Edited version of private advice

Authorisation Number: 1051752122852

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 under Article Z 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 Australia.

You are a citizen of Australia.

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, shares, a motor vehicle and superannuation.

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

You work for an employer in State X.

You are still working for the employer via remote access.

You maintain your social and sporting club connections in Australia via technology.

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

You were issued a Country Y Residence Visa early 20XX which was cancelled on mid 20XX.

The Country Y Residence Visa allowed you to stay in Country Y provided you were still living with your spouse.

You were issued a Country Z Residence Visa mid 20XX.

The Country Z Residence Visa allows you to stay in Country Z provided you are still living with your spouse.

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

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.

You are eligible to contribute to the PSS or the CSS Commonwealth Government superfunds and are a resident of Australia for taxation purposes.

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

Detailed reasoning

Question 1

You are an Australian citizen and will be an Australian resident for tax purposes. You are also a 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.

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

·         Your current employment is based in Australia

·         You have bank accounts, shares, a motor vehicle and superannuation

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

·         You have limited personal assets in Country Z

·         You do not have any 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 for the purposes of interpreting the Country Z DTA.

Question 2

Under Article Y of the Country Z DTA, 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. Your role is exercised in Country Z therefore both Australia and Country Z have taxing rights. However, this Article is subject to Article Z, and this Article is relevant as your role is for the employer.

Article Z of the DTA, Government service, states:

1. Remuneration (other than a pension or annuity) paid by one of the Contracting States or a political sub-division or local authority of that State to any individual in respect of services rendered in the discharge of governmental functions shall be taxable only in that State. However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that other State and the recipient is a resident of that other State who:

(a) is a citizen of that State; or

(b) did not become a resident of that State solely for the purpose of performing the services.

In your case, you are a resident of Australia for the purposes of the DTA and therefore the second sentence will not apply as you are not considered to be a resident of Country Z for the purposes of the DTA.

Therefore, we do not need to look at the second part of Article Z and the income will be taxed in Australia.