Edited version of your written advice

Authorisation Number: 1013108323910

Date of advice: 17 October 2016

Ruling

Subject: Residency

Questions and answers

1. Are you a resident of Australia for tax purposes under subsection 6(1) of the Income Tax Assessment Act 1936?

Yes.

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

No.

This ruling applies for the following periods:

Year ending 30 June 2017

Year ending 30 June 2018

Year ending 30 June 2019

The scheme commences on:

1 July 2016

Relevant facts and circumstances

You were born in Country X and are a citizen of both Country X and Australia.

You have a spouse who is a citizen of both Country X and Australia.

You do not have any dependent children.

You worked in Country X for the first X years of your career.

You were working for an employer in Country X before moving to Australia in 20XX to work for a related entity of your Country X employer.

You subsequently became a partner in the Australian entity.

Your spouse also relocated to Australia.

Following your move to Australia, you acquired a property as the home of you and your spouse. The property is legally owned by you, with beneficial interests held by both you and your spouse.

During your time in Australia, you were granted Australian citizenship.

On 30 June 20XY, you moved back to Country X to re-join your former employer as a partner and employee. Your interest in the entity is held by a company that you are the sole member of.

Upon relocation to Country X, you established a home by purchasing a dwelling. The dwelling has been furnished, largely with items owned by you that were in storage in Country X after the sale of another property. You have relocated your clothes to the dwelling but have kept some other personal belongings in your Australian dwelling. You will pay for your own living costs including utilities etc.

You intend to remain in Country X for at least three to five years before potentially returning to Australia. You may remain in Country X for a longer period, depending on a number of factors, including your economic circumstances at the time.

Your spouse will remain living in the Australian dwelling for the duration of the period you spend in Country X because of the job they have, the personal ties they have developed and the ease of visiting you regularly in Country X.

It is intended that your spouse will travel to Country X to visit you approximately every two to three months.

You intend to return to Australia three to four times a year for both personal and business reasons for an estimated one to two weeks at a time.

Your significant assets in Country X comprise of your dwelling, a share in another dwelling, a motor vehicle, securities trading accounts, bank accounts and a retirement savings plan.

Your significant assets in Australia comprise of the dwelling, X motor vehicles, bank accounts and a superannuation account.

You will repatriate some of your employment remuneration to Australia to assist your spouse with property and/or living expenses.

You are enrolled with the Australian Electoral Commission, have a Medicare card and private health insurance. However, you are in the process of notifying all relevant Australian institutions and authorities of your permanent departure for at least three to five years.

You will be a tax resident of Country X under that country's domestic law during the period of the ruling.

The only Australian source income you are likely to derive is a nominal amount of bank interest.

You have many friends and family in Country X (having spent the vast majority of your life there) which will form the basis of your social engagements whilst in Country X.

You will have no ongoing social commitments in Australia, apart from the relationship with your spouse.

Neither you nor your spouse is a member of any Australian Commonwealth superannuation scheme.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

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 test

● the 183 day test

● the superannuation 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. However, where an individual does not reside in Australia according to ordinary concepts, they may still be a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.

The resides (ordinary concepts) 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'.

The Commissioner may make reference to the following factors in determining whether a taxpayer is 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.

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

In deciding cases of residency, the courts and tribunals have noted that a person does not necessarily cease to be a resident because he or she is physically absent from Australia. Instead, the test is whether the person has retained a continuity of association with a place in Australia, together with an intention to return to that place and an attitude that the place remains home (Joachim v Federal Commissioner of Taxation 2002 ATC 2088).

In your case, there are several factors that indicate that you may not be a resident of Australia, specifically:

● you have relocated to Country X for an expected period of three to five years;

● you will work as a partner and employee of an entity you previously worked with;

● you have established your own place of abode in Country X;

● you have friends and family in Country X; and

● you will only return to Australia three to four times a year for short periods of time.

However, we note that your spouse has not relocated to Country X with you and will remain living in your fully furnished dwelling in Australia. You will also repatriate some funds back to Australia to assist your spouse with expenses.

From the above, it is evident that you have not abandoned your place of residence in Australia and will retain a significant association with Australia through your spouse and your dwelling.

Consequently, we consider the factors that indicate you may be a non-resident will be outweighed by the continuity of association you will retain with Australia during the period you are in Country X.

Therefore, you will continue to reside in Australia according to the ordinary meaning of the word and will be a resident under the resides test of residency.

In your application, you refer to two cases where the taxpayers were found to be non-residents of Australia, namely, The Engineering Manager and Commissioner of Taxation [2014] AATA 969 (Engineering Manager) and Dempsey and Commissioner of Taxation [2014] AATA 335 (Dempsey).

In Dempsey, the taxpayer was found to be a non-resident even though he maintained a place of residence containing his household effects and vehicles in Australia. He also stayed at the house on his occasional return visits to Australia. In this case, the taxpayer was not in a relationship and had adult children living in Australia. The AATA noted (at 109) that he was a 'free agent' not only in terms of the transferability of his skills, but also in terms of his 'personal circumstances'. That is, he was a single man who left no family at the house.

In the Engineering Manager, the taxpayer was found to be a non-resident even though he maintained a place of residence in Australia in which his spouse and children lived. The AATA stated (at 55) that his connection with his children was not determinative of whether he resided in Australia. However, the AATA also stated (at 48) that his marital relationship was 'fractured' and (at 56) that the inharmonious nature of the relationship was considered to be a 'very significant factor' in arriving at a decision.

Accordingly, we believe that your circumstances are ultimately different to Dempsey as the taxpayer did not have a spouse living in his dwelling and also different from the Engineering Manager as on the information provided, the relationship between you and your spouse is unlike the relationship described in the Engineering Manager.

Residency under the double tax agreement

The Convention between Australia and Country X for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (the Country X agreement) operates to avoid the double taxation of income received by residents of Australia and Country X.

In your situation, you are considered to be a resident of both Australia and Country X under the domestic laws of each country. Therefore, it is necessary to refer to the 'tiebreaker' rules contained in the Country X agreement to determine whether you will be treated solely as a resident of Australia or of Country X.

An article of the Country X agreement states that where an individual is a resident of both Australia and Country X, residency will be determined in accordance with the following rules:

a) he shall be deemed to be a resident solely of the Contracting State in which he has a permanent home available to him;

b) if he has a permanent home available to him in both Contracting States, or if he does not have a permanent home available to him in either of them, he shall be deemed to be a resident solely of the Contracting State with which his personal and economic relations are the closer.

In Taxation Ruling TR 2001/13 Income tax: Interpreting Australia's Double Tax Agreements, the Commissioner accepts that it is appropriate to have reference to the OECD Model Tax Convention and Commentary (OECD Commentary) which provides guidance on the interpretation of the terms used in double tax agreements.

In relation to 'permanent home', the OECD Commentary states that:

….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 of short duration.

In your case, you have a home in Country X and also have a home available to you in Australia. Therefore, you have a permanent home available to you in both countries.

Consequently, it is necessary to determine with which country your personal and economic relations are closer.

In relation to 'personal and economic relations', the OECD Commentary states that:

….. regard will be had to his family and social relations, his occupations, his political, cultural or other activities, his place of business, the place from which he administers his property, etc. The circumstances must be examined as a whole, but it is nevertheless obvious that considerations based on the personal acts of the individual must receive special attention.

In your case, we note that your personal relations are split between Australia and Country X with your spouse being in Australia and your extended family in Country X. We also note that your assets are fairly evenly split between Australia and Country X.

However, you are employed in Country X, are a director of a Country X company, are a partner of the entity you work for and you will be deriving virtually your entire income in Country X. Consequently, this indicates that your economic relations are closer to Country X than Australia.

ATO ID 2011/53 Dual resident of Australia and the UK: centre of vital interests (ATO ID 2011/53) provides additional guidance in relation to personal and economic relations or centre of vital interests.

In regard to the place from which an individual administers their property, ATO ID 2011/53 refers to Klaus Vogel on Double Taxation Conventions, Third Edition, Kluwer Law International 1997, specifically page 249, paragraph 74b:

Economic relations will primarily exist with activities linked with a locality or with sources of income. ... A permanent home mainly serving the realization or maintenance of economic relations, would be a manifestation of special ties with a place to live. This, will as a rule, be that home from where the individual proceeds to perform his everyday work and from where he manages and controls his capital or income.

In your case, you will spend the majority of your time in Country X during the next three to five years. This indicates that your Country X home will be the place from where you will proceed to perform your everyday work and from where you will manage and control your capital and income.

Based on the information provided, it is considered that on balance your personal and economic relations will be closer to Country X than Australia during the relevant years.

Therefore, you will be treated solely as resident of Country X under the Country X agreement for those years.