Edited version of private advice

Authorisation Number: 1051604298387

Date of advice: 11 December 2019

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for taxation purposes?

Answer

Yes.

Question 2

Are you a resident of Country Y for the purposes of the Double Tax Agreement between Australia and Country Y?

Answer

No.

Question 3

Are you assessable in Australia on your Country Y employment income?

Answer

No.

Question 4

Are you assessable in Australia on your Australian rental income?

Answer

Yes.

Question 5

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

Answer

Yes.

Question 6

Is your Australian dividend and interest income taxed at rates limited under the Double Tax Agreement between Australia and Country Y?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2019

Year ending 30 June 2020

Year ending 30 June 2021

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You were born in Country Z.

You migrated to Australia with your spouse and children in late 20XX.

You bought a property in Australia (family home) in late 20XX.

After several months of trying to find employment in Australia, you found a job in Country Y.

You left Australia in late 20XX to work full time in Country Y.

Your spouse and children have continued to live in Australia.

You have been living continuously in Country Y since 20XX.

You have been issued with a Work permit and resident permit which you have renewed annually since late 20XX.

You have had permanent rental accommodation in Country Y since moving there.

You have been with the same employer since late 20XX.

You intend to continue your employment with the same employer in Country Y for several years.

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

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

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

You have been appointed as Director of the company you are employed by.

You are a member of a prestigious club in Country Y.

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

Your spouse is an Australian citizen.

You have a permanent house in Australia which you purchased in joint name with your spouse in late 20XX (family home).

Your spouse and children live in Australia.

Your children are now adults and are both married.

You were granted permanent residency when you migrated to Australia in late 20XX.

You currently hold an Australian resident return visa (subclass 155) which is only issued to current or former Australian permanent residents. The visa was granted to you as you have immediate family members in Australia who are Australian citizens or long term permanent residents, namely your spouse and children.

You are covered by Medicare and still have private health insurance in Australia which you took out in late 20XX.

You provide financial support for your spouse and contribute 100% of the household expenses, you spouse's personal and living expenses and the rental property mortgage.

You visit Australia several times a year in order to spend time with your family.

You stay in the family home when in Australia.

Your spouse visits you in Country Y a few times year.

Your employer provides you with return trips to Australia annually.

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

You purchased an investment property in Australia in joint name with your spouse which is used for rental purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

International Tax Agreements Act 1953

International Tax Agreements Act 1953 Section 4

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 Y for most of the time since late 20XX, and you plan to continue living there until mid 20XX, 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 in late 20XX 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 Y. You have been living continuously for the past XX years in Country Y.

You have had permanent rental accommodation in Country Y since moving there and have moved only once. You have been with the same employer since late 20XX. You intend to continue your employment with the same employer in Country Y until 20XX. You are covered by your employer's private health insurance in Country Y.

The tax authorities in Country Y regard you as a Country Y resident and you lodge tax returns in Country Y. You have a strong social and business network in Country Y. You are a member of a prestigious club in Country Y.

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

·        Your spouse is an Australian citizen.

·        You were granted permanent residency when you migrated to Australia in late 20XX. You currently hold an Australian resident return visa (subclass 155) which is only issued to current or former Australian permanent residents.

·        You jointly own a permanent house in Australia which is the family home. Your spouse lives 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.

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

·        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 in late 20XX.

·        You jointly own a rental property in Australia.

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

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

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

Article 4(3) of the Country Y 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.

Article 4(3) of the Country Y Agreement provides that a person's residency status for the purpose of applying the Country Y 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 Y 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) is relevant when interpreting tax treaties based on the OECD model.

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 (e.g. 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 Y. In Australia you have a home readily available to you, being the family home you purchased in late 20XX. In Country Y you have been living in long term rental accommodation.

Therefore it is necessary to consider in which country you have a 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 a 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 a '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 a habitual abode in both Singapore and Australia. There was no suggestion in this ATOID 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 ATOID that a 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 a habitual abode in two places at the same time.

In the current case, during your time in Country Y you have returned to Australia on a regular basis several times each year and stayed in the family home. In addition you provide the full financial costs for the family household expenses, your spouse's personal and living expenses and the mortgage for the rental property.

It is considered that this pattern of visits to Australia in conjunction with the payment of the ongoing costs of a home within Australia is sufficient to constitute a usual pattern of activity consistent with having a habitual abode in Australia.

Accordingly, it is considered that you have a habitual abode in Australia, and therefore you will be a resident of Australia for the purposes of the Double Tax Agreement.

Assessability of income

Employment income from Country Y

Your employment income in Country Y will be assessable in Country Y by the operation of the Country Y Agreement.

Rental income from Australian property

Under the Country Y 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 Y.

Australian dividend and interest income

You are assessable in Australia on your Australian dividend and interest income. Under the Country Y Agreement, your Australian sourced dividends are assessable to you and taxed at the standard rate.

Similarly, Under the Country Y Agreement your Australian sourced interest is assessable to you and taxed at the standard rate.

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.