Edited version of your private ruling

Authorisation Number: 1012611185414

Ruling

Subject: Residency

Questions and answers

1. Are you a resident of Australia for tax purposes?

Yes

2. Under the tiebreaker test in the Country X double tax agreement, are you a resident of Australia, for the purposes of the double tax agreement?

No

This ruling applies for the following period(s)

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commences on

1 July 19XX

Relevant facts and circumstances

Your country of origin is Australia and you are a citizen of Australia.

You have a spouse and two dependant children.

You worked in Australia for many years prior to moving overseas.

You accepted an employment contract with a company in Country X.

You left Australia to take up new employment in Country X.

You sold all of your assets and removed your name from the electoral roll.

Your spouse moved to Country X two years later.

You started a business partnership in Country X in the same industry you were working in.

You and a colleague established operations in Country X and you and your business partner are directors of the businesses.

Ninety percent of your time in Country X is spent in an area where your operations are based.

You regularly liaise with Australian and Country X ministers and government officials as you are recognised as one of the most committed and long term workers in your industry.

Since living in Country X, you have a work permit and residence visa which is an employer sponsored work visa and is renewable every 12 months at a significant cost to you.

When you moved to Country X you were provided accommodation by your employer - you live in the same accommodation today.

You remained living in the accommodation but you rented this in your own name.

Your employer then purchased the house and allows you to live there. You were unable to purchase the house yourself because under Country X law, a foreigner is not permitted to own real property in Country X. You can only obtain a permanent residence in Country X if you surrender your Australian passport.

Your first child was born in Australia and several months later your spouse returned to Country X with your child to all live together.

It was decided that for medical and educational support reasons it would be better for your child to be raised in Australia. Your spouse and child returned to Australia shortly after.

You jointly purchased a house in Australia for your spouse and child to reside in.

Several years later you transferred your share of the property into your spouse's name. You made a capital gain on the transfer and you paid tax on the capital gain at non-resident rates.

Your spouse continues to live in Australia and you in Country X. The reason why your spouse and children do not live with you in Country X is predominantly due to the lack of health and educational facilities in the area of Country X where you live.

When you return to Australia you stay at the house with your spouse and children.

You have numerous assets in Country X.

You have significant social connections in Country X:

You regularly visit Australia to see your spouse and children. You are not in Australia for more than 183 days in any given financial year. Your visits back to Australia do not exceed three weeks each time, except for one occasion which was for 29 days.

You also visit Australia for business purposes and opportunities to derive new business for Country X.

When you return to Australia you stay with your spouse at the family home.

On each trip you spend approximately 50% with your family and the other half for business purposes.

When you enter Australia you complete the immigration card as a non-resident visiting for business purposes.

You do not get paid in Australia for any of the business you conduct in Australia.

While in Australia, your home in Country X is not available for use by anyone else.

You do not remain outside of Country X for extended periods of time as you need to be in Country X to ensure the smooth operation of your business.

You do not have any assets in Australia as your spouse has property in their name only.

You do not have any bank accounts in Australia. You transfer money from your Country X bank account to your spouse to support your spouse and your children.

Your residential address on our Tax Office systems is your Country X address.

Your spouse operates a business in Australia which is solely owned and operated by them. All income from the business is declared by them.

Neither you nor your spouse have ever been Commonwealth Government of Australia employees for superannuation purposes.

You are treated as a resident of Country X by the Country X tax authorities since you moved there and pay tax on your income in Country X.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

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

International Tax Agreement Act 1953 Section 4

International Tax Agreement Act 1953 Section 5.

Reasons for decision

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' and 'permanent place of abode' test

• the 183 day test; and

• the Commonwealth superannuation fund test.

If any one of these tests is met, an individual will be a resident of Australia for taxation purposes.

The resides test is the primary test for determining the residency status of an individual for taxation purposes. If residency is established under the resides test, the remaining three tests do not need to be considered. However, if residency is not established under the resides test, an individual will still be a resident of Australia for taxation purposes if they meet the conditions of one of the other three tests.

The resides 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 with Australia compared to the foreign country concerned; and

(viii) Maintenance of a place of abode.

The weight given to each factor varies with individual circumstances and no single factor is necessarily decisive. In Shand v Federal Commissioner of Taxation 2003 ATC 2080, the Tribunal stated (at 35):

Questions of residence, domicile, permanent place of abode, have frequently been found by the courts and tribunals to be difficult to assess on a factual level and not easy to define in concrete legal terms.

To determine whether or not you are residing in Australia for taxation purposes, it is necessary for us to examine each of these factors in the context of your circumstances.

It is important to note that not one single factor is decisive and the weight given to each factor depends on individual circumstances.

(i) Physical presence in Australia

A person does not necessarily cease to be a resident because he or she is physically absent from Australia. In Joachim v Federal Commissioner of Taxation 2002 ATC 2088, the Tribunal stated (at 2090):

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 involuntary, 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, together with an intention to return to that place and an attitude that the place remains home.

Further, in Iyengar v. Federal Commissioner of Taxation 2011 ATC 10-222, (2011) AATA, the Tribunal stated (at 62):

Physical presence in a country for some period during a particular year of income is usually considered by the courts as necessary in order that a person should be resident in that country during that particular income year. However, there have been exceptions to this: Rogers v Inland Revenue Commissioners (1879) 1 TC 225 and Slater v Commissioner of Taxation (NZ) (1949) 9 ATD 1.

You left Australia many years ago to move to Country X to take up employment.

You have been working and living in Country X since moving there many years ago.

You return to Australia regularly for up to three weeks each time but you are not in Australia for more than 183 days in any given financial year.

The purpose of your visits to Australia is to see your spouse and children and also for business purposes where you promote your Country X business.

On each trip to Australia you spend 50 percent of your time with family and 50 percent for work.

(ii) Nationality

You were born in Australia and you are a citizen of Australia.

You state you would need to renounce your Australian citizenship if you wanted to become a citizen of Country X.

(iii) History of residence and movements

Prior to moving overseas you lived in Australia.

You accepted an employment offer to work in Country X.

You sold all of your assets in Australia, removed your name from the electoral roll and intended to move to Country X permanently.

Your spouse moved to Country X with you and you.

You had your first child and your spouse moved back to Australia due to better health and educational facilities for your children.

You travel back to Australia on regular visits to see your spouse and two children and stay up to three weeks at a time. Your visits to Australia are also combined with business purposes.

(iv) Habits and 'mode of life'

You have occupied the same residence in Country X for many years.

You speak the language of Country X and consider your social connections with Country X much greater than Australia.

Your social connections with Australia include:

• your spouse and children live in Australia

• your children are educated in Australia

• you visit Australia regularly to see your spouse and children

• you bring colleagues and friends from Country X with you on many occasions when you return to Australia

• you hold an Australian drivers' licence

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

You to return to Australia for up to three weeks on each occasion. You are not in Australia for more than 183 days of any given financial year.

Prior to having children you only visited Australia for two or three days on each occasion.

(vi) Purpose of visits to and absence from Australia

Due to your overseas business operations, you are unable to remain outside of Country X for extended periods of time. You need to be in Country X on a regular basis to ensure the smooth operation of your business.

You return to Australia to visit your spouse and children and you stay at the family home (owned solely in your spouse's name).

When you return to Australia it is for short periods of up to three weeks and you incorporate business opportunities for the industry you work in overseas.

(vii) Family, business and financial ties

Family

You are married and have two dependant children who live in Australia with your spouse.

Your spouse and two children have lived in Australia since their birth. They live in Australia because you believe the health and educational facilities in the overseas area you live in is inadequate.

You return to Australia regularly to visit your spouse and children for up to three weeks on each occasion. Your visits to Australia do not exceed 183 days in each financial year.

It is evident that you have stronger family ties to Australia than Country X.

Business or economic

You established two business operations in Country X many years ago and you and your business partner are directors of the businesses.

Ninety percent of your time in Country X is spent in the area where your business operations are based.

You regularly liaise with Australian and Country X officials as you are recognised as one of the most committed and long term workers in the industry you work in.

Assets

All of your assets are in Country X.

You do not own any assets in Australia in your name.

(viii) Maintenance of a place of abode in Australia

You purchased a house in Australia with your spouse.

Several years later you transferred your share of the property to your spouse so it became solely in their name.

You stay in the property on your return visits to Australia.

Summary of the resides test

The weight given to each factor varies with individual circumstances, no single factor is necessarily decisive and the term 'reside' should be given a wide meaning.

In your case, there are various factors that indicate that you have ceased to be a resident of Australia for tax purposes. These are primarily:

• You have lived in Country X and worked in the same industry in Country X for a long period of time

• Your economic and business ties are stronger in Country X as you have two established businesses and are a director of the businesses

• Your social connections and activities are significant in Country X and greater than your connections in Australia

• You spend more time in Country X than Australia in any given financial year and your residential address on our Tax Office system is noted as your Country X address

• All of your assets are in Country X

Based on the above, your behaviour in Country X for the long period of time you have lived and worked there reflects a degree of continuity, routine and habit that is consistent with residing there.

Therefore, you are a non-resident of Australia under the 'resides' test of residency.

Other residency tests

Even where a taxpayer is not considered to 'reside' in Australia in accordance with the ordinary meaning of the term, the taxpayer will still be considered to be a resident of Australia for domestic taxation purposes where they meet one of the other three residency tests, being the 183 day test, superannuation fund test and domicile and permanent place of abode tests.

Domicile and permanent place of abode

If a person has their domicile in Australia they will be an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

IT 2650 states that:

Persons leaving Australia temporarily would generally be considered to have maintained their Australian domicile unless it is established that they have acquired a different domicile of choice or by operation of law. In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country e.g., through having obtained a migration visa. A working visa, even for a substantial period of time such as 2 years, would not be sufficient evidence of an intention to acquire a new domicile of choice.

Application to the your circumstances

Your domicile is Australia because your country of origin is Australia and you are still an Australian citizen. Furthermore you have not obtained a permanent resident visa in Country X because you have not surrendered your Australian passport. You continue to apply for work visas that only allow you to work in Country X for 12 months before the visa is renewed.

Therefore you will be a resident of Australia unless the Commissioner is satisfied that you have a permanent place of abode outside of Australia.

Permanent place of abode

The expression 'place of abode' refers to a person's residence, where they live with their family and sleep at night. In essence, a person's 'place of abode' is that person's dwelling place or the physical surroundings in which a person lives.

A permanent place of abode does not have to be everlasting or forever. It does not mean an abode in which a person intends to live for the rest of his or her life. An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a permanent place of abode elsewhere.

IT 2650 sets out a number of factors established by Court and Tribunal decisions which assist in determining a taxpayer's permanent place of abode;

a) the intended and actual length of the taxpayer's stay in the overseas country;

b) 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;

c) 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;

d) whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;

e) the duration and continuity of the taxpayer's presence in the overseas country; and

f) durability of association that the person has with a particular place in Australia, i.e. maintaining bank accounts 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 individual circumstances. IT 2650 Income Tax: Residency- permanent place of abode outside Australia states that greater weight should be given to factors (c), (e) and (f) than to the remaining factors, though these are still, of course, relevant.

Factor (a) - intention and length of overseas stay

You have been working and living in Country X for many years and when you left Australia you sold all of your assets and intended to move permanently to Country X.

Factor (b) - intention to stay in the overseas country

As above

Factor (c) - Whether a home has been established outside Australia

You have lived in the same house in Country X but the residence was purchased by your employer as you are unable to purchase a residence in your name in Country X as you are an Australian citizen.

Factor (d) - Whether any residence exists in Australia or been abandoned because of the overseas absence

You have a house available to you in Australia where your spouse and children live and you stay there when your return to Australia.

You have not abandoned your residence in Australia as you stay in the family home owned by your spouse on each of your visits back to Australia each year.

Factor (e) - the duration and continuity of the taxpayer's presence in the overseas country

You have continued to live and work in the same area of Country X since moving there many years ago.

Factor (f) - the durability of association that you have with Australia

Your spouse lives in Australia with your two children who attend school in Australia.

You transfer money from Country X to Australia to support your spouse and children who remain in Australia.

You return to Australia up to three weeks on each occasion several times a year and stay at the family home.

You bring colleagues and guests from Country X with you to Australia because of your association with Australia.

Consideration of these factors

In considering more weight is given to factors ( c), (e) and (f), the Commissioner is not satisfied that you have a permanent place of abode outside of Australia based on the following:

• you have not established a home outside of Australia because the house you occupy in Country X is not owned by you, it is owned by your Country X employer as you are unable to purchase your own house while you remain a citizen of Australia

• the main purpose of your presence in Country X is to work as you have established businesses there however you still continue to return to Australia on numerous occasions each year because of your association with Australia through your spouse and children living here

• your association with Australia has been maintained as your children are educated in Australia, you transfer money to Australian bank accounts in your spouse's name and you stay in the family home when you return to Australia.

Conclusion - resident under domicile test

You are a resident of Australia under the domicile test because your domicile is in Australia and the Commissioner is not satisfied that your permanent place of abode is outside of Australia.

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

Double tax agreement between Australia and Country X

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 agreements.

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).

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.

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.

Article 4 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 4(3) of the Country X Agreement states:

Where by reason of the preceding provisions of this Article a person, being an individual, is a resident of both Contracting States, then the status of the person shall be determined in accordance with the following rules:

(a) the person shall be deemed to be a resident solely of the Contracting State in which a permanent home is available to the person;

(b) if a permanent home is available to the person in both Contracting states, or in neither of them, the person shall be deemed to be a resident solely of the Contracting State in which the person has a habitual abode;

(c) if the person has an habitual abode in both Contracting States or in neither of them, the person shall be deemed to be a resident solely of the Contracting state with which the person's economic and personal relations are closer.

Taxation Ruling TR 2001/13 Income tax: Interpreting Australia's double tax agreements (TR 2001/13) discusses the Commissioners views on tax treaties. Paragraph 104 of TR 2001/13 provides that the Organisation for Economic Co-Operation and Development's (OECD) model Tax Convention and Commentary will often need to be considered in interpreting tax treaties.

Application of the rules in relation to your circumstances

Permanent home

The OECD commentaries state at paragraph 12-13 that for a place to be a permanent home, it must be:

• a place which the individual owns or possesses. Rented accommodation may also be a permanent home

• a permanent home may be a house or an apartment or a furnished room

• the place must be available to the individual at all times continuously and not occasionally

In your case as you meet the above conditions both in Country X and Australia as you have a house available to you in both countries, this first tie-breaker rule is not conclusive to your circumstances.

Habitual abode

According to paragraph 17 of the OECD commentaries, where an individual has a permanent home in both countries, their habitual abode is taken to be the place where they stay more frequently.

ATO ID 2004/774 Assessability of directors fees received from a US company by a dual resident of Australia and the US states in relation to a habitual abode, it is simply not a test of where a person stays more frequently but also whether living in a particular country is normal or customary having regard to the taxpayer's circumstances.

In your case over many years you have lived more frequently in Country X as your business is there and you need to be in Country X on a regular basis to ensure the smooth operation of your business. However it is also a normal practice for you to return to Australia to stay with your spouse and children in the family home. Therefore, as you have a habitual abode in both Australia and Country X, the second tie-breaker rule is not conclusive to your circumstances.

Economic and personal relations

In relation to a taxpayer's personal and economic relations, the OECD Commentary provides that regard should be had to factors such as family and social relations, occupation, political, cultural or other activities and place of business.

The OECD commentaries include the positions of various countries on the application of each of the tests. Paragraph 9.3 states the following:

'Country X is of the opinion that in considering the dual residence of an individual, economic relations shall have priority over personal relations'

It is clear that your economic relations are greater and stronger in Country X due to the following:

• you have worked in the same industry in Country X for many years

• you established a business in Country X many years ago

• you are a director of your business and spend most of your time in Country X as you need to be there to ensure the smooth operation of your business

• you pay tax in Country X

• all of your assets are in Country X

Conclusion

In your case, you are a resident of Australia for income tax purposes.

However, under Article 4 of the Country X Agreement, you are a resident of Country X for the purposes of the Country X agreement because your economic relations are closer to Country X.