Edited version of private advice

Authorisation Number: 1051745861406

Date of advice: 11 September 2020

Ruling

Subject: Double tax agreement

Question 1

Are you a resident of Australia under Article X of the Double Tax Agreement (DTA) with Country Z?

Answer

Yes.

Question 2

Is your income assessable in Australia an Article of the DTA with Country Z?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Your country of origin in Country Y.

You are a citizen of Country Y.

You migrated to Australia in 20XX.

You became an Australian citizen in 20XX.

You have a spouse and children.

Your children are on approved leave from the education system.

You own a permanent home in Australia.

You are renovating the home while living overseas and intend to return to that home upon your return to Australia.

Your other assets in Australia include bank accounts, a motor vehicle and superannuation.

You have personal items and household goods stored in Australia due to the house renovations.

You worked as a professional in Australia from mid 20XX to late 20XX.

You have continued to progress registration with the professional organisation while overseas.

You maintain your social connections to Australia via technology.

You lodged a Country Y tax return due to rent received in that country.

You sold a property in Country Y in 20XX.

You assessed your country of residence as Australia in the Country Y tax return.

You intended to stay overseas during 20XX on a family holiday.

Several months prior to leaving Australia you applied for a job in Country Z, you were subsequently offered the job with an initial contract period of several months.

You started the professional job in Country Z in early 20XX which is due to finish in 20XX.

You have unlimited tax liability in Country Z and are a resident of Country Z for tax purposes.

You have a Country Z bank account.

You rent a fully furnished apartment on a month to month basis.

Your spouse and children are living with you in Country Z.

You intend to leave Country Z in mid 20XX.

Your spouse is eligible to contribute to the PSS or the CSS Commonwealth Government superfunds.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

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

International Tax Agreements Act 1953 section 4

International Tax Agreements Act 1953 section 5

Question 1

You are an Australian citizen and will be an Australian resident for tax purposes as your spouse is a contributing member of the PSS. You are also a Country Y citizen and resident for Country Z tax purposes.

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 referred to in the International Tax Agreements Act 1953 (Agreements Act). These treaties are often referred to as Double Tax Agreements (DTA).

Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 (ITAA1936) and the Income Tax Assessment Act 1997 (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.

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 Country Z DTA is listed in section 5 of the Agreements Act.

The Country Z DTA operates to avoid the double taxation of income received by residents of Australia and Country Z.

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

Tie Breaker provisions under DTA

Article X of the Country Z DTA 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.

Under Article X where an individual is a resident of both Australia and Country Z, they shall be deemed to be a resident of the country:

(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.

You currently have permanent homes in both Australia and Country Z, and these will be available to you and your family for the relevant period.

Therefore, consideration needs to be given to which country you will have closer personal and economic relations, including your citizenship.

In relation to a taxpayer's personal and economic relations, the OECD Commentary states that regard should be had to factors such as family and social relations, occupation, political, cultural or other activities and place of business.

In your case, during the period you are in Country Z, your personal and economic ties will be closer with Australia as;

·         You have significant personal and household assets in Australia

·         You own the home that is permanently available to you in Australia

·         You are investing further finances into the home in Australia by way of renovation

·         You have bank accounts, a motor vehicle and superannuation

·         Your family will return with you to your home in Australia

·         You have limited personal and financial assets in Country Z

·         Your spouse and children are with you in Country Z

·         You have been in Country Z for approximately X months

·         You do not intend to be in Country Z for more than XX months in total

·         The nature of the apartment in Country Z is more temporary than your home in Australia as you rent the apartment on a month to month basis.

On balance your personal and economic ties will be closer to Australia.

Consequently, under Article X of the Country Z DTA you will be a resident of Australia.

Question 2

Application of an Article

Under domestic law, since you are an Australian resident for taxation purposes, you will be subject to tax on your worldwide income. This would include your income from working in Australia. However, the DTA needs to be examined to determine taxing rights.

Article Y of the DTA states the following:

1. Subject to the provisions of Articles A, B, C and D. salaries, wages and other similar remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in that other State.

You are considered to be a resident of Australia for the purposes of interpreting the DTA. Therefore, you would be considered to be exercising the employment in the other contracting State, being Country Z. This means that your income can be taxed in both Country Z and Australia.

However, that Article operates subject to an Article. As you are a professional, that Article is relevant.

This article applies an exemption on a basis that the renumeration is subject to tax in the other State.

In your case, you went to Country Z to work and will be there for less than X years, therefore, as you are a resident of Australia under Article X, you will be exempt in the 'first mentioned state', being Country Z, and assessable in Australia on the income received as a professional.