Edited version of your written advice

Authorisation Number: 1012869106892

Date of advice: 9 September 2015

Ruling

Subject: Residency status

Questions and Answers

1. Are you a resident of Australia for Australian domestic law purposes?

Yes

2. Are you a resident of Country A for the purposes of the Double tax agreement between Australia and Country A?

Yes

3. Are you assessable in Australia on your Country A employment income?

No

4. Are you assessable in Australia on your Australian rental income?

Yes

5. Are you assessable in Australia on your Australian dividend and interest income?

Yes

6. Is your Australian dividend and interest income taxed at rates limited under the Double tax agreement between Australian and Country A?

Yes

This ruling applies for the following period:

1 July 20XX to 30 June 2018

The scheme commenced in:

1 July 20XX

Relevant facts

You were born in Country Z.

You moved to Australia with your family.

You bought a house and searched for employment with the intention of making Australia your home

Ties with Country A

You have been living continuously for many years in Country A.

You have been issued with a Country A work permit and resident permit which you renew annually.

You have had permanent rental accommodation in Country A

You have been with the same employer for many years in Country A.

You intend to continue your employment with the same employer in Country A for another few years until you retire.

The tax authorities in Country A regard you as a Country A resident.

You lodge tax returns in Country A. You declare all Country A sourced income: salary and wages and interest income.

You have a strong social and business network in Country A.

You are a member of a sports club in Country A.

You are covered by your employer's private health insurance in Country A.

Ties with Australia

Your spouse is an Australian citizen.

You have a permanent house in Australia which you purchased in joint name with your spouse when you moved to Australia (family home). Your spouse and children live in Australia in the family home.

You were granted permanent residency when you migrated to Australia.

You currently hold an Australian resident return visa (subclass 155) which is only issued to current or former Australian permanent residents. You have applied for this visa on a yearly basis. The visa was granted to you as you have immediate family members in Australia who are Australian citizens or long term permanent residents.

You are covered by Medicare and still have private health insurance in Australia which you took out when you moved to Australia.

You provide financial support for your spouse and children.

You visited Australia m times in the relevant income year and n times in the subsequent income year in order to spend time with your family. You stayed in the family home.

You plan to continue visiting Australia several times a year and spend time with your family. You will stay in the family home.

Your spouse visits you in Country A and will continue to do so.

Your employer provides you with two return trips to Australia annually.

On retirement you plan to return to Australia and live in your family home.

Reasons for decision

Residency in Australia

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.

• the superannuation test.

The first two tests are examined in detail in Taxation Ruling IT 2650, entitled: Income tax: residency - permanent place of abode outside.

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 satisfy 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'. 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.

In your case your behaviour does not reflect a degree of continuity, routine or habit that is consistent with residing here. As you have been residing in Country A for most of the time since you moved to Australia, and you plan to continue living there until you retire, you are not a resident of Australia under the resides test.

The domicile test

Under this test, a person whose domicile is in Australia is deemed to be an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

Domicile

In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country.

In your case, you were born in Country Z so Country Z is your domicile of origin. You were granted permanent residency when you migrated to Australia with your family. You bought a house and searched for employment with the intention of making Australia your home. Thus your domicile of choice was 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.

We shall now consider if you have set up a permanent place of abode in Country A. You have been living continuously for several years in Country A

You have had permanent rental accommodation in Country A since moving there. You have been with the same employer in Country A. You intend to continue your employment with the same employer in Country A until you retire. You are covered by your employer's private health insurance in Country A.

The tax authorities in Country A regard you as a Country A resident and you lodge tax returns in Country A. You have a strong social and business network in Country A.

Whilst we acknowledge that you have significant ties to Country A, your association with Australia is more significant for the following reasons:

• Your spouse is an Australian citizen.

• You currently hold an Australian resident return visa (subclass 155) which is only issued to current or former Australian permanent residents. You have applied for this visa on a yearly basis. The visa was granted to you as you have immediate family members in Australia who are Australian citizens or long term permanent residents.

• You jointly own a permanent house in Australia which is the family home. Your spouse and children live in Australia in the family home. You stay in the family home when you visit your family members.

• You provide financial support for your spouse and children.

• You have been visiting your family several times a year and will continue to do until you retire. Your employer provides you with two return trips to Australia annually. Your spouse visits you in Country A and will continue to do so.

• On retirement you plan to return to Australia and live in your family home.

• You are covered by Medicare and still have private health insurance in Australia which you took out when you moved to Australia.

• You jointly own a rental property in Australia.

Whilst you have been in Country A for many years, your ties with Australia are more significant than your ties with Country A

Based on these facts, you have not established a permanent place of abode overseas. Therefore, you are an Australian resident for income tax purposes under the domicile test.

Your residency status

As you are an Australian resident under the domicile test of residency outlined in subsection 6(1) of the ITAA 1936 there is no need to examine the remaining tests. Therefore, you are an Australian resident for income tax purposes for the period of your dual residency.

Residency and taxing rights

In determining liability to Australian tax of foreign sourced income, it is necessary to consider not only the income tax laws but also any applicable tax treaty.

The Country A Agreement operates to avoid the double taxation of income received by Australian and Country A residents.

As you are an Australian resident for income tax purposes and Country A also considers you a resident for tax purposes, it is necessary to consider the tie breaker rules in the Country A Agreement.

Article P of the Country A Agreement provides tests of residency that are used where the individual is a resident of the two countries (tie breaker tests). The tie breaker tests ensure that the individual is a resident of one country for the purposes of working out liability to tax on their income. The tie breaker rules do not change a taxpayer's residency status for domestic law purposes.

A paragraph of Article P of the Country A Agreement provides that a person's residency status for the purpose of applying the Country A Agreement shall be determined as follows:

a) the person shall be deemed to be a resident solely of the country he/she has a permanent home available.

b) If the person has a permanent home in both countries, or does not have a permanent home in either, the person will be deemed to be a resident of the country in which he/she has a habitual abode.

c) If the person has a habitual abode in both countries, or does not have a habitual abode in either, the person will be deemed to be a resident of the country with which his/her personal and economic ties are closer.

Permanent home

To assist in the interpretation of the Country A Agreement, reference is made to Taxation Ruling TR 2001/13 - Income tax: Interpreting Australia's Double Tax Agreements.

Paragraph 104 of TR 2001/13 states that the OECD Model Tax Convention and Commentary (OECD Commentary) will often need to be considered in interpreting tax treaties.

The OECD Commentary provides that in relation to a 'permanent home':

(a) 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 (eg travel for pleasure, business travel, attending a course etc)

(b) 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.

In your case, you have a permanent home available to you in both Australia and Country A. In Australia you have a home readily available to you, being the family home you purchased when you first moved to Australia. In Country A you have been living in long term rental accommodation.

Habitual abode

In relation to a habitual abode, the OECD Commentary states 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. Further, the comparison must be made over a sufficient length of time for it to be possible to determine whether the presence in each country is habitual and to also determine the intervals at which the stays take place.

The notion of a habitual abode is not simply a test of where a person stays more frequently but also looks to whether living in a particular country is normal or customary having regard to the taxpayer's circumstances. In your case you have been living in Country A for many years and you will continue to live there for another X years. You live in long term accommodation, work there and engage in sport and other social activities. Thus your mode of life in Country A is normal or customary having regard to your circumstances.

Accordingly as your habitual abode is in Country A , under another paragraph of Article P of the Country A Agreement, you are a resident of Country A for the purposes of applying the provisions of the Country A Agreement to income earned by you during the period of dual residency.

Assessability of income

Employment income from Country A

Your employment income in Country A will be assessable in Country A by the operation of Article Q of the Country A Agreement.

Rental income from Australian property

Under Article R of the Country Agreement, income from real property may be taxed in the country in which the real property is situated. Thus your rental income from you Australian rental property is assessable in Australia and may be taxable in Country A.

Australian dividend and interest income

You are assessable in Australia on your Australian dividend and interest income, however, at a reduced rate. Under Article S of the Country A Agreement, your Australian sourced dividends whilst being assessable to you, can only be taxed in Australia at a rate no more than 15 per cent of the gross amounts of the dividends.

Similarly, Under Article T of the Country A Agreement your Australian sourced interest whilst being assessable to you, can only be taxed in Australia at a rate no more than 10 per cent of the gross amounts of the interest.

Tax rates

Residents of Australia are subject to resident tax rates on their Australian sourced income. Residents are also generally eligible to claim personal tax offsets in their income tax return, where the conditions of each tax offset is satisfied.