Edited version of private advice

Authorisation Number: 1052124369919

Date of advice: 1 June 2023

Ruling

Subject: Resident of Australia for taxation purposes

Question 1:

Were you a resident of Australia for taxation purposes on and from Date 1 to Date 2?

Answer:

Yes.You have met several of the residency tests for that period.

Question 2:

Are you a resident of Australia under the Double Tax Agreement, between Australia and Country X (the DTA)?

Answer:

Yes.

Question 3:

Is your employment income earned in relation to your Country X employment assessable income in Australia, under the DTA between Australia and County X?

Answer:

Yes. However, you can claim a foreign income tax offset for the tax paid in Country X.

This ruling applies for the following period:

Income year ending 30 June 20XX.

The scheme commenced on:

1 July 20XX.

Relevant facts and circumstances

You were born in Australia and are a citizen only of Australia.

You had previously lived in COUNTRY X for some years on an employment assignment until you returned to Australia several years ago.

You received a letter of offer of employment with Company ABC located in COUNTRY X summarised as follows:

•                     Your employment to commence on a date mutually agreed, but no later than Date 1

•                     Your employment will terminate after a period of two years, unless extended by mutual consent, with any extension being subject to all required governmental and other approvals having been obtained

•                     The Employment Visa for COURNTRY X shall be applied by you in the country of your residence and you would also be required to register with a government office after landing in COUNTRY X.

You accepted the employment offer from Company ABC and applied for, and were granted, a visa to enable you to travel and work in COUNTRY X, issued on Date 1 and expiring in the following year, with special endorsement to work with Company ABC in COUNTRY X.

You travelled to Company ABC's operations located in Country Z with the intention to depart for COUNTRY X shortly after. However, you returned to Australia after several days having contracted Covid in Country Z which delayed your departure to COUNTRY X.

After a short period, you and your spouse (Person A) departed Australia to travel to COUNTRY X with the intention to reside in COUNTRY X until Date 3 when your employment contract was to expire and you would return to Australia permanently.

You travelled on an Australian passport and arrived in COUNTRY X on the same date you departed Australia.

You and Person A stayed in hotel accommodation for several weeks after which you leased an apartment (the Apartment), which a contract for a period of nearly two years.

You had a following in COUNTRY X:

•                     A bank account with the local bank that you had opened during a previous employment assignment into which your salary was paid and was used for local transactions with a debit card and credit card available

•                     Furniture, purchased as a house lot to furnish the Apartment

•                     A motor vehicle provided by your employer for your personal use

•                     The services of a house manager and driver; and

•                     Health Insurance provided by your employer.

You did not establish any social or sporting connections in COUNTRY X.

You did not establish any professional membership/s while you were in COUNTRY X and had not let any professional membership in Australia lapse during your period in COUNTRY X.

You travelled to COUNTRY A to attend a leadership retreat for several days before travelling back to COUNTRY X.

You and Person A each completed an Electoral Commission form to indicate that you would be away from your principal place of residence temporarily for around twelve months and may not be available to vote.

You did not notify the following that you were departing Australia:

•                     Medicare

•                     Any health insurance provider to have your policy suspended or cancelled

•                     Any Australian financial institutions with whom you have investments

Your salary was directly credited into a bank account you held in COUNTRY X.

You paid tax in COUNTRY X for the period from Date 1 to Date 2, with your employer making monthly deductions as you were viewed as a Resident Non-Ordinary Resident for COUNTRY X tax purposes

You have not lodged your tax return for the financial year in relation to your employment in COUNTRY X, with the financial year in COUNTRY X having ended.

You did not receive any Australian sourced income while you were in COUNTRY X.

Prior to leaving Australia you and Person A had resided at a jointly owned property located in Australia (the Property) which was left vacant during the period you and Person A were in COUNTRY X, remaining fully furnished with your personal possessions kept there. This was due to your preference to leave it vacant rather than move your personal possessions and household effects to COUNTRY X. You had done this in relation to your previous overseas assignment.

Mail was sent to your post office box during the period you were in COUNTRY X, which was collected by a family member living locally, in Australia.

You held the following in Australia during the period you were in COUNTRY X:

•                     You and Person A have several joint savings bank accounts, visa accounts and Master card accounts

•                     You and Person A each have a superannuation account

•                     A jointly owned investment property with Person A

•                     A motor vehicle and drivers' license; and

•                     An adult child and other family members in Australia.

You anticipated not coming back to Australia other than for holiday purposes while you were in COUNTRY X with a holiday originally planned in Australia around Christmas time, before returning to COUNTRY X at the beginning of the following year. However, you returned to Australia earlier than expected, arriving on Date 4 at the beginning of the month in which you had anticipated coming to Australia. On your arrival you went directly to the Property where you continue to stay until the present time.

Your parent was ill, so you stayed in Australia where you worked from the Unit until you made the decision to remain in Australia and perform your employment role from here.

Your employment contract with Company ABC was cancelled on Date 2 and you signed a new employment contract with Company ABC's main office located in COUNTRY B shortly after the cancellation of your employment contract with Company ABC under which you would be based in Australia.

After some months you departed Australia on to travel to COUNTRY X to undertake activities in relation to the ending of the Apartment lease, sale of the furniture, and finalising your employment in COUNTRY X. While you were there you stayed in hotel accommodation for a period. You departed COUNTRY X to return to Australia after several weeks, where you have remained permanently since your return.

Neither you nor Person A were Commonwealth Government of Australia employees for superannuation purposes and are not eligible to contribute to the PSS or the CSS Commonwealth Super funds.

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: Were you a resident of Australia for taxation purposes on and from Date 1 to Date 2?

SUMMARY

You were a resident of Australia on and from Date 1 to Date 2 because you met several of the residency tests as outlined below.

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 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.

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.

Generally, if you work overseas but return to Australia at intervals to resume a pre-existing, established family and social life will often mean you are still residing in Australia. This is the case even if you spend more time overseas than in Australia in any given income year. Usually, such arrangements indicate that you are residing in Australia even though you have a connection with another country. Having an ongoing, deliberate connection to Australia even though you have a connection to another country through your work does not make you a mere visitor to Australia and generally in such cases Australia is your home and you are regarded as residing here.

Generally, a period of less than six months in a country would not be viewed as sufficient time to be regarded as residing in that country because a person does not usually establish a sufficient connection with the country in that time and would not normally demonstrate a connection that is consistent with residing in the country.

Where your intention changes, the facts of your stay in the country must be considered, such as when there is a change in the original intention in relation to the length of stay in a country.

APPLICATION TO YOUR SITUATION

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

•                     Physical presence - You were living in Australia when you entered into the employment contract to commence on Date 1, in COUNTRY X.

You departed Australia after Date 1, to travel to your employers operation in COUNTRY Z, with an intention to depart for COUNTRY X, shortly thereafter. You returned to Australia after a short period, however, having contracted COVID in COUNTRY Z, which delayed your departure to COUNTRY X.

You returned to Australia and resumed living in the Unit.

After a few weeks you and Person A departed for COUNTRY X, arriving on the same date. Other than a trip to COUNTRY A for several days, you stayed in COUNTRY X until you departed with Person A for Australia, arriving in Australia on Date 4.

After your arrival in Australia, you have continued to stay at the Property until the present time with the exception of a period of several weeks when you travelled to COUNTRY X to finalise the Apartment lease and sell the household furniture.

•                     Intention or purpose - Your stated intention was to live in COUNTRY X for the length of your employment contract on Date 3 and then return to Australia.

The duration and continuity of your presence in COUNTRY X was determined by the requirements of your employment contract, which was for two years.

•                     Behaviour - You obtained the relevant visa to enable you to live and work in COUNTRY X for the duration of your employment contract.

You leased the Apartment and purchased furniture to furnish it and engaged the services of a house manager and driver.

Your behaviour supports your stated intention to reside in COUNTRY X. However, you had a change of intention when you decided to stay in Australia around Date 2, having resumed living in the Unit from Date 4 when you arrived in Australia.

•                     Family and business/employment ties - Your full-time employment contract had commenced on Date 1.

You had travelled to your employer's operation in COUNTRY Z, with the intention to depart for COUNTRY X shortly thereafter.

You returned to Australia after a short period, having contracted COVID in COUNTRY Z, which delayed your departure to COUNTRY X.

After a few weeks you and Person A departed Australia for COUNTRY X, with the intention to reside in COUNTRY X for the duration of your employment contract.

Just prior to the Christmas period, you returned to Australia and resided at the Unit, where you continued to reside until present time.

During this time you made the decision to remain in Australia and perform your employment duties remotely from Australia.

Your salary was directly credited into a bank account you held in COUNTRY X.

You paid tax in COUNTRY X, from Date 1 to Date 2, with your employer making monthly deductions as you were viewed as a resident for COUNTRY X tax purposes.

Your employment contract was cancelled on Date 2 and you signed a new contract with your employers COUNTRY B operation, for which you will be based in Australia.

You do not have family in COUNTRY X other than Person A and do not have any social or sporting connections there. You have an adult child and other family members in Australia.

•                     Maintenance and location of assets - The Property was left vacant with all of your and Person A's possessions being kept in it. You also have a car, several jointly held bank accounts, Master card and visa accounts, a superannuation account, a jointly owned investment property and drivers' license in Australia.

In COUNTRY X you have an employment contract, a bank account with credit card and debit card access, furniture, health insurance and the use of a car provided by your employer.

•                     Social and living arrangements - You did not make any social or sporting connections in COUNTRY X. Your family and home are located in Australia which you return to after your employment assignments.

Based on the information provided:

•                     You maintained a place of residence in Australia, being the Property, during the period of several months you were in COUNTRY X, in which your and Person A's personal effects were left while you were in COUNTRY X. The Unit was not rented during this period and was always available to you.

•                     While the intention had been for you and Person A to stay in COUNTRY X for two years in accordance with your employment contract, that did not occur and you did not dwell permanently, or for a considerable time in COUNTRY X given the short period you and Person A stayed there

•                     Given the temporary nature of time spent in COUNTRY X, you did not cut your ties with Australia, with the intention not being to leave on a permanent basis, but to return when your employment contract ended; and

•                     You retained a continuity of association with Australia during the period you were in COUNTRY X given the majority of your assets and family members, with the exception of Person A, are located in Australia.

In your situation you are viewed as being a resident of Australia under the resides test from Date 1 until Date 2 as follows:

•                     while the employment contact commenced on Date 1, you had not departed Australia until the next day. Therefore, you were a resident of Australia up to and on Date 1

•                     You departed Australia to travel to COUNTRY Z in relation to your employment where you contracted COVID, returning to Australia after a short period. It was not your intention to reside in COUNTRY Z and you did not meet any other conditions to be viewed as having resided in COUNTRY Z. Therefore, you were a resident of Australia on and from the date you travelled to COUNTRY Z until your return to Australia from COUNTRY Z

•                     You stayed in Australia for several days after your return from COUNTRY Z and then departed for COUNTRY X. During this period you were a resident of Australia

•                     You stayed in COUNTRY X for several months until you departed for Australia. As outlined above, you are viewed as being a resident of Australia during the period you were in COUNTRY X

•                     You were not physically present in COUNTRY X until you returned there several months later for a period of several weeks while you finalised the lease for the Apartment and sold your furniture before returning to Australia. During that time your intention was to reside in Australia, and you had spent the time in COUNTRY X to finalise your connections in COUNTRY X with the intention to return to Australia.

You are a resident of Australia under the resides test for the period Date 1 to Date 2.

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.

If you have an Australian domicile and are living outside of Australia, you will retain your Australian domicile if you intend to return to Australia on a clearly foreseen and reasonably anticipated contingency, such as at the end of your employment contract, even if it is for a substantial period, because you lack the necessary intention to settle in that country indefinitely.

In your case, you were born in Australia and your domicile of origin is Australia.

It is considered that you did not abandon your domicile of origin in Australia and acquire a domicile of choice in COUNTRY X. You were not entitled to reside in COUNTRY X indefinitely and while living in COUNTRY X, you only held a work permit which was valid for XX years.

Therefore, your domicile is Australia.

Permanent place of abode

If you have an Australian domicile, you are an Australian resident unless the Commissioner is satisfied that your permanent place of abode is outside Australia. This is a question of fact to be determined in light of all the facts and circumstances of each case.

'Permanent' does not mean everlasting or forever, but it is to be distinguished from temporary or transitory.

The phrase 'permanent place of abode' calls for a consideration of the physical surroundings in which you live, extending to a town or country. It does not extend to more than one country, or a region of the world.

The Full Federal Court in Harding v Commissioner of Taxation [2019] FCA 29 held at paragraphs 36 and 40 that key considerations in determining whether a taxpayer has their permanent place of abode outside Australia are:

•                     whether the taxpayer has definitely abandoned, in a permanent way, living in Australia

•                     whether the taxpayer is living in a town, city, region or country in a permanent way.

The Commissioner considers the following factors relevant to whether a taxpayer's permanent place of abode is outside Australia:

(a)          the intended and actual length of the taxpayer's stay in the overseas country

(b)          whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time

(c)           whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia

(d)          whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence

(e)          the duration and continuity of the taxpayer's presence in the overseas country; and

(f)            the durability of association that the person has with a particular place in Australia, that is, maintaining assets in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.

As with the factors under the resides test, no one single factor is decisive, and the weight given to each factor depends on the individual circumstances.

A departure from Australia with an intention to return to Australia after a finite period would generally not result in you having a permanent place of abode overseas with the period of two years being considered a substantial period of time, with the critical question being whether a person has abandoned Australia residency and commenced to live in a permanent way overseas.

Similarly, if you take up an employment opportunity overseas or commence living overseas with no fixed timeframe but as a tentative venture, you are unlikely to have your permanent place of abode overseas. This is because you are likely to retain Australia as your home, maintaining connections that are not consistent with an abandonment of Australia as your place of residence.

You cannot have your permanent place of abode both in Australia and overseas. Having a permanent place of abode overseas involves having definitely abandoned residency in Australia.

APPLICATION TO YOUR SITUATION

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

•                     You had intended going to COUNTRY Z and then leaving for COUNTRY X, however your stay in COUNTRY Z was extended due to you contracting COVID. You did not intend staying in COUNTRY Z and when you were able to travel you returned to the Property. It cannot be viewed that you established a permanent place of abode in COUNTRY Z

•                     Your intention was to travel to COUNTRY X to work and live for two years in accordance with your employment contract, anticipating returning to Australia at the end of your employment contract on Date 3

•                     After staying in hotel accommodation for several weeks you leased the Apartment ending several weeks after Date 3, however the lease was ended several months after Date 4 when you returned to Australia and resumed living at the Property

•                     You stayed in COUNTRY X for several months, returning to the Property upon your return to Australia where you continue to live until the present time; and

•                     You and Person A left all your possessions in the Property during your stay in COUNTRY X, which was available to you for your immediate use and enjoyment whenever required, and to which you returned whenever you were in Australia. It cannot be viewed that you had abandoned the Property while you were in COUNTRY X and you retained a continuity with Australia while you were overseas, with the intention to return to the Property on the completion of the employment contract, which ended up being at an earlier date than had originally been anticipated. The Property has been your home at all material times, which remained your home while you were overseas.

The Commissioner is not satisfied that your permanent place of abode is outside Australia. Therefore, you are 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.

You were in Australia for 183 days or more during the ruling period. 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, or would live, but for being absent from it. 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

You were in Australia for 183 days or more during the ruling period. 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.

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

•                     You have family members and more significant assets in Australia, with your personal ties to Australia being stronger than with COUNTRY X

•                     You lived at the Property prior to departing to COUNTRY X and you had resumed living there after your return to Australia on Date 4

•                     You lived in the leased Apartment while you were in COUNTRY X, which was leased for a twelve-month period, however only resided at this address for a number of months. You did not establish any social or sporting connections in COUNTRY X and The Unit was available to you whenever you wished to use it

•                     You returned to Australia on Date 4 for a holiday but had continued to live in the Property after your intentions changed in relation to your employment in COUNTRY X, with you wishing to remain in Australia. The lease for the Apartment has been finalised and the household items were sold several months after your return to Australia: and

•                     You have obtained a new employment contract commencing after Date 2 which enables you to work in Australia.

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

Therefore, as it is viewed that your usual place of abode is not outside of Australia, we do not need to consider whether your intention was to take up residence in Australia.

Accordingly, as you have spent more than 183 days during the ruling period and your usual place of abode is not outside of Australia, you meet the 183 days 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

As you met one or more of the four tests of residency, you were a resident of Australia for the period Date 1 to 31 Date 2, and the rest of the income year covered by the ruling period.

Question 2: Are you a resident of Australia under Double Tax Agreement, between Australia and COUNTRY X (the DTA)?

SUMMARY

You are a resident of Australia under the relevant article of the DTA between Australia and COUNTRY X. You are not a resident of COUNTRY X under the DTA.

DETAILED REASONING

Double Taxation Agreement

In determining liability to Australian tax on foreign sourced income, it is necessary to consider not only the income tax laws, but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the ITAA 1997 so that those Acts are read as one.

Section 5 of the Agreements Act states that, subject to the provisions of that Act, any provision in an Agreement listed in section 5 has the force of law.

Article A of the DTA between Australia and COUNTRY X provides the meaning of the term 'resident of a Contracting State' for the purposes of determining the residency status of a person under the DTA. It also sets out the tiebreaker rules for residency for individuals to 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 DTA. The tiebreaker rules do not change a taxpayer's residency status for domestic law purposes.

Article A outlines that:

•                     a person is a resident of one of the Contracting States if the person is a resident of that Contracting State for the purposes of its tax. However, a person is not a resident of a Contracting State for the purposes of this Agreement if the person is liable to tax in that State in respect only of income from sources in that State.

•                     Where an individual is a resident of both Contracting States under the above paragraph, then the status of that person shall be determined in accordance with the following rules:

-        the person will be the resident solely of the Contracting State in which a permanent home is available to the person;

-        if a permanent home is available to the person in both Contracting States, or in neither of them, the person shall be deemed to be a resident solely of the Contracting State with which the person's personal and economic relations are closer, taking into consideration an individual's citizenship, habitual abode and economic relations with that Contracting State.

The above tiebreaker rules do not change a taxpayer's residency status for domestic law purposes.

Permanent home

Taxation Ruling TR 2001/13 discusses 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.[1]

Permanent home is not defined in the DTA. 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':

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.

APPLICATION TO YOUR SITUATION

Under Australian law, you were an Australian resident from Date 1 until Date 2. However, you are also viewed as a resident for taxation purposes in COUNTRY X and you have been taxed there in relation to your employment income. Therefore, the tiebreaker test as outlined in the DTA above needs to be applied.

Based on the information provided it is viewed that you had a permanent home in Australia, which is jointly owned by you and Person 1, and which was retained for your permanent use during the whole of the ruling period income year whenever you wished to use it, including the period you were in COUNTRY X.

The Apartment in COUNTRY X was leased in accordance with the period you had originally intended to work there, which was for a finite period and your intention was not to remain in COUNTRY X. You only resided at this address for a number of months.

Under the DTA you are a resident of Australia and not a resident of COUNTRY X.

Question 3: Is your employment income earned in relation to your employment contract inCOUNTRY X assessable income in Australia, under the DTA between Australia and COUNTRYX?

SUMMARY

Based on Article B of the DTA, Australia and COUNTRY X both have the taxing right on the employment income you derived in relation to employment contract in COUNTRY X. Therefore, you are required to declare the income you earned in relation to your COUNTRY X employment contract in your Australian income tax return. However, to prevent double taxation you can claim a foreign income tax offset in relation to the tax paid in COUNTRY X.

DETAILED REASONING

Income as employee

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident taxpayer includes the ordinary income derived by the taxpayer directly or indirectly from all sources, whether in or out of Australia, during the income year.

Employment income is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

In determining the liability to tax on foreign sourced income received by a resident, it is necessary to consider not only the income tax laws, but also any applicable double taxation agreements in the International Tax Agreements Act 1953 (the Agreements Act).

Article B of the DTA outlines the treatment of salaries, wages and other similar remuneration as follows:

•                     Subject to the provisions of Articles X, Y, and Z, 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.

Article C of the DTA provides the following paragraph to eliminate double taxation:

•                     Subject to the provisions of the law of Australia from time to time in force 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 hereof), tax paid under the law of COUNTRY X and in accordance with this Agreement, whether directly or by deduction, in respect of income derived by a person who is a resident of Australia from sources in COUNTRY X shall be allowed as a credit against Australian tax payable in respect of that income.

APPLICATION TO YOUR SITUATION

In your case, as you are a resident of Australia for taxation purposes, your assessable income includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. This includes the income you derive from your employment in COUNTRY X.

As outlined above, under Article B COUNTRY X can tax employment income earned in COUNTRY X when a person is a resident of Australia.

However, Article C of the DTA outlines that an Australian resident can claim a Foreign Income Tax Offset (FITO) as a credit in relation to tax payable in Australia in relation to the COUNTRY X income.

Therefore, while your COUNTRY X employment income was taxed in COUNTRY X, you must report your COUNTRY X employment income in your income tax return covered by the ruling period. You will also include information in your income tax return to claim a FITO in relation to the tax paid in COUNTRY X on your employment income to ensure that you are not double taxed.

[1] See also ATO ID 2003/1195