Edited version of private advice

Authorisation Number: 1052126804168

Date of advice: 19 June 2023

Ruling

Subject: Residency

Question 1

Am I a resident of Australia for taxation purposes from XX XXX 20XX to XX XXXX 20XX?

Answer

Yes.

Question 2

Am I a resident of Australia under Article 4 of the Double Taxation Agreement between Australia and COUNTRY A (the DTA)?

Answer

Yes.

Question 3

Is my rental income earned in relation to properties in COUNTRY A assessable income in Australia under Article 15 of the DTA?

Answer

Yes.

Question 4

Are the dividends I receive from companies resident in COUNTRY A assessable income in Australia under Article 10 of the DTA?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

XX XXX 20XX

Relevant facts and circumstances

You were born in COUNTRY A.

You moved to Australia from COUNTRY A IN 20XX.

You are a permanent resident of Australia.

Your spouse and child are citizens of Australia.

You have resided in a rental apartment in CITY A since X XXXX 20XX.

You have a lease for the apartment until XX XXXX 20XX.

You have not travelled back to COUNTRY A since you arrived in Australia. However, you plan to visit family and friends in COUNTRY A every one to two years.

You are going on a holiday to COUNTRY A in the next few months.

Prior to arriving in Australia, you lived in CITY B in COUNTRY A. Your spouse lived with you in COUNTRY A between 20XX and 20XX.

You lived in an apartment that you own and are planning on selling that apartment when the housing market improves.

You have rented out that apartment since XXXX 20XX.

You have been working full time in Australia since XXXX 20XX.

You are employed by COMPANY A full time on a permanent basis.

You have the following assets in Australia:

• A bank account with a sum of money
• A car.

You have an ownership interest in several investment properties in COUNTRY A.

Before coming to Australia, you sold all of your household items and your car.

You retain a bank account in COUNTRY A into which you receive rental income from your properties.

You and your spouse have social connections in Australia including your high school friends and your spouse's family and friends.

You retain connection with family and friends in COUNTRY A through an instant messaging application.

Neither you nor your spouse are Commonwealth of Australia government employees for superannuation purposes.

You are a resident of COUNTRY A for taxation purposes.

You own shares in several companies resident in COUNTRY A and an Australian company also.:

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 6-5

International Tax Agreements Act 1953

Reasons for decision

Issue: Residency

Question 1

Am I a resident of Australia for taxation purposes from XX XXX 20XX to XX XXXX 20XX?

Summary

Having considered your circumstances and the relevant factors, the Commissioner is satisfied that you are a resident of Australia for income tax purposes.

Detailed reasoning

For tax purposes, whether you are a resident of Australia is defined by subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

The definition has four tests to determine your residency for income tax purposes. These tests are:

•         the resides test

•         the domicile test

•         the 183-day test, and

•         the Commonwealth superannuation fund test.

It is sufficient for you to be a resident under one of these tests to be a resident for tax purposes. Our interpretation of the law in respect of residency is set out in Taxation Ruling TR 2023/1 Income tax: residency tests for individuals

The resides test

The resides test is the primary test of tax residency for an individual. If you reside in Australia according to the ordinary meaning of the word resides, you are considered an Australian resident for tax purposes.

Some of the factors that can be used to determine whether you reside in Australia include:

•         period of physical presence in Australia

•         intention or purpose of presence

•         behaviour while in Australia

•         family and business/employment ties

•         maintenance and location of assets

•         social and living arrangements.

No single factor is decisive, and the weight given to each factor depends on your specific circumstances.

Where an individual does not reside in Australia according to ordinary concepts, they will still be an Australian resident if they meet the conditions of one of the other tests.

The domicile test

Under the domicile test, if your domicile is in Australia, you are a resident of Australia unless the Commissioner is satisfied that your permanent place of abode is outside Australia.

Whether your domicile is Australia is determined by the Domicile Act 1982 and the common law rules on domicile. For example, you may have a domicile by origin (where you were born) or by choice (where you have changed your home with the intention of making it permanent).

Whether your permanent place of abode is outside Australia is a question of fact to be determined in light of all the facts and circumstances of each case. Key considerations in determining whether you have your permanent place of abode outside Australia are:

•         whether you have definitely abandoned, in a permanent way, living in Australia

•         length of overseas stay

•         nature of accommodation, and

•         durability of association.

The 183-day test

Under the 183-day test, if you are present in Australia for 183 days or more during the income year, you will be a resident, unless the Commissioner is satisfied that both:

•         your usual place of abode is outside Australia, and

•         you do not intend to take up residence in Australia.

The question of usual place of abode is a question of fact and generally means the abode customarily or commonly used by you when are physically in a country.

The Commonwealth superannuation test

An individual is a resident of Australia if they are either a member of the superannuation scheme established by deed under the Superannuation Act 1990 or an eligible employee for the purposes of the Superannuation Act 1976, or they are the spouse, or the child under 16 of such a person.

Application to your circumstances

We have considered each of the statutory tests listed above in relation to your particular facts and circumstances.

Taking into account your individual circumstances, we have concluded that you are a resident of Australia according to ordinary concepts.

For the income year ending 30 June 20XX, you will also be a resident of Australia under the 183-day test.

As you were not present in Australia for 183 days during the income year ending 30 June 20XX, you do not meet the requirements of the test for that income year.

We also consider that you have acquired a domicile of choice in Australia, and the Commissioner is satisfied that your permanent place of abode is not outside Australia. We considered the following factors in forming our conclusion:

•         you relocated to Australia on XX XXX 20XX to commence employment in a permanent full-time position

•         you have obtained permanent residency status in Australia

•         you have resided in the same accommodation since shortly after arriving in Australia with your spouse and child

•         you intend to remain in Australia permanently

•         your spouse and child are Australian citizens

•         you intend to sell the property in COUNTRY A where you previously resided

You do not fulfil the requirements of the Commonwealth Superannuation test and therefore not a resident under this test.

Conclusion

As you met one or more of the four tests of residency, you are a resident of Australia for the period from XX XXX 20XX until 30 June 20XX and the whole of the income year ending 30 June 20XX.

Question 2

Am I a resident of Australia under Article 4 of the Double Taxation Agreement between Australia and COUNTRY A (the DTA)?

Summary

You are a resident of Australia under Article A of the DTA. You are not a resident of COUNTRY A under the DTA.

Detailed reasoning

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 double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the Income Tax Assessment Act 1997 (ITAA 1997) so that those Acts are read as one. Section 5 of the Agreements Act states that, subject to the provisions of that Act, any provision in an Agreement listed in section 5 has the force of law

The DTA operates to avoid the double taxation of income received by residents of Australia and COUNTRY A.

Article A of the DTA provides the meaning of the term 'resident of a Contracting State' for the purposes of determining the residency status of a person under the DTA. It also sets out the tiebreaker rules for residency for individuals to 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 DTA. The tiebreaker rules do not change a taxpayer's residency status for domestic law purposes.

Article A provides that:

•         a person is a resident of one of the Contracting States if the person is a resident of that Contracting State for the purposes of its tax. However, a person is not a resident of a Contracting State for the purposes of this Agreement if the person is liable to tax in that State in respect only of income from sources in that State.

•         Where a person is a resident of both Contracting States under the above paragraph, then the status of that person shall be determined in accordance with the following rules:

o   The person will be the resident solely of the Contracting State in which a permanent home is available to that person

o   If a permanent home is available in both states or in neither of them, the person shall be deemed to be a resident only of the State with which the person's personal and economic relations are closer.

The above tiebreaker rules do not change a taxpayer's residency status for domestic law purposes.

Permanent home

There is no definition of 'permanent home' in the DTA. Therefore, it is necessary to look to other sources for a definition. Taxation Ruling TR 2001/13 Income tax: Interpreting Australia's Double Tax Agreements discusses the Commissioner's views about interpreting double tax agreements. Paragraph 104 provides that the OECD Model Tax Convention and Commentary will often need to be considered in interpreting double tax agreements.1

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 (e.g. travel for pleasure, business travel, attending a course etc) For instance, a house owned by an individual cannot be considered to be available to that individual during a period when the house has been rented out and effectively handed over to an unrelated party so that the individual no longer has possession of the house and the possibility to stay there.

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.

Application to your situation

Under Australian law, you are an Australian resident from XX XXX 20XX until 30 June 20XX. You are also a resident for taxation purposes in COUNTRY A. The tiebreaker test therefore needs to be applied.

Based on the information you have supplied, you have a permanent home in Australia, which is your rental accommodation where you, your spouse and your child reside. You will reside in that accommodation for the duration of the ruling period.

You have not travelled back to COUNTRY A since you arrived in Australia and only plan to visit family and friends in COUNTRY A every one to two years. It is your intention to reside in Australia indefinitely.

Since arriving in Australia you have acquired Australian residency and your spouse and child are both citizens of Australia.

Whilst you have an ownership interest in several properties in COUNTRY A, these are currently being rented and used to accommodate a relative, so are not available for your exclusive use or enjoyment. It is your intention to sell one of these properties that you previously occupied prior to coming to Australia once the housing market improves. You will retain the other properties as investments and accommodation for your relative.

Under the DTA, you are a resident of Australia and not a resident of COUNTRY A.

Question 3

Is my rental income earned in relation to properties in COUNTRY A assessable income in Australia under Article 15 of the DTA?

Summary

Based on Article B of the DTA, Australia and COMPANY A both have taxing rights in relation to your rental income you derived from your properties in COUNTRY A. You need to declare your rental income from COUNTRY A in your Australian income tax return and can claim a foreign tax offset in relation to the tax you have paid on that income from COUNTRY A

Article B

Income from real property

Article B of the DTA provides that:

•         Income derived by a resident of a contracting State from real property may be taxed in the contracting State in which the real property is situated.

Based on Article B of the DTA, Australia and COUNTRY A both have the taxing right on the rental income you receive from your rental properties in COUNTRY A. Therefore, you are required to declare the income in relation to COUNTRY A in your Australian income tax return. However, to prevent double taxation, you can claim a foreign income tax offset in relation to the tax paid in COUNTRY A.

Article C

Relief from Double Taxation

Article C of the DTA provides that:

•         Subject to the provisions of the law of Australia from time to time in force which relate to the allowance of a credit against Australian tax of tax paid in a country outside Australia (which shall not affect the general principle of this Article), tax paid under the law of COUNTRY A and in accordance with this Agreement, whether directly or by deduction, in respect of income derived by a person who is a resident of Australia from sources in COUNTRY A shall be allowed as a credit against Australian tax payable in respect of that income.

Application to your situation

As you are required to pay income tax in COUNTRY A on the income you receive from your properties, you can apply for a foreign income tax offset (FITO) in Australia. Article C of the DTA states that where you are an Australian resident for tax purposes and you pay tax in COUNTRY A, amounts paid shall be allowed as a credit against Australian tax you pay on that income.

Question 4

Are the dividends I receive from companies resident in COUNTRY A assessable income in Australia under Article 10 of the DTA?

Summary

Based on Article D of the DTA, Australia and COUNTRY A have taxing rights on the dividends you received from companies who are resident in COUNTRY A You need to declare any dividends received from the companies resident in COMPANY A in your Australian income tax return. However, to prevent double taxation, you can claim a foreign income tax offset for the dividends received from COUNTRY A.

Article D

Dividends

Dividends paid by a company which is a resident of a contracting State for the purposes of its tax, being dividends beneficially owned by a resident of the other contracting State, may be taxed in that other state.

However, those dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident for the purposes of its tax, and according to the law of that State, but the tax so charged shall not exceed:

(a)  X per cent of the gross amount of the dividends if the beneficial owner of those dividends is a company which holds directly at least 10 per cent of the voting power in the company paying the dividends;

(b)  X per cent of the gross amount of the dividends in all other cases.

Based on Article D of the DTA, Australia and COMPANY A both have the taxing right on the dividends you receive from companies resident in COUNTRY A. Therefore, you are required to declare the income in relation to COUNTRY A in your Australian income tax return. However, to prevent double taxation, you can claim a foreign income tax offset in relation to the tax paid in COUNTRY A.

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