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Ruling

Subject: Residency for tax purposes

Questions and answers

Were you a resident of Australia for tax purposes for the period you were in Country X and your family were in Australia?

Yes.

Are you a resident of Australia for tax purposes for the period you were in Country X and your family were in Australia for the purposes of Australia's double tax agreement with Country X?

No.

This ruling applies for the following periods:

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commenced on:

1 July 2007

Relevant facts and circumstances

You were born in Australia and you are an Australian citizen.

You and your family lived and worked overseas for many years.

You purchased a home in Australia prior to moving overseas. You lived in the house until you moved overseas. It was then rented out until you sold it a number of years later.

You also purchased a rental property in Australia prior to moving overseas.

You purchased another rental property in Australia while still living overseas.

You lived in Country X with your spouse and children until a number of years ago when they moved back to Australia for the purpose of educating your children in Australia.

Your spouse and children moved into a house you already owned in Australia.

You remained in Country X.

Your spouse and children visited you in Country X approximately twice a year.

You visited your Country X and children in Australia several times a year. When in Australia, you stayed with family in your family home. Each stay was 10-20 days in length.

Your employer partially funded your trips back to Australia.

You financially supported your family.

You held the following assets in Country X:

· Bank accounts

· Medical aid

· Shares and options

· Motor vehicles

· Furniture and personal effects

You were a resident of Country X for taxation purposes at all times.

When your spouse and children returned to Australia, it was your intention to remain overseas indefinitely.

The decision as to whether you would return to Australia, or your spouse would return to Country X, or whether you would relocate to another country in the future was not made at that time. In the following years you contemplated moving to another overseas country however this did not eventuate.

In the year ended 30 June 2012, you departed Country X and since then you have been living permanently in Australia with your family.

Nether you, nor your spouse, have ever been Commonwealth government employees.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

International Tax Agreements Act 1953 Section 4

Reasons for decision

Residency for tax purposes

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 (ITAA 1936). The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are: 

· the resides test,

· the domicile test,

· the 183 day test, and

· the superannuation test.

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

However, where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.

The resides test

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3^rd edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; having one's abode for a time', and according to the Compact Edition of the Oxford English Dictionary (1987), is 'to dwell permanently, or for a considerable time, to have one's settled or usual abode, to live in or at a particular place'.

Although the question of whether a person resides in a particular country is a question of fact, the courts have referred to and taken into account various factors considered to be relevant. These are:

· whether the person is physically present in that country at some time during the year of income

· the history of the person's residence and movements

· if the person is a visitor to the country, the frequency, regularity, duration and purpose of the visits

· if the person is outside the country for part of the relevant income year, the purpose of the absences

· the family and business ties which the person has with the particular country, and

· whether a place of abode is maintained by the person in the relevant country or is available for his or her use while there.

Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia emphasises the intended and actual length of the individual's stay in an overseas country, any intention to return to Australia or travel elsewhere, the establishment or abandonment of any residence, and the durability of association that the individual maintains with a particular place in Australia as the main factors to be considered when determining the residency status of individuals leaving Australia.

In your case, although you were physically present in Country X for most of the time, the purpose of your presence overseas was for your employment, and you returned to your home and family several times a year. You owned your home in Australia that your spouse and children lived in, and that you also stayed in when you were in Australia. You financially supported your spouse and children. You also had significant investments in Australia. You maintained your Australian citizenship. Therefore, although you were physically in Country X more than in Australia, you were there to work, whereas when you were in Australia, you were living here with your family in your family home.

Based on these facts, you were residing in Australia according to the ordinary meaning of the word, and therefore you are a resident of Australia under the resides test.

As you are a resident of Australia under the resides test, the three statutory tests do not need to be considered.

Double tax agreement between Australia and Country X

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

The Country X Agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The Country X Agreement operates to avoid the double taxation of income received by residents of Australia and Country X.

As you were a resident of both Australia and Country X, the meaning of 'resident' according to the Agreement between the two countries must be considered.

In relation to residency, the Agreement states:

2. Where by reason of the provisions of paragraph (1) an individual is a resident of both Contracting States, then his case shall be determined in accordance with the following rules:

(a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him;

(b) if he has a permanent home available to him in both Contracting States, or if he does not have a permanent home available to him in either of them, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode, or where he has such habitual abode in both Contracting States, or if he does not have such habitual abode in either of them, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closest.

3. Where by reason of the provisions of paragraph (1) a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the Contracting State in which its place of effective management is situated.

In your case you were a resident of both Australia and Country X and you had a permanent home available to you in both Australia and Country X.

Habitual abode

The term 'habitual abode' is undefined. Article 3(2) of the Agreement provides that any term not otherwise defined shall, unless the context otherwise requires, have the meaning which it has under the domestic laws of each country.

Taxation Ruling TR 2001/13 discusses the Commissioner's views about interpreting double tax agreements. At paragraph 104, it says that the OECD Model Tax Convention and Commentary will often need to be considered in interpreting double tax agreements.

In relation to a habitual abode, the OECD Commentary provides that all stays in each country, regardless of the purpose for the stays, must be considered in order to assign a preference to a particular country. The comparison must be made over a sufficient length of time for it to be possible to determine whether the residence in each country is habitual and to also determine the intervals at which the stays take place.

Furthermore, OECD Commentary states (at paragraph 17) that "in case of doubt as to where the individual has his centre of vital interests, tips the balance towards the State where he stays more frequently…"

In your case, you spent most of your time in Country X. You returned to Australia four times a year for up to 20 days at a time. Therefore, you stayed more frequently in Country X than in Australia. Therefore, your habitual abode was in Country X.

You are therefore a resident of Country X only for the purposes of the double tax agreement.