Edited version of your written advice

Authorisation Number: 1013004454076

Date of advice: 29 April 2016

Ruling

Subject: Residency

Questions and answers

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

Yes.

2. Are you a resident of Australia for the purposes of the tie break test under the Double Tax Agreement between Australia and Country Y?

No.

The ruling applies for the following periods:

Year ended 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

Year ending 30 June 2019

Year ending 30 June 2020

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a resident of Country Y for taxation purposes.

You arrived in Australia in XXX, from Country Y.

You departed Australia in the 20XX income year for Country Y.

You and your spouse were born in Country Y and are Country Y citizens.

You own a property in Country Y, and you have been living in that property since returning from Australia in the 20XX income year.

You registered with the Country Y Professional Board in 20XX, and you have maintained your membership since that date, including for the period that you were working in Australia.

Your spouse was granted permanent residency in Australia in XXXX, and you entered Australia under their family visa.

Whilst in Australia, you regularly returned to Country Y to visit extended family and friends.

You are a member of a Church in Country Y.

Whilst in Australia, all your sentimental personal possessions were kept in Country Y.

You informed all relevant authorities, such as Medicare, Medibank private, and Australian Super of your departure from Australia.

You have superannuation in Australia from the period of time that you were working in Australia; however you have advised that you intend to withdraw these funds at a later stage.

You have informed your bank to commence withholding 10% withholding tax as you have departed Australia, and you consider yourself to now be a non-resident.

You and your spouse jointly own a property in Australia. Since you left Australia, your spouse has continued to live in the property with your children. There is a mortgage over this property on which you and your spouse continue to make repayments.

The only other assets that you have in Australia are motor vehicles and bank accounts.

Assets held by you in Country Y are a fully furnished residential apartment and bank account.

You have less than five children who are adults and are students in Australia and live with your spouse in their property.

You have a Country Y driver's licence and a Country Y passport.

You are not a member of any Australian professional organisations.

You have permanent full time work in Country Y.

You have made a number of trips back to Australia since leaving in the 20XX income year.

Your family have visited you in Country Y a number of times.

You and your spouse are not eligible to contribute to the relevant Commonwealth superannuation funds.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 6(1)

International Tax Agreements Act 1953 Section 4

Reasons for decision

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.

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

• 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.  If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established.

The resides (ordinary concepts) test

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 IT 2650 and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.

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

In the recent case of Iyengar v FCT 2011 ATC 10-222, the Administrative Appeals Tribunal held that the taxpayer was a resident of Australia, even though he was working overseas. The taxpayer's family ties, his intention (to complete his contract) and motive (to pay off his mortgage), and his maintaining an Australian place of abode while working overseas, were all indicative that he was an Australian resident during the relevant period.

Based on the facts above you will maintain your connection with Australia as your spouse and children remained in your family home in Australia after you returned to Country Y.

You have made trips back to Australia to visit your family.

You are a resident under this test.

You are a resident of both Australia and Country Y for taxation purposes and it is necessary to consider the provisions of the Agreement between the Government of the Republic of Country Y and the Government of the Commonwealth of Australia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (the Double Tax Agreement).

The tie-breaker rules in the Double Tax Agreement are contained in Article X), and is based firstly on if you have a permanent home in one or both countries and then on if you have an habitual abode in one or both countries and finally on your personal and economic relations.

Permanent home

In Thiel v. Federal Commissioner of Taxation it was decided that the OECD Model Tax Convention and Commentary were relevant to interpreting any Australian double tax agreements which were based on the OECD model.

ATO Interpretative Decision 2012/93 Income Tax Dual Resident of Australia and Malaysia: permanent home available outlines '…the concept of the 'permanence' of the home set out in paragraphs 12 and 13 of the Commentary on Article 4 of the OECD Model' as follows:

12. Subparagraph a) means, therefore, that in the application of the Convention ...it is considered that the residence is that place where the individual owns or possesses a home; this home must be permanent, that is to say, the individual must have arranged and retained it for his permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be a short duration.

   13. As regards the concept of home, it should be observed that any form of home may be taken into account (house or apartment belonging to or rented by the individual, rented furnished room). But the permanence of the house is essential; this means that the individual has arranged to have the dwelling available to him at all times continuously, and not occasionally for the purpose of a stay which, owing to the reasons for it, is necessarily of short duration (travel for pleasure, business travel, educational travel, attending a course at a school, etcetera.).' (emphasis added)

At all times from 20XX, you have had a permanent home available to you in both Australia (where your spouse and children have been living) and in Country Y (where you have been living).

Therefore it is necessary to consider in which country you have an habitual abode, and if necessary where your personal and economic relations are closest.

Habitual abode

In part, Article 4 of the OECD Model Tax Convention states, in relation to residency, that:

b) if the State in which he has his centre of vital interests cannot be determined, or if

he has not a permanent home available to him in either State, he shall be deemed

to be a resident only of the State in which he has an habitual abode.

The OECD 'Glossary of tax terms' states in part, as follows:

HABITUAL ABODE -- In the context of the tie-breaker rule of the OECD model tax treaty, habitual abode is one of the criteria used to resolve the problem of dual residence. It refers to the period of time a taxpayer spends in each country.

Paragraph 19 of the Commentary on Article 4 'Concerning the definition of resident', further states that:

In stipulating that in the two situations which it contemplates preference is given to the Contracting State where the individual has an habitual abode, subparagraph b) does not specify over what length of time the comparison must be made. The comparison must cover a sufficient length of time for it to be possible to determine whether the residence in each of the two States is habitual and to determine also the intervals at which the stays take place.

However, the OECD commentary does not appear to provide any further guidance regarding the meaning of 'a sufficient length of time' for the purposes of the article.

ATO view of habitual abode

There are a number of ATO Interpretative Decisions which contain the ATO view regarding 'habitual abode'.

In ATO ID 2004/774, a taxpayer who spent time at their homes in both Australia and the US during a single income year was held to have an habitual abode in both Australia and the US because it was 'part of their usual pattern of activity'.

ATO ID 2006/184 considers a taxpayer working in Australia for a period of four years, but 'spending time' in Italy during this period, and who had a home available to him there. The 'reasons for decision' in these ATOIDs state, in part, that:

The notion of an 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. As it is usual or customary for the taxpayer to spend time in both countries, the taxpayer has a habitual abode in both countries.

By contrast, in ATO ID 2004/81, a German citizen was '…present in Australia for over 12 months. and did not return to Germany or another country during that time.' It is stated that: 'Therefore, the taxpayer's habitual abode was in Australia and not in Germany.'

This appears to suggest that a taxpayer will only have an 'habitual abode' in one country where they remain solely in that country for a specific period of time.

However, in ATO ID 2005/123 and ATO ID 2005/124, a Country Y citizen who spent 'approximately 12 months' in Australia was held to have an habitual abode in both Country Y and Australia. There was no suggestion in this ATOID that the taxpayer returned to Country Y at any time during this period. Nor is there any suggestion that the 'habitual abode' test was determined solely by reference to the 12 month period in which they were living in Australia.

Equally, ATO ID 2004/736 concerned a US citizen who spent 10 months in Australia on a research fellowship. It was argued in this ATOID that an habitual abode:

…can be seen as the physical place in which an individual would normally live. This is not merely a test of where a person stays more frequently but also looks at whether living in a particular country is 'normal' having regard to the taxpayer's pattern of life.

It was '…considered that the taxpayer has a habitual abode in the US and in Australia', even though there is no suggestion that the taxpayer spent any time in the US during these ten months.

Notably, Article 3(2) of the double tax agreement envisages the possibility that the taxpayer can have an habitual abode in two places at the same time.

In the current case, you have a permanent full time position in Country Y. During the 20XX income year you made X visits only to Australia, each for a period of XX days. In the 20YY year of income you made X visits to Australia, one of which was X days. The other X visits were of X and XX days duration. It is considered that this pattern of visits to Australia is not sufficient to constitute a usual pattern of activity consistent with having a habitual abode in Australia.

Accordingly, it is considered that you do not have a habitual abode in Australia, and therefore you will be a resident of Country Y for the purposes of the Double Tax Agreement.

Personal and economic relations

It is not necessary to consider the third tie-breaker test in relation to which country your personal and economic relations are closest, because you have an habitual abode in Country Y and not in Australia.