Edited version of private advice

Authorisation Number: 1051968799421

Date of advice: 1 April 2022

Ruling

Subject: Residency - assessable income

Question 1

Are you a resident of Australia for income tax purposes?

Answer

Yes

Question 2

Are you a resident of Australia for the purposes of the Convention between Australia and Country Y (Country Y Convention)?

Answer

Yes

Question 3

Is the income you derive while working on offshore vessels assessable in Australia?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

General

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

You are not a citizen of any other country.

You were granted permanent residency of Australia in 20XX.

You work on offshore vessels.

Your employer is based in Country C.

You do not have a permanent contract with the employer, your contracts last between 3 to 4 months and you have between 2 to 3 months unpaid leave.

You intend on coming Australia to your family after each contract to spend your time with them before you leave again.

You intend on continuing your employment for the foreseeable future.

On average you would spend 8 months of the year on the vessels in International Waters.

The other 4 months are spent between Australia, where your spouse and children reside, and Country Y and other countries, where all other family members and friends reside and along with your training attendance requirements.

You have never worked in Australia.

You have an Australian drivers' licence.

You hold a Country Y health card.

You do not have private health insurance in Australia.

You have not advised your Australian bank that you are a non-resident.

Accommodation

While onboarding and working on a vessel, as a senior officer, you have your own cabin.

You stay in your own apartment while in Country Y.

You will continue to have this apartment available to you for periods when not working.

You and your spouse purchased a home in Australia in 20YY; prior to this you were living with your parents-in-law.

Your family are now living with your parents-in-law again.

Your Australian property has been rented out.

You remain responsible for a mortgage on this property and continue making the payments.

You don't use the Australian property address on any documents.

You use the Australian property address for local mails. You use your Country Y address for other mails.

Assets

You have an Australian bank account.

Your employment income is paid directly to your Australian bank account.

You have a car registered in Australia.

You do not have any investments in Australia.

You do not have an Australian superannuation account.

You consider yourself a resident of Country Y, but you have not lodged income tax returns in that country.

You lodged your 20XX income year and 20XX income year tax returns in Australia as a resident for tax purposes.

You do not receive any income from Australian sources.

Family and social connections

You are married and you have dependent children.

Your spouse has casual employment in Australia and your income is the primary income for the family.

You have a Country Y Driver License and a Ship's Master License and all certifications required for the Ship's Master License.

You have not maintained any professional, social, or sporting connections in Australia.

You have not maintained any professional, social, or sporting connections in Country Y.

You have not maintained any professional or occupational memberships in Australia.

You have never been employed by the Commonwealth of Australia.

You are not a member of the Public Sector Superannuation Scheme (PSS) which was established under the Superannuation Act 1990.

You are not an eligible employee in respect of the Commonwealth Superannuation Scheme (CSS) which was established under the Superannuation Act 1976.

You are not the spouse or a child under 16 of a person who is a member of the PSS or an eligible employee in respect of the CSS.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1936 subsection 6(1)

International Tax Agreements Act 1953

Reasons for decision

Question 1

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

The terms resident and resident of Australia, as applied to an individual, are defined in subsection 6(1) of the ITAA 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,

•         the domicile test,

•         the 183 day test, and

•         the superannuation test.

The primary test for deciding the residency status of an individual is whether they reside in Australia according to the ordinary meaning of the word resides.

Where an individual does not reside in Australia according to ordinary concepts, they will still be an Australian resident if they meet the conditions of one of the other 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'. These definitions have been highlighted in cases as being definitive observations of the meaning of resides (see Viscount LC in Levene v Commissioners of Inland Revenue [1928] AC 217 and Logan J in Stockton v Federal Commissioner of Taxation [2019] FCA 1679).

The observations contained in the case of Hafza v Director-General of Social Security (1985) 6 FCR 444 are also important:

Physical presence and intention will coincide for most of the time. But few people are always at home. Once a person has established a home in a particular place - even involuntarily: see Commissioners of Inland Revenue v Lysaght [1928] AC 234 at 248; and Keil v Keil [1947] VLR 383 - a person does not necessarily cease to be resident there because he or she is physically absent. The test is whether the person has retained a continuity of association with the place - Levene v Inland Revenue Commissioners [1928] AC 217 at 225 and Judd v Judd (1957) 75 WN (NSW) 147 at 149 - together with an intention to return to that place and an attitude that that place remains " home ": see Norman v Norman (No 3) (1969) 16 FLR 231 at 235... [W]here the general concept is applicable, it is obvious that, as residence of a place in which a person is not physically present depends upon an intention to return and to continue to treat that place as " home ", a change of intention may be decisive of the question whether residence in a particular place has been maintained.

Case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the 'resides' test:

• Physical presence
• Intention or purpose of presence
• Family and business/employment ties
• Maintenance and location of assets, and
• Social and living arrangements

These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in IT 2650 Residency - Permanent place of abode outside Australia 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 each individual's circumstances.

We consider that your circumstances are consistent with residing in Australia.

This is because:

• You were granted an Australian permanent residency visa.
• You are married and you have dependent children who live in Australia
• Your income is the primary source of income for your family.
• Your employment income is paid directly to your Australian bank account.
• You purchased a property in Australia, and you remain responsible for the mortgage on the property.
• You work overseas for certain periods of time and return regularly to be with your family in Australia.

You have a home with your spouse in Australia, have children and parents-in-law in Australia and have retained a continuity of association with Australia while you have been working overseas.

You are a resident of Australia under the resides test.

Domicile test

Under the domicile test, you are a resident of Australia if your domicile is in Australia unless the Commissioner is satisfied that your permanent place of abode is outside Australia.

Domicile

Whether your domicile is Australia is determined by the Domicile Act 1982 and the common law rules on domicile.

Your domicile is your domicile of origin (usually the domicile of your father at the time of your birth) unless you have acquired a domicile of choice elsewhere. To acquire a domicile of choice of a particular country you must be lawfully present there and you must hold the positive intention to make that country your home indefinitely. Your domicile continues until you acquire a different domicile. Whether your domicile has changed depends on an objective consideration of all relevant facts.

In your case, you were born in Country Y and your domicile of origin is that country. You were granted an Australian permanent residency visa, but you have not applied for Australian citizenship.

It is considered that there is insufficient evidence to say that you have abandoned your domicile of origin in Country Y and acquired a domicile of choice in Australia.

Therefore, you are not a resident under this test.

183-day test

Where a person is present in Australia for 183 days during the year of income the person will be a resident, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

You have not been present in Australia for 183 days or more during any of the relevant income years.

Therefore, you are not a resident under this test.

Superannuation Test

An individual is a resident of Australia if they are either a member of the superannuation scheme established by deed under the Superannuation Act 1990 or an eligible employee for the purposes of the Superannuation Act 1976, or they are the spouse, or the child under 16, of such a person.

You are not a contributing member of the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS) or a spouse of such a person, or a child under 16 of such a person.

Therefore, you are not a resident under this test.

Conclusion

You satisfy the resides test of residency and are a resident of Australia for income tax purposes for the relevant periods.

Question 2

In determining 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 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.

Article 4 of the Country Y Convention sets out the tiebreaker rules for residency for individuals. The tiebreaker rules ensure that the individual is only treated as a resident of one country for the purposes of working out liability to tax on their income under the double tax agreement. The tiebreaker rules do not change a taxpayer's residency status for domestic law purposes.

Under Article 4(3), where an individual is a resident of both Contracting States, their status will be determined in accordance with the following rules:

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 in which he has an habitual abode;

c)    if he has an habitual abode in both Contracting States, or if he does not have an habitual abode 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.

Taxation Ruling TR 2001/13 Income tax: Interpreting Australia's Double Tax Agreementsdiscusses the Commissioner's views about interpreting double tax agreements. Paragraph 104 provides that the OECD Model Tax Convention and Commentary will often need to be considered in interpreting double tax agreements (see also ATO ID 2003/1195).

Permanent home is not defined in the Country Y Convention. Therefore, recourse can be made to supplementary materials in order to aid construction. The OECD commentary to the Model Tax Convention is taken to be a legitimate aid to construction (Thiel v Commissioner of Taxation [1990] HCA 37: 171 CLR 338).

The OECD Commentary provides that in relation to a 'permanent home':

•         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) For instance, a house owned by an individual cannot be considered to be available to that individual during a period when the house has been rented out and effectively handed over to an unrelated party so that the individual no longer has possession of the house and the possibility to stay there.

•         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.

You have a permanent home available to you to live in in both countries.

Habitual abode

The OECD commentary provides that in determining a taxpayer's habitual abode, it 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 simply by determining in which of the two Contracting States the individual has spent more days during the period (JJ Davies, White and Steward in Pike v Commissioner of Taxation [2020] FCAFC 158 at [29]).

The notion of habitual abode 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. It is possible for an individual to have an habitual abode in two states where the individual was customarily or usually present in each State during the relevant period.

In your case, you have an habitual abode in both countries.

Personal and economic ties (centre of vital interests)

The OECD commentary states regard should be had to the taxpayer's family and social relations, their political, cultural or other activities, their place of business, the place from which they administer their property etc. As noted in Pike v Commissioner of Taxation [2020] FCAFC 158 at [39], the clause does not place greater weight on personal factors over economic factors. In each case it will be a matter of fact and degree as to whether a taxpayer's personal and economic relations, viewed as a whole, support ties closer to one contracting state over the other contracting state.

In your case, your spouse and dependent children live in Australia, you stay with your parents-in-law when you are in Australia, you have a house, a car and a bank account in Australia, your income is the primary source of income for your family, your employment income is paid directly to your Australian bank account and you remain responsible for a mortgage on your Australian property.

These factors outweigh the existence of a house and any extended family in Country Y.

On balance, you are taken to be a resident of Australia for the purpose of the Country Y Convention as your personal and economic ties are closer to Australia.

Question 3

Section 6-5 of the 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.

As discussed, in determining 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.

Article 15 of the Country Y Convention provides that salary, wages and other similar remuneration derived by an individual who is a resident of Australia, in respect of an employment, shall be taxable only in Australia, unless the employment is exercised in Country Y. If the employment is exercised in Country Y, then the remuneration derived from that employment may be taxed in Country Y.

Further, paragraph (3) of Article 15 provides that the remuneration received by a resident of Australia in respect of employment exercised aboard a ship or aircraft operated in international traffic, shall be taxable only in Australia.

In your case, the income you derive while working on offshore cruise vessels is assessable in Australia.