Edited version of private advice

Authorisation Number: 1052046941057

Date of advice: 20 December 2022

Ruling

Subject: Residency

Question 1

Are you an Australian resident for tax purposes from late 20XX?

Answer

Yes.

Question 2

Are you a resident solely of Australia for the purposes of the Double Taxation Agreement between Australia and Country A from late 20XX?

Answer

Yes.

Question 3

Is your share of the partnership's profits assessable in Australia to the extent they are attributable to the permanent establishment the partnership has in Australia?

Answer

Yes.

Question 4

Are you entitled to a foreign income tax offset for the foreign tax paid on your share of the partnership's profits that are included in your assessable income?

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

You are a citizen of Country A, and not a citizen of any other country.

Your spouse and children are citizens of Country A.

You moved to Australia with your family in late 20XX.

You entered Australia on a permanent visa.

You moved to Australia as you felt it would be better for your health and wellbeing. Initially you were not sure whether you would stay in Australia.

You are a co-founder of the company.

This business operates under a partnership with your business partner. You have a X% share in the partnership.

The business is operated from an office in Country A where the other employees work.

The partners are treated as residents of Country A under Country A's tax law.

The business is divided into two approximately equal components. While the two partners both have overarching responsibilities for the business and the partnership, you are responsible for the day-to-day activities relating to one component and your partner is responsible for the day-to-day activities relating to the other part.

Approximately X% of the income of the business is derived from customers in Australia. The remaining X% is from other jurisdictions.

You made an agreement with the other partner that, on moving to Australia, you would:

•         work remotely from Australia

•         regularly visit the office in Country A

•         all management meetings of the business and partnership were to occur in Country A

•         all contracts were to be concluded and signed in Country A.

It was also agreed that all the employees of the business will stay in Country A, your business partner is not expected to come to Australia, and it was understood that if the business required it, you would return to Country A.

You do not have a home office or designated workspace in your Australian home. You are able to work effectively using portable electronic devices, which means you often work from your living room, bedroom, nearby café or hotel lobby. Only two of the electronic devices are treated as assets of the partnership. There is no other office equipment of the business kept in Australia.

In total, you work approximately X% of the time at your home and X% at other locations. Your home is mainly intended for family life. As such, your working hours at home are less than at other locations. You also feel more creative when you are able to alternate your working environment.

You work approximately X hours a week.

On a year-by-year basis you will re-evaluate with your family whether you will continue to reside in Australia or return to Country A. This will depend on how your children settle in Australia and whether the lifestyle suits your family.

Between late 20XX and mid-20XX, you spent over 183 days in Australia, X days in Country A and X days elsewhere. You intended to spend less the 183 days in Australia, but as a result of hotel quarantine due to COVID-19 you were in Australia for longer.

Going forward, you are not able to say with certainty how frequently you will return to Country A.

You purchased a home in Australia in which you and your family reside.

Your children attend school in Australia.

Most of your family, with the exception of your immediate family, and long-term friends reside in Country A. You intend to visit them on your return visits to Country A.

You own a dwelling in Country A. It is not rented and is available for your use for business and personal trips. The dwelling has a mortgage with a Country A bank.

You have an obligation to lodge an income tax return in Country A for the relevant income tax period.

You maintain in Country A:

•         a car and a driver's licence used for business and personal trips in Country A

•         credit cards, bank accounts, savings, and investment funds

•         entitlement to a public pension

•         public health insurance

•         a mobile phone plan.

You maintain in Australia:

•         a driver's licence

•         bank accounts

•         a mobile phone plan.

You have mail sent to both your Australian and Country A properties.

You and your spouse are not a Commonwealth of Australia Government employees for superannuation purposes or members of the Public Sector Superannuation Scheme.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1997 Division 770

International Tax Agreements Act 1953 section 4

International Tax Agreements Act 1953 section 5

Reasons for decision

Question 1

Are you an Australian resident for tax purposes from late 20XX?

Summary

You satisfy the resides and 183-day tests of residency and are considered a resident of Australia for tax purposes from late 20XX for the year ended 30 June 20XX.

Detailed reasoning

Overview of the law

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 (also referred to as the ordinary concepts test)

•         the domicile test

•         the 183-day test, and

•         the Commonwealth superannuation fund test.

The resides test is the primary test for deciding the residency status of an individual. This test considers whether an individual resides 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 domicile test, 183-day test and Commonwealth superannuation fund test).

Our interpretation of the law in respect of residency is set out in Draft Taxation Ruling TR 2022/D2 Income tax: residency tests for individuals.

We have considered the statutory tests listed above in relation to your situation as follows:

The resides test

The ordinary meaning of the word 'reside' has been expressed as 'to dwell permanently or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place': See Commissioner of Taxation v Miller (1946) 73 CLR 93 at 99 per Latham CJ, citing Viscount Cave LC in Levene v Inland Revenue Commissioners [1928] AC 217 at 222, citing the Oxford English Dictionary. Likewise, the Macquarie Dictionary defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

The Commissioner considers the following factors in relation to whether a taxpayer is a resident under the 'resides' test:

•         period of physical presence in Australia

•         intention or purpose of presence

•         behaviour while in Australia

•         family and business/employment ties

•         maintenance and location of assets

•         social and living arrangements.

It is important to note that no one single factor is decisive, and the weight given to each factor depends on each individual's circumstances.

Because the ordinary concepts test is whether an individual resides in Australia, the factors focus on the individual's connection to Australia. Having a connection with another country, or being a resident of another country, does not diminish any connection to Australia: Logan J in Pike v Commissioner of Taxation [2019] FCA 2185 at 57 reminds us that 'it is no part of the ordinary meaning of reside in the 1936 Act that there be a "principal" or even "usual" place of residence. ... It is important that ... "resident" not be construed and applied as if there were such adjectival qualifications.' For this reason, the test is not about dominance or exclusivity.

TR 2022/D2 provides the following guidance in respect of a person's behaviour while in Australia:

39. Your behaviour relevantly includes the way you live as part of the regular order of your life. If the way you live reflects a degree of continuity, routine or habit, coupled with other factors such as intention, it may be consistent with residing in Australia.

40. For example, if you enter Australia and take up long-term accommodation, employment, enrol children in school and take part in regular extracurricular activities, this would demonstrate behaviour consistent with residing here, particularly when coupled with other factors such as intention to make your home here.

41. Conversely, if you usually live overseas and, while in Australia, you travel around or display no settled routine or behaviour, or you have only a short period, or short periods, of settled routine or behaviour coupled with an intention to holiday in Australia before returning home to another country, you will likely not be regarded as a resident under the ordinary concepts test.

42. Some individuals work in a number of countries during their careers. They often maintain a house in their country of domicile. However, for the period of their assignment in Australia, they live and work here. Their family often accompany them, their children attend school here and they may become involved in social activities while present in Australia. Although these individuals regard themselves as permanently resident in their home country or may be regarded as residents of their home country for its tax purposes, their behaviour while in Australia may mean they are also residing here for Australian income tax purposes.

43. When behaviour consistent with residing in Australia is demonstrated over a considerable time, you are regarded as a resident from the time the behaviour commences.

Application to your situation

We have taken the following into consideration when determining whether you meet the resides test:

•         you arrived in Australia in late 20XX with the intention of living here for an undetermined period of time

•         your spouse and children accompanied you to Australia

•         you purchased a dwelling for you and your family to live in

•         your children attend a school in Australia

•         you only left Australia for short periods of time during the relevant period

•         your movements and habits were consistent with having a settled routine in Australia.

You are a resident of Australia under the resides test starting late 20XX for the year ended 30 June 20XX.

Although the law only requires you to be considered a resident under one test, for completeness the other tests are also considered.

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 in 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 a domicile of dependence or have acquired a domicile of choice elsewhere. To acquire a domicile of choice of a particular country you must be lawfully present there and 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.

Application to your situation

In your case, you were born in Country A and your domicile of origin is Country A. You relocated to Australia in late 20XX and you arrived on a permanent visa.

It is considered that you did not abandon your domicile of origin in Country A and acquire a domicile of choice in Australia. Although you obtained permanent residency in Australia, you are not sure whether you intend to live here indefinitely.

Therefore, you are not a resident of Australia under the domicile test.

183-day test

Where a person is present in Australia for 183 days or more during the year of income the person will be a resident, unless the Commissioner is satisfied that both:

•         the person's usual place of abode is outside Australia, and

•         the person does not intend to take up residence in Australia.

Application to your situation

You were in Australia for 183 days or more in the 20XX income year. Therefore, you will be a resident under this test unless the Commissioner is satisfied that your usual place of abode was outside Australia and you do not have an intention to take up residence in Australia.

Usual place of abode

In the context of the 183-day test, a person's usual place of abode is the place they usually live, and can include a dwelling or a country. A person can have only one usual place of abode under the 183-day test. However, it is also possible that a person does not have a usual place of abode. This is the case for a person who merely travels through various countries without developing any strong connections.

If a person has places of abode both inside and outside Australia, then a comparison may need to be made to determine which is their usual place of abode. When comparing two places of abode of a particular person, we will examine the nature and quality of the use which the person makes of each particular place of abode. It may then be possible to determine which is the usual one, as distinct from the other or others which, while they may be places of abode, are not properly characterised as the person's usual place of abode: Emmett J at [78] in Federal Commissioner of Taxation v Executors of the Estate of Subrahmanyam [2001] FCA 1836.

Application to your situation

We have taken the following into consideration when deciding whether your usual place of abode is in Australia:

•         you arrived in Australia in late 20XX with the intention of living here for a period of time

•         you moved to Australia with your spouse and children

•         you purchased a dwelling for you and your family to live in

•         your children attend a school in Australia

•         you only left Australia for short periods of time during the relevant period

•         your movements and habits were consistent with having a settled routine in Australia.

Based on your circumstances, the Commissioner is not satisfied that your usual place of abode was outside Australia for the relevant period.

Intention to take up residency

To determine whether you intend to take up residence in Australia, we look at evidence of relevant objective facts. 'Intend to take up residency' does not merely mean intend to stay for a long time. It means intending to live here in such a manner that you would reside here.

Application to your situation

We have taken the following into consideration when deciding whether you intend to take up residence in Australia:

•         you arrived in Australia in late 20XX with the intention of living here for a period of time

•         you entered Australia on a permanent visa.

•         you moved to Australia with your spouse and children

•         you purchased a dwelling for you and your family to live in

•         your children attend a school in Australia

•         you only left Australia for short periods of time during the relevant period

Based on your circumstances, the Commissioner is satisfied that you intended to take up residence in Australia for the relevant period.

You are 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.

Application to your situation

You are not a member on behalf of whom contributions are being made to 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 and 183-day tests of residency and so are a resident of Australia for income tax purposes from late 20XX for the year ended 30 June 20XX.

Question 2

Are you a resident solely of Australia for the purposes of the Double Taxation Agreement between Australia and Country A from late 20XX?

Summary

You are solely a resident of Australia for tax purposes under the tiebreaker test in Article 4 of the Country A Agreement from late 20XX for the year ended 30 June 20XX.

Detailed reasoning

Double Taxation Agreement

It is possible to be a resident for tax purposes of more than one country at the same time in respect of an income year or part of an income year. If this is the case, in determining your liability to pay tax in Australia it is necessary to consider any applicable double tax agreements. Sections 4 and 5 of the International Tax Agreements Act 1953 (Agreements Act) incorporate that Act with the ITAA 1936 and the ITAA 1997 and provide that the provisions of a double tax agreement have the force of law.

We acknowledge that you are a resident of Country A for tax purposes based on the information you have supplied.

Article 4 of the Agreement between Australia and Country A for the elimination of double taxation with respect to taxes on income and on capital and the prevention of fiscal evasion and avoidance (the Agreement) 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.

1. For the purposes of this Agreement, the term "resident of a Contracting State" means any person who:

(a)   in the case of Australia, is liable to tax as a resident of Australia; and

(b)   in the case of the Federal Republic of Germany, is liable to tax therein by reason of the person's domicile, residence, place of management or any criterion of a similar nature.

The term "resident of a Contracting State" also includes a Contracting State and, in the case of Country A, its States, and any political subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated in Country A.

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then that individual's status shall be determined as follows:

(a)   the individual shall be deemed to be a resident only of the State in which a permanent home is available to that individual; if a permanent home is available in both States, that individual shall be deemed to be a resident only of the State with which the individual's personal and economic relations are closer (centre of vital interests);

(b)   if the State in which the centre of vital interests is situated cannot be determined, or if a permanent home is not available to the individual in either State, the individual shall be deemed to be a resident only of the State in which that individual has an habitual abode;

(c)   if the individual has an habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which the individual is a national;

(d)   if the individual is a national of both States or of neither of them, the competent authorities of the Contracting States shall endeavour to settle the question by mutual agreement.

In Thiel v FC of T (1990) 90 ATC 4717, the High Court judges accepted that the OECD Model Taxation Convention's official Commentaries (OECD Commentary) may be relevant to the interpretation of DTAs based on the OECD Model (Taxation Ruling TR 2001/13, paragraph 102).

Permanent home

The term 'Permanent home' is not defined in the Agreement. 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) 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.

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.

You had a permanent home in both Australia and Country A during the relevant period.

Personal and economic relations (centre of vital interests)

The OECD Commentary on Article 4 (at paragraph 15) states that 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. 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. If a person who has a home in one State sets up a second in the other State while retaining the first, the fact that he retains the first in the environment where he has always lived, where he has worked, and where he has his family and possessions, can, together with other elements, go to demonstrate that he has retained his centre of vital interests in the first State.

In Tan v Federal Commissioner of Taxation [2016] AATA 1062, it was stated:

62. Similarly, Vogel 2016 states the following in relation to what is meant by "personal and economic relations" in Article 4(2) of the OECD Model Tax Convention (footnotes omitted):

92. (1) Personal and Economic Relations. As already mentioned, many factors from the taxpayer's private and economic sphere are relevant to determine his personal and economic relations. In practice, the courts have, inter alia, based their decisions on an evaluation of factssurrounding the following non-exhaustive list of facts: house; family home; furnishings; rented apartment; owned apartment; passport; sharing a room, no rent, no lease; place where the taxpayer was born and raised; children; country of birth of children; spouse; country of divorce; where spouse seeks employment; family visits; other family members such as parents; partner; friends; acquaintances; memberships; language skills; work; employer; adaption of professional qualifications such as nursing license; temporal dislocation; no relations apart from day-to-day living expenses (renting on yearly basis, bank account only for needs abroad, no car), relocation support, normally granted when an employee has temporarily moved to work in another country than that in which he had his residence; bank accounts; brokerage account; credit card; money transfers; health insurance; driver's license; personal belongings, such as a car, purchase new home; registration of car; future retirement plans; retirement accounts.

93. ...the criteria of personal relations and, to a lesser degree, economic relations are highly subjective. What constitutes personal relations and how much weight is to be attached to such factors is very much in the eyes of the beholder...

94. In our view, all this suggests that the circumstances should be restricted to actual vital interests (contained in the term 'centre of vital interests'). Vital interests are circumstances in the everyday life of an individual that not only reflect his day-to-day needs but also - in addition - longer-lasting ties. Whereas day-today needs and habits can be shifted quickly and selected by the taxpayer at will, vital interests are characterised by a certain permanence and this cannot be of a sheer temporal nature.

As noted in Pike v Commissioner of Taxation [2020] FCAFC 158 at [39], the clause personal and economic relations 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.

We have considered your personal and economic ties with Country A which include the following:

•         you are a citizen of Country A

•         your extended family and friends reside in Country A

•         you own a dwelling in Country A that is not rented and is used by you when you travel to Country A

•         you have credit cards, bank accounts, savings, investment funds, mobile plan, a car and driver's license

•         you have X% ownership of a Country A partnership that operates a business in Country A

•         your business partner and staff reside in Country A

•         you are entitled to a public pension

We have considered your personal and economic ties with Australia which include the following:

•         you arrived in Australia in late 20XX on a permanent visa intending to live here for a period of time

•         you moved to Australia with your spouse and children

•         your children attend school in Australia

•         you purchased a dwelling for you and your family to live in

•         you spent the majority of the relevant period in Australia carrying out the activities that assisted in generating your business income

We have concluded that your personal and economic ties as a whole were closer to Australia for the relevant period. Although you have substantial ties to Country A, including a significant business interest, it is considered that your centre of vital interests shifted to Australia from when you arrived in Australia with the intention of residing here with your family for the foreseeable future. You spent the majority of the relevant period in Australia 'administering your property' from a home you acquired in Australia and carried out the activities which assisted in generating your business income.

Conclusion

We have concluded that the tiebreaker tests in Article 4 of the Agreement apply so that you are deemed to be a resident only of Australia for treaty purposes. The provisions of the Agreement will therefore apply on the basis that you are a resident of Australia and not of Country A.

Question 3

Is your share of the partnership's profits assessable in Australia to the extent they are attributable to the permanent establishment the partnership has in Australia?

Summary

Under Article 7 of the Agreement, your share of the partnership's profits is assessable in Australia from

late 20XX to mid-20XX to the extent the profits are attributable to the permanent establishment the partnership has in Australia.

Detailed reasoning

You are a partner in a partnership based in Country A and you derive business income from the partnership.

Subsection 92(1) of the ITAA 1936 states that the assessable income of a partner in a partnership includes so much of the individual interest of the partner in the net income of the partnership of the year of income as is attributable to a period when the partner was a resident.

Article 1(2) of the Agreement states that:

For the purposes of this Agreement, income (including profits or gains) derived by or through an entity or arrangement that is treated as wholly or partly fiscally transparent under the tax law of either Contracting State shall be considered to be income of a resident of a Contracting State but only to the extent that the income is treated, for purposes of taxation by that State, as the income of a resident of that State.

Article 7 of the Agreement deals with the taxation of business profits derived from the carrying on of a business by an enterprise. Relevantly, in this case:

1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment or with other enterprises.

3. In determining the profits of a permanent establishment, there shall be allowed as deductions expenses of the enterprise, being expenses which are incurred for the purposes of the permanent establishment (including executive and general administrative expenses so incurred), whether incurred in the State in which the permanent establishment is situated or elsewhere.

Article 5 of the Agreement deals with what may constitute a 'permanent establishment'. Relevantly, in this case:

1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of the enterprise is wholly or partly carried on.

2. The term "permanent establishment" includes especially:

a)    a place of management;

b)    a branch;

c)    an office;

d)    a factory;

e)    a workshop;

f)     a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; and

g)    an agricultural, pastoral or forestry property.

6. Notwithstanding the preceding provisions of this Article, the term "permanent establishment" shall be deemed not to include:

a)      the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

b)      the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

c)      the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

d)      the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or for collecting information, for the enterprise;

e)      the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity,

f)       the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs (a) to (e),

provided that such activity or, in the case of subparagraph (f), the overall activity of the fixed place of business, is of a preparatory or auxiliary character.

Paragraph 6 of the OECD Commentary explains that the definition of PE in Article 5 contains the following conditions:

1.    the existence of a 'place of business', i.e. a facility such as premises or, in certain instances, machinery or equipment;

2.    this place of business must be 'fixed', i.e. it must be established at a distinct place with a certain degree of permanence;

3.    the carrying on of the business of the enterprise through this fixed place of business. This means usually that persons who, in one way or another, are dependent on the enterprise (personnel) conduct the business of the enterprise in the State in which the fixed place is situated.

First condition - existence of a place of business

Relevantly, the OECD Commentary explains that:

10. The term "place of business" covers any premises, facilities or installations used for carrying on the business of the enterprise whether or not they are used exclusively for that purpose. A place of business may also exist where no premises are available or required for carrying on the business of the enterprise and it simply has a certain amount of space at its disposal. It is immaterial whether the premises, facilities or installations are owned or rented by or are otherwise at the disposal of the enterprise. A place of business may thus be constituted by a pitch in a market place, or by a certain permanently used area in a customs depot (e.g. for the storage of dutiable goods). Again the place of business may be situated in the business facilities of another enterprise. This may be the case for instance where the foreign enterprise has at its constant disposal certain premises or a part thereof owned by the other enterprise. [emphasis added]

18. Even though part of the business of an enterprise may be carried on at a location such as an individual's home office, that should not lead to the automatic conclusion that that location is at the disposal of that enterprise simply because that location is used by an individual (e.g. an employee) who works for the enterprise. Whether or not a home office constitutes a location at the disposal of the enterprise will depend on the facts and circumstances of each case. In many cases, the carrying on of business activities at the home of an individual (e.g. an employee) will be so intermittent or incidental that the home will not be considered to be a location at the disposal of the enterprise (see paragraph 12 above). Where, however, a home office is used on a continuous basis for carrying on business activities for an enterprise and it is clear from the facts and circumstances that the enterprise has required the individual to use that location to carry on the enterprise's business (e.g. by not providing an office to an employee in circumstances where the nature of the employment clearly requires an office), the home office may be considered to be at the disposal of the enterprise.

19. A clear example is that of a non-resident consultant who is present for an extended period in a given State where she carries on most of the business activities of her own consulting enterprise from an office set up in her home in that State; in that case, that home office constitutes a location at the disposal of the enterprise. Where, however, a cross-frontier worker performs most of his work from his home situated in one State rather than from the office made available to him in the other State, one should not consider that the home is at the disposal of the enterprise because the enterprise did not require that the home be used for its business activities. It should be noted, however, that since the vast majority of employees reside in a State where their employer has at its disposal one or more places of business to which these employees report, the question of whether or not a home office constitutes a location at the disposal of an enterprise will rarely be a practical issue. Also, the activities carried on at a home office will often be merely auxiliary and will therefore fall within the exception of paragraph 4.

In your case, you are a partner in a business and you relocated to Australia by arrangement with the other partner. The partnership has not made an office available to you in Australia and you carried on your business activities from your home approximately X% of the time and at other locations, such as cafes, approximately X% of the time. Your home is mainly intended for family life. As such, your working hours at home are less than at other locations.

Although you did not have a home office to carry on your business activities when working from your home, it is still evident that you had a certain amount of space at your disposal at your home to carry on your activities.

Therefore, it is considered that a place of business existed in Australia for you to carry on your business activities.

Second condition - place of business must be fixed

Established at a distinct place

Paragraph 21 of the OECD Commentary explains that there must be a link between the place of business and a specific geographical point.

In your case, you carried on part of your business activities at your home address.

A certain degree of permanence

Paragraph 28 of the OECD Commentary explains that since the place of business must be fixed, it also follows that a PE can be deemed to exist only if the place of business has a certain degree of permanency, i.e. if it is not of a purely temporary nature.

In your case, you work from your home address that you own and have resided in since late 20XX. You have worked from this site on a regular basis throughout the relevant period. Therefore, it is considered that your place of business at your home address had a sufficient degree of permanence as the usage took place with a sufficient degree of regularity over a sufficient period of time. Consequently, the place of business is not considered to be of a purely temporary nature.

Third condition - carrying on the business through the fixed place of business

You are a partner in a partnership that operates a business and it is through the partnership that you perform your income earning activities. When in Australia, you partly carry out your business activities at your home address.

Therefore, it is evident that you carried on your business through a fixed place of business and your home address is a permanent establishment.

Summary

You had a permanent establishment at your home address. Therefore, your share of the profits of the partnership are taxable in Australia to the extent they are attributable to the permanent establishment the partnership has at your home in Australia.

Question 4

Are you entitled to a foreign income tax offset (FITO) for Country A tax paid on your share of the partnership's profits that are included in your assessable income?

Summary

You are entitled to a FITO for the tax you have paid in Country A on your share of the partnership's profits.

Detailed reasoning

If you have paid foreign tax in another country, you may be entitled to an Australian foreign income tax offset, which provides relief from double taxation.

To qualify for a FITO under Division 770 of the ITAA 1997 you must meet all of the following criteria:

•         you must have paid the foreign tax on the income

•         the foreign tax must be a tax which you were personally liable for

•         the income or gain that the foreign tax was paid must be included in your assessable income for Australian income tax purposes.

The FITO is a non-refundable tax offset. The FITO is applied to your income tax liability including the Medicare levy and the Medicare levy surcharge where applicable. Any excess is not refunded to you.

As previously mentioned, Australia has a tax treaty with Country A and the Agreement operates to avoid the double taxation of income received by Australian and Country A residents.

Under Article 7 of the Agreement your share of the partnership's profits is taxed in the country of source and is also taxed in Australia. However, Article 22(1) of the agreement provides for relief from double taxation as follows:

Subject to the provisions of the laws of Australia which relate to the allowance of a credit against Australian tax of tax paid in a country outside Australia (which shall not affect the general principle of this Article), Country A tax paid under the laws of Country A and in accordance with this Agreement, in respect of income derived by a resident of Australia shall be allowed as a credit against Australian tax payable in respect of that income.

Application to your circumstances

In your case, you will be entitled to a FITO in respect of the foreign tax paid in Country A for your share of the partnerships profits so long as you paid income tax to Country A's tax authorities, and the tax paid is related to a taxing event in Australia.