Edited version of your written advice

Authorisation Number: 1051328253939

Date of advice: 19 January 2018

Ruling

Subject: Residency

Question

Are you a resident of Australia for taxation purposes?

Answer

Yes

Question

Are you a resident only of the foreign country for the purposes of the Double Tax Agreement between Australia and the foreign country?

Answer

Yes.

This ruling applies for the following periods

Year ended 30 June 2017

Year ending 30 June 2018

Year ending 30 June 2019

Year ending 30 June 2020

The scheme commenced on

1 July 2016

Relevant facts and circumstances

You were born in a foreign country.

You are a citizen of the foreign country but not of Australia.

You lived in the foreign country up until 19XX when you came to Australia and started work.

You met your future spouse in Australia in 19XX. You returned to the foreign country with your future spouse in 19XX and worked there until 19XX.

You married in 19XX.

After your marriage, you and your spouse worked in Australia.

You and your spouse bought a property in Australia where you lived until 19XX. During this time you had children.

In 19XX you and your spouse returned permanently to the foreign country.

In 19XX you and your spouse purchased a property of about X acres in the foreign country. In 19XX you and your spouse sold this property and purchased a larger property of X acres in the foreign country. You and your spouse subsequently purchased two more farming properties in the same area: one of X acres and one of X acres.

You and your spouse had more children in the foreign country.

You and your spouse sold your properties in the foreign country in 19XX. This was due to the high interest rates. You started selling real estate.

After the sale of your properties, you and your spouse had approximately $X. You used these funds to invest in some companies.

While these investments were being developed, you and your spouse worked as professionals You lived in the foreign country during this time.

On 20XX, you and your spouse incorporated a company in the foreign country called X Limited which is owned by a discretionary trust in the foreign country. It was involved in developing technology.

In 20XX the last lots from the property where you lived were subdivide and sold.

After this, you and your spouse moved to several rented properties in the foreign country.

You continued to develop the technology business. A relative was appointed General Manager (GM) of the business in 20XX.

You and your spouse purchased a property in Australia. You moved into it after the purchase. This is your permanent home in Australia. It is also where your spouse lives permanently. It is available to you at all times continuously.

During this time you continued to have day to day involvement in the technology business. This was done by:

● Visiting and consulting in the foreign country; and

● Staying in touch with the CEO, GM, board members and the remainder of the senior management team.

In 20XX, you purchased an apartment in the foreign country.

In 20XX, you had an unsolicited offer to buy the shares in the technology company.

In mid 20XX, you purchased a property in the foreign country, which you had previously owned. It was run down. You intended to make it your retirement project. After purchasing the property, you spent about X days managing repairs. You spent about $X on the property.

You have relatives living near where you live in the foreign country. You consider this property to be your home.

Your current assets in the foreign country are:

● The apartment

● Your home

● Bank accounts

● A car

● Shareholdings and an interest in a trust

Your current assets in Australia are:

● The property owned with your spouse

● A bank account

● A joint credit card with your spouse

● An interest in a trust in Australia.

In the income year ended 30 June 2017 you spent more than 183 days in the foreign country property and less than 183 days at your property in Australia.

You will be in the foreign country for at least six months of each year.

You and your spouse will travel outside the foreign country and Australia for at least a few months each year.

Neither you nor your spouse has ever been:

● A member of the superannuation scheme established by deed under the Superannuation Act 1990 (Public Sector Superannuation Scheme) (PSS); or

● Eligible employees for the purposes of the Superannuation Act 1776 (Commonwealth Superannuation Scheme) (CSS).

You are a tax resident of the foreign country under the foreign country domestic tax law.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Section 6-5

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

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 (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 Income Tax: Residency - permanent place of abode outside Australia (IT 2650).

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 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.

There are several factors outlined above which indicate that you have not ceased to be a resident of Australia, specifically:

● Since 19XX you have spent periods of time living and working in both Australia and the foreign country and have established business activities during this time in both countries.

● You have established permanent places to live in both Australia and the foreign country.

● Your spouse lives permanently in the Australia in the property which is available to you at all times continuously.

● Some of your children were born in and live in Australia.

Based on a consideration of all of the factors outlined above, you are a resident of Australia according to ordinary concepts as you will maintain a continuity of association with Australia for the relevant period.

Whilst it is not necessary to meet more than one test to determine residency for tax purposes (we have already established that you are a resident under the resides test), we will also include a discussion of the ‘domicile and permanent place of abode’ test as an alternative argument.

The domicile and permanent place of abode test

Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia, unless the Commissioner is satisfied that their permanent place of abode is outside of Australia.

Domicile

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. A person may acquire a domicile of choice in another country if they have the intention of making their home indefinitely in that country. The intention needs to be demonstrated in a legal sense, for example, by way of obtaining a migration visa, becoming a permanent resident or becoming a citizen of the country concerned.

In your case, you domicile of origin is the foreign country and you have not taken steps to acquire an Australian domicile; such as Australian citizenship.

As you are still a citizen of the foreign country while living in Australia and you have not acquired an Australian domicile, your domicile is the foreign country and remains unchanged.

You are not a resident under this test.

As you are a resident of Australia under one of the tests of residency outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997, you are an Australian resident for taxation purposes.

The foreign country-Australian double tax agreement

In your situation, we are a resident of Australia for tax purposes while you are also a resident of the foreign country.

To determine 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 Income Tax Assessment Act 1936 (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 foreign country agreement (the Agreement) is listed in section 5 of the Agreements Act. The Agreement operates to avoid the double taxation of income received by residents of Australia and the foreign country.

Article X of the Agreement deals with residency for taxation purposes and contains ‘tiebreaker’ clauses which can be used to determine where an individual is resident for the purposes of the Agreement. The relevant tiebreaker in your case is contained in paragraph Y of Article X of the Agreement which states that:

a) the individual shall be deemed to be a resident only of the State in which a permanent home is available to that individual; but if 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 (centre of vital interests);

b) if the State in which the centre of vital interests is situated cannot be determined, the individual shall be deemed to be a resident only of the State in which that individual has an habitual abode;

c) if the individual has an habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which that individual is a national.

In your situation, we consider:

● You have a permanent homes in both Australia and the foreign country

● You have economic interests in both Australia and the foreign country

● You have family connections in both Australia and the foreign country

● You have an habitual abode in both Australia and the foreign country

In applying the tiebreaker test, we accept that you residency status cannot be decided by the location of your permanent home, the centre of your vital interests or by where you have an habitual abode. In consequence, this means your residence status must be decided on the basis of the country of which you are a national. You are a citizen of the foreign country but not of Australia. Therefore, as your nationality is of the foreign country this makes you, for the purposes of the Agreement, a resident of the foreign country.

The Agreement determines which country has taxing rights on particular income and must be considered when determining which income to declare in Australia.