another country during that time.' It is stated that: 'Therefore, the taxpayer's habitual abode was in Australia and not in Germany.'

This suggests that a taxpayer will only have an 'habitual abode' in one country where they remain solely in that country for a specific period of time.

However, in ATO ID 2005/123 and ATO ID 2005/124, a Singapore citizen who spent 'approximately 12 months' in Australia was held to have a habitual abode in both Singapore and Australia. There was no suggestion in this ATOID that the taxpayer returned to Singapore at any time during this period. Nor is there any suggestion that the 'habitual abode' test was determined solely by reference to the 12 month period in which they were living in Australia.

Equally, ATO ID 2004/736 concerned a US citizen who spent 10 months in Australia on a research fellowship. It was argued in this ATOID that a habitual abode:

…can be seen as the physical place in which an individual would normally live. This is not merely a test of where a person stays more frequently but also looks at whether living in a particular country is 'normal' having regard to the taxpayer's pattern of life.

It was '…considered that the taxpayer has a habitual abode in the US and in Australia', even though there is no suggestion that the taxpayer spent any time in the US during these ten months.

Notably, Article 3(2) of the double tax agreement envisages the possibility that the taxpayer can have a habitual abode in two places at the same time.

In the current case, you spent the majority of time in Australia after you arrival in the 20XX income year. In the 20XX year of income for example, you only spent XX days outside of Australia. It is considered that your continued presence in Australia is sufficient to constitute a usual pattern of activity consistent with having a habitual abode in Australia.

Accordingly, it is considered that you have a habitual abode in Australia, and therefore you will be a resident of Australia for the purposes of the Double Tax Agreement.

Personal and economic relations

You are living with your immediate family in Australia with whom you share a permanent home and are able to carry out your employment duties while in Australia. The time zone in Country X is the same as Western Australia and is not a determining factor.

You will be a resident of Australia for the purposes of the Double Tax Agreement as your personal and economic relations are closest in Australia.

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