Edited version of private advice

Authorisation Number: 1052253278181

Date of advice: 3 June 2024

Ruling

Subject: Residency and double tax agreements

Question1

Are you a resident of Australia for tax purposes as defined by subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

Question2

Are you a resident of Australia under Article X of the Double Tax Agreement (DTA) between Australia and Country A?

Answer

No.

Question 3

Is your Country A employment income assessable income in Australia under Articles X and X of the DTA between Australia and Country A?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June XXXX

Year ended 30 June XXXX

Year ended 30 June XXXX

The scheme commences on:

X XX XXXX

Relevant facts and circumstances

On XX XXX XXXX, you were born.

Your country of origin is Country A.

You are a citizen of Country A.

You have permanent employment in Country A.

On XX XXX XXXX, you commenced employment with Employer A in Country A.

You work as a XXXX.

Your employment contract requires you to be based in Country A.

You lodge Country A tax returns each year as a Country A tax resident.

You are not a citizen of Australia and cannot vote in Australia.

You have a spouse and a dependent child.

You have an ownership interest in the following properties in Country A:

•         On XX XXX XXXX, you jointly purchased the property A with your spouse.

•         XX XXX XXXX, you jointly purchased property B with your spouse.

•         XX XXX XXXX, you jointly purchased property C with your sibling.

On XX XXX XXXX, you solely purchased the property D in Australia.

On XX XXX XXXX, you solely purchased the property E in Australia.

On XX XXX XXXX, you and your family were granted Australian permanent residency.

You were granted a Skilled Nominated visa (subclass 190), which allowed you to stay in Australia permanently.

On XX XXX XXXX, you came to Australia to activate the permanent residency.

On XX XXX XXXX, you retuned to Country A.

Between XX XXX XXXX to XX XXX XXXX, you were in Australia.

You had a temporary agreement with your employer for one year to move to Australia, while your spouse wrapped up their employment in Country A.

During this agreement, you had the same work responsibilities as you did in Country A.

In XXX XXXX, you and your child returned to Australia for your child's high school education.

You and your child stayed at the property E.

You purchased a motor vehicle in Australia.

You did not maintain any professional, social or sporting connections in Country A during your time in Australia.

You did not develop any professional, social or sporting connections in Australia.

You have an Australian driver's licence.

You stated your spouse was meant to arrive in Australia in XXX XXXX but was delayed due to their work commitments and being employed in Country A.

In XXX XXXX, your spouse ceased their employment in Country A and arrived in Australia.

The Australian border closed due to COVID-19, and you decided to stay in Australia with the approval from your employer to work remotely over this period.

On XX XXX XXXX, received approval for Resident Return (subclass 155) visa. This was to allow you to travel back and forth between Australia and Country A.

In XXX XXXX, your employer instructed you to return to Country A no later than XX XXX XXXX. If you didn't return by this date your employer stated that your employment would be terminated.

On XX XXX XXXX, you returned to Country A after successfully delaying the return.

Your spouse now uses your motor vehicle in Australia.

Upon returning to Country A, you moved into a house that is jointly owned by your spouse and their mother. This property is always available to you.

When you are in Australia, your mother-in-law stays at the house.

You have stated that your intention was to only travel to Australia to visit your family but reside permanently in Country A due to my full-time employment there.

Since returning to Country A in XXXX, there is no formal agreement in place with your employer to work part-time in Australia.

In the XXXX financial year, you spent XX days in Country A and XX days in Australia.

In the XXXX financial year, you spent XX days in Country A and XX days in Australia.

In the XXXX financial year, you have spent XX days in Australia.

During the trips to Australia in the XXXX, XXXX and XXXX financial years, you continued your work duties for your employer in Country A.

You did not apply for citizenship during your time in Australia.

When completing incoming and outgoing passenger cards you state:

•         you are a permanent resident returning to Australia.

•         that you do not intend to live in Australia for next 12 months.

•         the reason for your trip to Australia as visiting friends or relatives.

Your spouse is currently employed in Australia and contributes to the living expenses and home loan repayments.

You contribute towards the home loan in Australia and your child's education.

You and your spouse were not Commonwealth of Australia Government employee for superannuation (super) purposes.

You and your spouse are not members of the Public Sector Superannuation Scheme (PSS).

You and your spouse are not an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS).

Relevant legislative provisions

Income Tax Assessment Act 1936 section 6(1).

Income Tax Assessment Act 1997 section 995-1.

Reasons for decision

Question1

Are you a resident of Australia for tax purposes as defined by subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Summary

You satisfy the resides test of residency and so are a resident of Australia for income tax purposes for the years ended 30 June XXXX, XXXX, and XXXX.

Detailed reasoning

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

The terms 'resident' and 'resident of Australia', as applied to an individual, are defined in subsection 6(1) of the ITAA 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 (also referred to as the ordinary concepts test)
• the domicile test
• the 183-day test, and
• the Commonwealth superannuation fund test.

The resides test is the primary test for deciding the residency status of an individual. This test considers whether an individual resides in Australia according to the ordinary meaning of the word 'resides'.

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, 183-day test and Commonwealth superannuation fund test).

Our interpretation of the law in respect of residency is set out in Taxation Ruling TR 2023/1 Income tax: residency tests for individuals.

We have considered the statutory tests listed above in relation to your situation as follows:

The resides test

The ordinary meaning of the word 'reside' has been expressed as 'to dwell permanently or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place': See Commissioner of Taxation v Miller (1946) 73 CLR 93 at 99 per Latham CJ, citing Viscount Cave LC in Levene v Inland Revenue Commissioners [1928] AC 217 at 222, citing the Oxford English Dictionary. Likewise, the Macquarie Dictionary defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

The observations contained in the case of Hafza v Director-General of Social Security (1985) 6 FCR 444 are also important:

Physical presence and intention will coincide for most of the time. But few people are always at home. Once a person has established a home in a particular place - even involuntarily: see Commissioners of Inland Revenue v Lysaght [1928] AC 234 at 248; and Keil v Keil [1947] VLR 383 - a person does not necessarily cease to be resident there because he or she is physically absent. The test is whether the person has retained a continuity of association with the place - Levene v Inland Revenue Commissioners [1928] AC 217 at 225 and Judd v Judd (1957) 75 WN (NSW) 147 at 149 - together with an intention to return to that place and an attitude that that place remains "home": see Norman v Norman (No 3) (1969) 16 FLR 231 at 235... here the general concept is applicable, it is obvious that, as residence of a place in which a person is not physically present depends upon an intention to return and to continue to treat that place as "home", a change of intention may be decisive of the question whether residence in a particular place has been maintained.

The Commissioner considers the following factors in relation to whether a taxpayer is a resident under the 'resides' test:

• 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.

It is important to note that no one single factor is decisive, and the weight given to each factor depends on each individual's circumstances.

Because the resides test is about whether an individual resides in Australia, the factors focus on the individual's connection to Australia. Having a connection with another country, or being a resident of another country, does not diminish any connection to Australia. The ordinary meaning of reside does not require an individual to have a principle or usual place of residence in Australia.

Application to your situation

You are a resident of Australia under the resides test for the period XX XXX XXXX to XX XXX XXXX based on the following:

•  Physical presence

o   You were physically present in Australia for the following periods:

­   From XX XXX XXXX to XX XXX XXXX.

­   From XX XXX XXXX to XX XXX XXXX.

­   From XX XXX XXXX to XX XXX XXXX.

­   In the XXXX financial year, you spent XX days in Country A and XX days in Australia.

­   In the XXXX financial year, you spent XX days in Country A and XX days in Australia.

­   In the XXXX financial year so far, you have spent XX days in Australia.

•  Intention or purpose

o   Your intention was to stay in Australia with your child from XXX XXXX to XXX XXXX.

o   You had a temporary agreement with your employer for XXXX to move to Australia, while your spouse wrapped up their employment in Country A. Your spouse was delayed until XXX XXXX.

o   Your temporary agreement with your employer was extended due to COVID-19.

o   In XXX XXXX, your employer instructed you to return to Country A no later than XX XXX XXXX. It was your intention to retain this role and you returned to Country A on XX XXX XXXX.

o   You held a Skilled Nominated visa (subclass 190), which allowed you to stay in Australia permanently.

o   After XX XXX XXXX, when you visit Australia when completing incoming and outgoing passenger cards you state:

­   you are a permanent resident returning to Australia;

­   you do not intend to live in Australia for next 12-months;

­   you state the reason for your trip to Australia as visiting friends or relatives.

•  Behaviour

o   You have two properties in Australia, which you are the sole owner.

o   Your spouse and child lived in one of these properties during the period XX XXX XXXX to XX XXX XXXX.

o   You and your spouse contribute to the property repayments.

•  Family or employment ties

o   Your spouse and child are in Australia.

o   Since XX XXX XXXX, you have been employed by Company A.

o   You can perform your employment responsibilities for your employer while living in Australia. This is evidenced by:

o   During the period from XX XXX XXXX to XX XXX XXXX, you lived in Australia with your child, performing the same responsibilities you did while in Country A.

o   When in Australia for the XXXX, XXXX and XXXX financial years, you performed the same responsibilities for your employer that you do in Country A.

o   You have now performed your employment responsibilities in Australia during multiple financial years.

o   You work overseas but return to Australia at intervals every year since departing to see your established family.

•  Maintenance and location of assets

o   You have two properties in Australia, which you are the sole owner.

o   While living in Country A you stay at a property, which is owned by your spouse and mother-in-law.

o   You own the following overseas assets:

­   Bank account in Country A.

­   Three rental properties in Country A.

•  Social and living arrangements

o   You did not develop any professional, social or sporting connections in Australia.

You are an Australian tax resident under the resides test. Although the law only requires you to be considered a resident under one test, for completeness the other tests are also considered.

Domicile test

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

Domicile

Whether your domicile is in Australia is determined by the Domicile Act 1982 and the common law rules on domicile.

Your domicile is your domicile of origin (usually the domicile of your father at the time of your birth) unless you have a domicile of dependence or have acquired a domicile of choice elsewhere. To acquire a domicile of choice of a particular country you must be lawfully present there and hold the positive intention to make that country your home indefinitely. Your domicile continues until you acquire a different domicile. Whether your domicile has changed depends on an objective consideration of all relevant facts.

Application to your situation

In your case, you were born in Country A, so your domicile of origin is Country A.

It is considered that you did not abandon your domicile of origin in Country A and acquire a domicile of choice in Australia. You obtained permanent residency on XX XXX XXXX. However, you did not intend to live in Australia indefinitely.

Therefore, your domicile is Country A, and you are not a resident of Australia under the domicile test.

Permanent place of abode

If you have an Australian domicile, you are an Australian resident unless the Commissioner is satisfied that your permanent place of abode is outside Australia. This is a question of fact to be determined in light of all the facts and circumstances of each case.

'Permanent' does not mean everlasting or forever, but it is to be distinguished from temporary or transitory.

The phrase 'permanent place of abode' calls for a consideration of the physical surroundings in which you live, extending to a town or country. It does not extend to more than one country, or a region of the world.

The Full Federal Court in Harding v Commissioner of Taxation [2019] FCA 29 held at paragraphs 36 and 40 that key considerations in determining whether a taxpayer has their permanent place of abode outside Australia are:

• whether the taxpayer has definitely abandoned, in a permanent way, living in Australia.
• whether the taxpayer is living in a town, city, region or country in a permanent way.

The Commissioner considers the following factors relevant to whether a taxpayer's permanent place of abode is outside Australia:

• the intended and actual length of the taxpayer's stay in the overseas country
• whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time
• whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia
• whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence
• the duration and continuity of the taxpayer's presence in the overseas country
• the durability of association that the person has with a particular place in Australia, i.e. maintaining assets in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

As with the factors under the resides test, no one single factor is decisive, and the weight given to each factor depends on the individual circumstances.

Application to your situation

The Commissioner is satisfied that your permanent place of abode is outside Australia because:

•         While in Country A you stay in a property owned by your spouse and mother-in-law.

•         The nature of this accommodation is that it will always be available to you.

•         You spent more time in Country A than you did in Australia in the XXXX, XXXX, and XXXX financial years.

•         Your long-term employment is in Country A.

Therefore, you are not a resident of Australia under the domicile test.

183-day test

Where a person is present in Australia for 183 days or more during the year of income the person will be a resident, unless the Commissioner is satisfied that both:

•         the person's usual place of abode is outside Australia, and

•         the person does not intend to take up residence in Australia.

Application to your situation

You have not been present in Australia for 183 days or more during the XXXX, XXXX, XXXX income years. Therefore, you are not a resident under this test.

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 situation

You are not a member on behalf of whom contributions are being made to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS) or a spouse of such a person, or a child under 16 of such a person. Therefore, you are not a resident under this test.

Conclusion

You satisfy the resides test of residency and so are a resident of Australia for income tax purposes for the years ended 30 June XXXX, XXXX and XXXX.

Question 2

Are you a resident of Australia under Article X of the Double Tax Agreement (DTA) between Australia and Country A?

Summary

We have concluded that the tiebreaker tests in Article X of the DTA between Australia and Country A apply so that you are deemed to be a resident only of Country A for treaty purposes. The provisions of the Country A Agreement will therefore apply on the basis that you are a resident of Country A for tax purposes and not of Australia.

Detailed reasoning

Double Taxation Agreement

It is possible to be a resident for tax purposes of more than one country at the same time in respect of an income year or part of an income year. If this is the case, in determining your liability to pay tax in Australia it is necessary to consider any applicable double tax agreements. Sections 4 and 5 of the International Tax Agreements Act 1953 (Agreements Act) incorporate that Act with the ITAA 1936 and the ITAA 1997 and provide that the provisions of a double tax agreement have the force of law.

You have stated you are a Country A tax resident. You were born and have citizenship in Country A. You complete a Country A tax return every year.

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 of TR 2001/13 provides that the OECD Model Tax Convention and Commentary will often need to be considered in interpreting double tax agreements.[1]

Article X of the DTA between Australia and Country A sets out the tiebreaker rules for residency for individuals. The tiebreaker rules 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 double tax agreement. The tiebreaker rules do not change a taxpayer's residency status for domestic law purposes.

Permanent home

Permanent home is not defined in the Double Tax Agreement. Therefore, recourse can be made to supplementary materials in order to aid construction. The OECD commentary to the Model Tax Convention provides that in relation to a 'permanent home':

1. 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.
2. 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.

We have concluded that you have a permanent home in Country A based on the following considerations:

•         You reside in a property owned by your spouse and your mother-in-law while in Country A.

•         This property is always available to you.

•         The property is not intended for a short stay.

We also have concluded that you have permanent home in Australia based on the following considerations:

•         You own the property your spouse and child live in.

•         This property is always available to you.

Habitual abode

The OECD commentary provides that determining a taxpayer's habitual abode requires a determination of whether the individual lived habitually, in the sense of being customarily or usually present, in one of the two states but not in the other during a given period.

The test will not be satisfied simply by determining in which of the two Contracting States the individual has spent more days during the period (Davies, White and Steward JJ in Pike v Commissioner of Taxation [2020] FCAFC 158 at [29]).

The notion of habitual abode refers to the frequency, duration and regularity of stays that are part of the settled routine of an individual's life and are therefore more than transient. It is possible for an individual to have a habitual abode in two states where the individual was customarily or usually present in each State during the relevant period.

We have concluded that you have a habitual abode in both Australia and Country A. The following factors were relevant:

•         You are employed in Country A.

•         Your spouse and son are in Australia.

•         You have a settled routine for working in both Australia and Country A.

•         You spend the majority of the financial year in Country A.

Personal and economic ties (centre of vital interests)

The OECD commentary states that regard should be had to the taxpayer's family and social relations, their political, cultural or other activities, their place of business, the place from which they administer their property etc. As noted in Pike v Commissioner of Taxation [2020] FCAFC 158 at [39], personal factors do not have greater weight than economic factors. In each case it will be a matter of fact and degree whether a taxpayer's personal and economic relations, viewed as a whole, support ties closer to one contracting state over the other contracting state.

The following factors showed closer ties to Country A:

•         You are employed in Country A.

•         You have extended family in Country A.

•         You have properties in Country A.

•         You are a resident and have citizenship in Country A.

The following factors showed closer ties to Australia:

•         Your spouse and child are in Australia.

•         You have properties in Australia.

•         You have a permanent residency visa in Australia.

We have concluded your personal and economic relations are closer to Country A.

Conclusion

We have concluded that the tiebreaker tests in Article X of the DTA between Australia and Country A apply so that you are deemed to be a resident only of Country A for treaty purposes. The provisions of the Country A Agreement will therefore apply on the basis that you are a resident of Country A for tax purposes and not of Australia.

Question3

Is your Country A employment income assessable income in Australia under Articles X and X of the DTA between Australia and Country A?

Summary

You are by reason of the provisions of paragraph X of Article X of the DTA a resident of both Australia and Country A but by reason of the provisions of paragraph X or X of that Article are deemed for the purposes of this Agreement to be a resident solely of Country A. Therefore, under Article XX of the DTA, if you derive income from sources in Country A or from sources outside both Australia and Country A, that income shall be taxable only in Country A.

[1] See also ATO ID 2003/1195.

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