Edited version of your private ruling

Authorisation Number: 1012599967196

Ruling

Subject: Residency

Questions and Answers

1. Are you a resident of Australia for tax purposes from the date of your arrival in Australia?

Yes.

2. Are you a resident of Australia for the purposes of the double tax agreement between Australia and Country X from the date of your arrival in Australia?

Yes

Are you a resident of Australia for tax purposes from your arrival in Australia?

Answer

Yes

This ruling applies for the following period(s)

Year ended 30 June 2013

The scheme commences on

1 July 2012

Relevant facts and circumstances

You lived and worked in Country X for some years before arriving in Australia.

You are a citizen of Country X as well as other countries.

You decided to come to Australia for employment purposes for an initial period of more than 12 months.

You arrived in Australia and have been working in the same job and living at the same address for almost a year.

The purpose of your visit to Australia is for employment purposes.

You have young children who attend pre-school in Australia.

You rent a property in Australia; all utilities are connected in your name.

Prior to departing Country X you were renting and do not own any property in Country X.

You have brought approximately a third of your household effects with you to Australia, the rest remain in storage in Country X.

You own cars in Country X and maintain bank accounts in Country X. You earn bank interest and own shares in a Country X company.

Assets in Australia include: car, household effects, bank accounts.

You, your spouse and your children have a number of social and sporting connections in Australia such as sporting memberships and members of various Australian associations.

You have travelled back to Country X for short period(s) during the income year.

You believe that it is likely that you will be considered to be 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)

International Tax Agreement Act 1953 Section 4

International Tax Agreement Act 1953 Section 5

Reasons for decision

Residency

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 (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 each individual is whether they reside 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 other three tests operate to broaden the definition of resident beyond the resides test.

The resides (ordinary concepts) test

The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'. As the word 'reside' is not defined in Australian taxation law, it takes its ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936.

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'.

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 Taxation Ruling TR 98/17 Income Tax: residency status of individuals who enter Australia, and Taxation Ruling IT 2650 Income Tax: residency status of individuals who temporarily live outside Australia.

Taxation Ruling TR 98/17 states that the period of physical presence or length of time in Australia is not, by itself, decisive when determining whether an individual resides here. However, an individual's behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here.

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

(i) Physical presence in Australia

Time is not necessarily determinative of residency but it is an important factor when considering whether an individual resides here.

You arrived in Australia and have been living and working here since your arrival date.

(ii) Nationality

The nationality of a person is rarely a decisive factor in deciding whether or not a person resides in a location, however it is one factor that is considered along with all of the circumstances of each case.

You are a citizen of Country X as well as other countries.

You lived and worked in Country X for some years prior to arriving in Australia.

(iii) History of residence

Prior to arriving in Australia you lived in Country X for some years.

You have been living and working in Australia since your arrival.

(iv) Habits and "mode of life"

The Commissioner regards a person's habits and daily routines in regard to their domestic and business arrangements as strongly indicative of residency status. This is particularly relevant to determining the residency of a person who enters Australia, but is also relevant in assisting to determine the residency status of a person who leaves Australia.

You both have permanent work since arriving in Australia.

You live in rental accommodation and have been living at the same address for almost a year.

Your children attend pre-school.

You, your spouse and your children have a number of social and sporting connections in Australia such as sporting memberships and members of various associations.

(v) Frequency, regularity and duration of visits to Australia

You have travelled back to Country X for short period(s) during the income year.

(vi) Purpose of visits to or absences from Australia

You came to Australia for employment purposes for an initial period of more than 12 months.

(vii) Family and business ties to Australia and the overseas country or countries

Case law has established that the family or business ties that an individual retains with a country are relevant in determining whether an individual has remained or ceased to be a resident.

Family

You and your spouse are living in Australia with your children.

Business or economic

Your assets in Australia include a car, household effects and bank accounts.

Your assets in Country X include cars, bank accounts, and household effects. You earn bank interest and own shares in a Country X company.

(viii) Maintenance of Place of abode

The maintenance of a place of abode in Australia is an important factor when considering the residency status of a taxpayer.

You do not own a home in Country X.

You live in rental accommodation in Australia, have been at the same address for almost a year, all utility connections are in your name and you have household effects and furniture items.

You are maintaining a place of abode in Australia.

Summary - resides test

You have established a pattern of habitual behaviour consistent with residing in Australia due to the following factors:

• You are employed with the same employer for the duration of time spent in Australia

• You live in rental accommodation and have been living at the same address for almost a year

• You have furnished your accommodation with items of furniture and household effects

• Your children attend a local preschool

• You, your spouse and your children have a number of social and sporting connections in Australia such as sporting memberships and members of various associations

• You intend to live and work in Australia for at least 18 months

• You do not have a permanent home available to you in Country X.

In consideration of the factors outlined above, you are residing in Australia according to the ordinary meaning of the word 'reside'.

Therefore you are a resident of Australia under the resides test.

As you have passed the resides test we have determined that you are a resident of Australia for tax purposes. It is therefore not necessary to cover the remaining tests.

Double tax agreement between Australia and Country X

To determine your liability to pay tax in Australia, it is necessary to consider any applicable double tax agreements contained in the International Tax Agreement Act 1953 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that both Acts are read as one. The Agreements Act effectively overrides 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 Country X Agreement is listed in section 5 of the Agreements Act.

Article Z of the Country X Agreement 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.

Article Z(e) of the Country X Agreement states:

Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then their status shall be determined as follows:

(a) the individual shall be deemed to be a resident only of the State in which 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.

In your case, you are a resident of Australia for tax purposes and you believe that it is likely that you will be considered to be a resident of Country X for tax purposes. Under Article Z of the agreement, you are a resident of Australia only for the purposes of the Country X Agreement because you do not have a permanent home available to you in Country X and you have a home available to you in Australia.