Edited version of your private ruling

Authorisation Number: 1012596409424

Ruling

Subject: Residency

Questions and answers

1. Are you an Australian resident for taxation purposes under domestic law from the date of your arrival?

Yes.

2. Are you an Australian resident for taxation purposes under the double tax convention between Australia and country X from when you commenced your employment position?

Yes.

This ruling applies for the following periods

Year ended 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

The scheme commences on

1 July 2012

Relevant facts and circumstances

You are a country X national.

You are a resident for tax purposes of Country X

You arrived in Australia to take up a new role with an international company.

Prior to arriving in Australia you lived in country X with your family.

You had not previously resided in Australia.

You were granted a temporary 457 visa which allows you to live and work in Australia for four years. The visa is renewable.

Your spouse is living with you in Australia and also has a temporary 457 visa.

You and your spouse have purchased a residential home in Australia.

Under your employment contract, you are employed by the Australian based arm of the company and the country X based arm of the company under a majority Australia, minority country X arrangement.

Most of your time will be physically spent in Australia. Your actual time in country X is expected to be approximately X% with up to a further X% being spent travelling.

You and your spouse own properties in country X, one of which is your primary residence.

When you periodically return to country X for work and personal reasons, you will stay in your family home. This property will otherwise remain empty.

You and your spouse have independent adult children who have remained in country X.

At present you see country X as the likely place you will ultimately return to live in retirement but this could change.

You and your spouse have a significant investment portfolio based and managed in country X by a fund manager, as well as some other investments.

You and your spouse have opened an Australian bank account into which you receive your Australian employment income.

You are a member of several business groups in Australia.

You currently participate in a foreign pension plan and will continue to do so whilst in Australia.

During your time in Australia you will still be regarded as a tax resident of country X under country X domestic tax law.

Neither you nor your spouse is a resident within the meaning of the Social Security Act 1991.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Subdivision 768-R

Income Tax Assessment Act 1997 Subsection 995-1(1)

International Tax Agreements Act 1953

Reasons for decision

Residency under domestic tax law

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 offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the:

· 'resides' test (ordinary concepts 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 an individual is whether the individual resides in Australia according to the ordinary meaning of the word 'resides'. Where it is determined that a taxpayer resides in Australia in accordance with the first test, there is no requirement to consider the other tests.

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 5^th edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; have 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'.

The Commissioner's view on the 'resides' test is contained in Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia (TR 98/17).

TR 98/17 provides that an individual may be considered a resident under the resides test if their behaviour while they are here is such that they exhibit a degree of continuity, routine or habit that is consistent with a person residing in Australia according to the ordinary meaning of the word 'reside'. Factors that can be taken into account when ascertaining the character of a person's behaviour include the intention or purpose of the individual's stay in Australia, presence of family in Australia, location of assets and social and living arrangements.

As a broad principle, where a person has a settled routine for six months or more (for example, the person has stayed in one place or has been with one employer for six months at the same location) they may satisfy the 'resides' test. Specifically, an individual who enters Australia to take up a prearranged employment opportunity may be residing here if their stay is consistent with residing in Australia (paragraph 50 of TR 98/17). The period of time of the settled routine need not be confined to one financial year. As long as the pattern of behaviour is exhibited, the individual may be regarded as being a resident from the time of their arrival.

In your case, we note that:

· you entered Australia with the purpose of taking up an ongoing employment contract;

· you will spend the majority of your time in Australia each year during the period of the contract;

· you are living with your spouse in a house you purchased in Australia; and

· you are a member of several business groups in Australia.

Based on the above, it is considered that you have established a settled routine in Australia which you intend to continue for some time. Although you have strong ties to country X and will make regular return trips to country X, your current circumstances and day to day activities are consistent with residing in Australia according to ordinary concepts.

Therefore you meet the 'resides' test of residency and are a resident of Australia under subsection 6(1) of the ITAA 1936 from X 2013.

As you are a resident under this test, it is not necessary to determine whether you meet the requirements of the other three tests of residency. 

Residency under the Australia/ country X double tax convention

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreement.

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the Income Tax Assessment Act 1997 (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).

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The double tax convention between Australia and country X is listed in section 5 of the Agreements Act.

The country X convention operates to avoid the double taxation of income received by residents of Australia and country X.

Article 4 of the country X convention states in part that where an individual is a resident of both Australia and country X under domestic law, the residency status of the individual will be determined as follows:

(a) that individual shall be deemed to be a resident only of the Contracting State in which a permanent home is available to that individual; but if a permanent home is available in both States, or in neither of them, that individual shall be deemed to be a resident only of the State with which the individual's personal and economic relations are closer (centre of vital interests);

(b) if the Contracting State in which the centre of vital interests is situated cannot be determined, the individual shall be deemed to be a resident only of the State of which that individual is a national;

In your case, you and your spouse are living in the Australian home you purchased and you also have a home in country X that is available for you to live in. Therefore, a permanent home is available to you in both countries and it is necessary to determine which country has your centre of vital interests.

The OECD Model Tax Convention on Income and Capital (OECD Model) provides guidance on the interpretation of the terms used in double tax conventions. In relation to Article 4 and ascertaining which country has an individual's centre of vital interests, the OECD Model states that it is necessary to consider factors such as family and social relations, occupations, place of business, the place from which the individual administers his property and political, cultural or other activities.

Should the centre of vital interests be unclear, the OECD Model states that preference should be given to the country in which the individual has an 'habitual abode'. This is generally determined by ascertaining in which country the individual stays more frequently.

In considering the factors outlined above, it is considered that your centre of vital interests is in Australia, as evidenced by the following:

· your most immediate family member, your spouse, is living with you in Australia;

· you are employed to a greater extent with the Australian arm of the company you work for than the country X based arm;

· you will physically spend more time in Australia than country X:

· you will work, administer your affairs and socialise to a greater extent in Australia than country X;

· you will spend more time living in your Australian home than your country X home; and

· you are a member of several business groups in Australia.

Therefore, as your centre of vital interests is in Australia, you are deemed to be a resident of Australia under Article 4 of the country X convention from when you commenced your employment in Australia.

Further information

Temporary Residency

An individual will be a temporary resident of Australia as defined in subsection 995-1(1) of the ITAA 1997 if they:

§ hold a temporary visa granted under the Migration Act 1958.

§ are not an Australian resident within the meaning of the Social Security Act 1991, and

§ do not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991.

The Social Security Act 1991 defines an Australian resident as a person who resides in Australia and is an Australian citizen, the holder of a permanent visa, or a protected special category visa holder.

A temporary 457 visa is a visa granted under the Migration Act 1958.

Foreign source income of a temporary resident

Subdivision 768-R of the ITAA 1997 provides that where you are a resident of Australia for taxation purposes and also meet the requirements to be a temporary resident of Australia you will be subject to the following temporary resident rules:

· Any income you earn from an overseas source will not be taxed in Australia except income earned from employment performed overseas for short periods while you are a temporary resident.

· Any capital gain you make from a capital gains tax event that relates to an asset located in an overseas country will not be taxed in Australia.

· Special rules apply to capital gains on shares and rights acquired under employee share schemes.