Edited version of private advice

Authorisation Number: 1051565068096

Date of advice: 12 August 2019

Ruling

Subject: Residency

Question 1

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

Answer

Yes.

Question 2

Are you a resident of Australia for the purposes of the tie break test in the DTA between Australia and Country Y?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2017

Year ended 30 June 2018

Year ended 30 June 2019

Year ending 30 June 2020

Year ending 30 June 2021

Year ending 30 June 2022

The scheme commenced on:

1 July 2016

Relevant facts and circumstances

You are a resident of Country Y for taxation purposes.

You were born in Country Y.

You are a citizen of Country Y.

Your spouse and children are Country Y citizens.

You are a permanent resident of Australia.

Your permanent residency of Australia was granted on X XXX 2015.

You and your family lived in Australia from 2008 to 2015, at which point you all moved back to Country Y and you commenced working in Country Z.

Since XX XXXX 2017, you have worked in Country Y.

You work 20 days on and 10 days off.

You own a residence in Country Y which has all your personal items and household items in it. You have owned this dwelling since 2012.

You stay at your Country Y residence on some of your days off from work and it remains vacant when you are at the worksite. Your mail is delivered to this address.

Your spouse and children moved to Australia on XX XXX 2017.

The purpose of this move was for the children's schooling.

Your family will return to Country Y to live after the children's schooling has been completed.

Your spouse rents a property in Australia for them and the children to live in.

You visit your family in Australia on some of your days off from work.

Your family has made occasional visits back to Country Y and they stay in the family residence.

You have spent the following amount of days at your Country Y residence in the 2017, 2018 and 2019 income years:

2017 - 18

2018 - 58

2019 - 35

Your family have spent the following amount of days at the Country Y residence in the 2017, 2018 and 2019 income years:

2017 - 67

2018 - 42

2019 - 31

Your work in Country Y requires you to live at the Country Y site during your roster. You are entitled to 20 days annual leave, sick leave and emergency leave.

You have spent the following amount of days in Australia during the 2017, 2018 and 2019 income years:

2017 - 45

2018 - 97

2019 - 104

The days provided above include days in Australia for work purposes (work meeting or training in Australia).The days in Australia which relate to work training are:

2017 - 1

2018 - 9

2019 - 1

You lodged Australian income tax returns for the 2009 to 2017 income years as a tax resident of Australia.

You are not eligible to vote in Australia.

You own a motor vehicle in Australia for your family's use and have an Australian bank account. You transfer funds to this account for your family's use.

You own a motor vehicle in Country Y and have a Country Y bank account.

Your extended family and friends live in Country Y.

You lodge tax returns in Country Y and pay tax on your earnings in Country Y.

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

International Tax Agreements Act 1953 Schedule 1 Article 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

When considering whether someone resides in Australia the following factors are usually considered:

·        physical presence

·        intention or purpose

·        family or business ties

·        maintenance and location of assets

·        social and living arrangements

These factors are discussed in 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.

Based on the facts above, you are a permanent resident of Australia who has maintained a connection with Australia as your spouse and children are living and going to school in Australia. You send funds to Australia to maintain your family and make regular trips to Australia to spend time with them. You have also spent more time with your family in Australia than you have spent at your Country Y residence.

Therefore, you are a resident of Australia under this test.

Double Tax Agreement between Australia and Country Y

As you are a resident of both Australia and Country Y for taxation purposes, it is necessary to consider the provisions of the Agreement between the Government of Australia and the Government of the Republic of Country Y 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 4(3), as follows:

3. 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 an 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.

Permanent home

During the relevant period, 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).

You regularly come to Australia and spend time with your family. The home in Australia is available to you at all times.

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

Paragraph 19 of the Commentary on the OECD Model Tax Convention (2017) concerning the residency of taxpayers in Article 4 provides the following guidance on 'habitual abode':

19...... requires a determination of whether the individual lived habitually, in the sense of being customarily or usually present, in one of the two States but not in the other during a given period; the test will not be satisfied by simply determining in which of the two Contracting States the individual has spent more days during that period. The phrase "séjourne de façon habituelle", which is used in the French version of subparagraph b), provides a useful insight as to the meaning of "habitual abode", a notion that refers to the frequency, duration and regularity of stays that are part of the settled routine of an individual's life and are therefore more than transient. As recognised in [Article 4(3)] it is possible for an individual to have an habitual abode in the two States, which would be the case if the individual was customarily or usually present in each State during the relevant period, regardless of the fact that he spent more days in one State than in the other.

19.1 [The Article] does not specify over what length of time the determination of whether an individual has an habitual abode in one or both States must be made. The determination must cover a sufficient length of time for it to be possible to ascertain the frequency, duration and regularity of stays that are part of the settled routine of the individual's life. [brackets added]

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 Singapore citizen who spent 'approximately 12 months' in Australia was held to have an habitual abode in both Singapore and Australia. There was no suggestion in this ATO ID that the taxpayer returned to Singapore 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 ATO ID 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.

As mentioned in the OECD Commentary above, Article 4(3) 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 employment position in Country Y. In the 2017 income year you spent 18 days at your home in Country Y. In the 2018 income year you spent 58 days at your home in Country Y. In the 2019 income year you spent 35 days at your home in Country Y. In addition to the time you spent at your home in Country Y, you spent considerably more time at the work site in Country Y where you worked.

During the 2017 income year you spent 45 days in Australia with your family. In the 2018 year of income you spent 97 days in Australia with your family. In the 2019 income year you spent 104 days in Australia with your family.

Accordingly, it is considered that since XXXX 2017 you have had an habitual abode in both Australia and Country Y as the time you have spent in each country is part of your usual pattern of activity.

Personal and economic relations

In relation to personal and economic relations in Article 4(3), the OECD Commentary states at paragraph 15:

.....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, in regard to Australia:

·        You are a permanent resident of Australia

·        Your family live in Australia

·        You own a vehicle in Australia

·        You have a bank account in Australia

·        You do not own a home in Australia.

·        In regard to Country Y :

·        You were born in Country Y and are a citizen of Country Y.

·        You work and derive income in Country Y.

·        You own a home in Country Y.

·        You own a vehicle and household furniture and effects in Country Y

·        Your family visit you at the home in Country Y.

·        You have extended family and friends in Country Y.

Accordingly, on balance, we consider that your personal and economic relations are stronger with Country Y.

Therefore, you are a resident of Country Y, and not a resident of Australia, for the purposes of the tie break test in the DTA between Australia and Country Y.