Edited version of private advice

Authorisation number: 1052145609792

Date of advice: 9 August 2023

Ruling

Subject: Residency - double tax agreements and income

Question 1.

Are you a resident of Australia for taxation purposes?

Answer

Yes. We have considered each of the statutory tests in relation to your particular facts and circumstances and conclude that, for the period 1 July 20XX to 30 June 20XX, you are and will be a resident of Australia for taxation purposes. The Commissioner is satisfied that you are a resident of Australia for income tax purposes.

Question 2

Are you a resident of Australia under Article X of the Convention?

Answer

Yes. When applying Article X of the Convention to your situation, you do not have a permanent home in Country X, so therefore you would be considered a resident of Australia from 1 July 20XX.

Question 3

Is income tax and capital gains tax (CGT) payable in Australia on your Pension, dividends received from any shares you hold in Country X and for the disposal of any Non-Real property assets held in Country X?

Answer

Yes. Your assessable income includes the ordinary and statutory income you derived directly or indirectly from all sources whether in or out of Australia (worldwide income). Your Pension received as income will be taxable in Australia. You can apply under the Convention for relief at source from Country X Income Tax on your Pension. Any non-real property assets held in Country X that are disposed of will be taxed in Australia. Dividends you receive may be taxable in Country X, however, this will depend on the company paying those dividends to you. If so, you can apply for a FITO in Australia.

This private ruling applies for the following periods:

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were born in Country X on DD MM 19XX.

You hold dual citizenship of Country X and Australia.

You are retired.

You and your wife reside at your home in Australia.

You do not have an ownership interest in any property outside of Australia.

Between 19XX and 19XX, you worked in Australia on secondment for your employer at the time, Company X.

In 19XX, you were granted Australian permanent residency.

In 19XX, you returned to live in the Country X.

In 20XX, you sold your home in the Country X.

In 20XX, upon retirement, you and Person A departed Country X to reside in Australia. At the time, person A, did not have the right to reside in the Country X.

In 20XX, you acquired Australian citizenship.

You have spent approximately X days outside of Australia since 20XX.

When you travel overseas, upon your return to Australia, you complete the incoming passenger card as a resident returning to Australia.

You have been residing in Australia for over 20 years and you intend to continue residing in Australia and you intend to continue residing in Australia.

You have not travelled outside of Australia since early 20XX.

Your Pension is paid into a bank account held in Country X. On a quarterly basis, you transfer part of your Pension to Australia for living expenses.

You hold Company X shares (your Shares) in Country X.

You have no investments in Australia.

You have no income sources in Australia.

You have never lodged an Income taxation return in Australia.

You lodge income taxation returns in Country X as a tax resident.

Your assets in Australia are your Home and a bank/ savings account(s).

You have assets in Country X in the form of your Shares, your Pension, and a bank account(s).

You have Country X sourced income which is taxed in Country X and consists of: your Pension, dividends, and interest.

You do not have or maintain professional, social, or sporting connections in Country X.

You are not eligible to contribute to the PSS or the CSS Commonwealth superannuation funds.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 section 6-5

International Tax Agreements Act 1953

Reasons for decision

Question 1

Detailed reasoning

Overview of the law

For tax purposes, whether you are a resident of Australia is defined by subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

The definition has four tests to determine your residency for income tax purposes. These tests are:

•                     the resides test

•                     the domicile test

•                     the 183-day test, and

•                     the Commonwealth superannuation fund test.

It is sufficient for you to be a resident under one of these tests to be a resident for tax purposes.

Our interpretation of the law in respect of residency is set out in Taxation Ruling TR 2023/1 Income tax: residency tests for individuals.

The resides test

The resides test is the primary test of tax residency for an individual. If you reside in Australia according to the ordinary meaning of the word resides, you are considered an Australian resident for tax purposes.

Some of the factors that can be used to determine whether you reside in Australia include:

•                     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.

No single factor is decisive, and the weight given to each factor depends on your specific circumstances.

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

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

Whether your domicile is Australia is determined by the Domicile Act 1982 and the common law rules on domicile. For example, you may have a domicile by origin (where you were born) or by choice (where you have changed your home with the intent of making it permanent).

Whether your permanent place of abode is outside Australia is a question of fact to be determined in light of all the facts and circumstances of each case. Key considerations in determining whether you have your permanent place of abode outside Australia are:

•                     whether you have definitely abandoned, in a permanent way, living in Australia

•                     length of overseas stay

•                     nature of accommodation, and

•                     durability of association.

The 183-day test

Under the 183-day test, if you are present in Australia for 183 days or more during the income year, you will be a resident, unless the Commissioner is satisfied that both:

•                     your usual place of abode is outside Australia, and

•                     you do not intend to take up residence in Australia.

The question of usual place of abode is a question of fact and generally means the abode customarily or commonly used by you when are physically in a country.

The Commonwealth Super 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 circumstances

We have considered each of the statutory tests listed above in relation to your particular facts and circumstances. We conclude that, for the period 1 July 20XX to 30 June 20XX, you are and will continue to be a resident of Australia as follows:

Taking into account your individual circumstances, we have concluded that you are a resident of Australia according to ordinary concepts.

We also consider that you have acquired a domicile of choice here in Australia and the Commissioner is satisfied that your permanent place of abode is not outside Australia.

You were in Australia for 183 days or more during the 20XX-20XX income year and you will be in Australia for 183 days during the income years 20XX-20XX, and the Commissioner is satisfied that both:

•                     your usual place of abode is not outside Australia, and

•                     you do not intend to take up residence outside of Australia.

You do not fulfil the requirements of the Commonwealth Superannuation test and are therefore not a resident under this test.

We considered the following factors in forming our conclusion:

•                     In 20XX, upon retirement, you and your wife departed Country X to reside in Australia

•                     You acquired Australian citizenship in 20XX.

•                     You and your wife reside at your Home in Australia.

•                     You do not own or have a permanent home outside of Australia.

•                     You have been residing in Australia for over X years.

•                     You intend to continue residing permanently in Australia.

•                     You have not departed Australia since 20XX.

•                     You are retired and use your Country X pension and investments currently held in Country X as an income source.

•                     You intend to transfer your investments that are currently held in Country X to Australia.

Conclusion

As you meet one or more of the four tests of residency, you are a resident of Australia for the relevant ruling period.

Question 2

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 Income Tax Assessment Act 1997 (ITAA 1997) and provide that the provisions of a double tax agreement have the force of law.

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]

Article X of the 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.

The relevant tiebreaker test in the Convention is as follows:

The status of an individual who, by reason of the preceding provisions of this Article is a resident of both Contracting States, shall be determined as follows:

(a) that individual shall be deemed to be a resident only of the Contracting State in which a permanent home is available to that individual; but if a permanent home is available in both States, or in neither of them, 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 Contracting State in which the centre of vital interests is situated cannot be determined, the individual shall be deemed to be a resident only of the State of which that individual is a national;

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

The Tiebreaker tests apply as follows:

•                     If one test resolves the tiebreak, then the following tiebreaker tests do not need to be considered.

•                     If the tiebreaker tests do not resolve the tiebreak, to break the tiebreak there is:

-             A supplementary test, for example citizenship.

-             A requirement to consult the other tax authority to resolve it by mutual agreement of the Competent Authorities of the respective countries.

Permanent home

Permanent home is not defined in the Convention. Therefore, recourse can be made to supplementary materials in order to aid construction. The OECD commentary to the Model Tax Convention 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.

We have concluded that do not have a permanent home in Country X based on the following considerations:

•                     In 20XX, you sold your property in Country X.

•                     You do not hold an ownership interest in any property outside Australia.

•                     You do not have a permanent home outside of Australia.

•                     You intend to continue residing in Australia.

•                     In 20XX, you were granted Australian citizenship.

•                     You have been residing in Australia for over X years.

Application to your situation

Under Australian law, you are an Australian resident from 1 July 20XX. You are also a resident for taxation purposes in Country X. The tiebreaker test needs to be applied.

We have concluded that the tiebreaker tests in Article X of the Convention apply so that you are deemed to be a resident only of Australia for treaty purposes. The provisions of the Convention will therefore apply on the basis that you are resident of Australia for tax purposes and not of the other country.

Under the Convention, you are a resident of Australia and not a resident of the Country X.

We considered the following factors in forming our conclusion:

•                     You have a permanent home in Australia.

•                     You have resided in Australia for over X years.

•                     You do not hold an ownership interest in any property outside Australia.

•                     You do not have a permanent home available to you in the Country X.

Conclusion

When applying Article X of the Convention to your situation, we considered that you have a permanent home in Australia, and you do not have a permanent home in Country X. Therefore, under the tie breaker test in the Convention, you would be considered a resident of Australia for the relevant ruling period.

Question 3

Article XX Dividends

Article XX of the Convention provides, dividends paid by a company which is a resident of a contracting state for the purposes of its tax, being dividends beneficially owned by a resident of the other contracting state, may be taxed in that other state.

However, those dividends may also be taxed in the contracting state of which the company paying the dividends is a resident for the purposes of its tax, and according to the law of that State, but the tax so charged shall not exceed: (a) 5 per cent of the gross amount of the dividends if the beneficial owner of those dividends is a company which holds directly at least 10 per cent of the voting power in the company paying the dividends; (b) 15 per cent of the gross amount of the dividends in all other cases

Based on Article XX of the Convention, both have the taxing right on the dividends you receive from companies' resident in Country X. Therefore, you are required to declare the income in relation to Country X in your Australian income tax return. However, to prevent double taxation, you can claim a foreign income tax offset in relation to any tax paid in Country X.

Article XX Capital Gains Tax

Article XX(x) of the Convention states gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3 and 4 shall be taxable only in the Contracting State of which the alienator (taxpayer) is a resident, unless the taxpayer is not the beneficial owner of the gains.

Based on article XX, the Convention assigns the sole taxing right on the capital gain for non-real property to Australia.

Article XX Pensions and annuities

Article XX of the Convention provides pensions and annuities paid to a resident of Australia shall be taxable for taxation purposes shall be taxable only in Australia. As an Australian resident for tax purposes and Convention purposes, your Country X pension is taxable in Australia.

Based on Article XX of the Convention, Australia has the taxing right on your Pension. Therefore, you are required to declare your income in relation to your Pension in your Australian income tax return. As a resident of Australia, you can apply under the Convention for relief at source from Country X Income Tax on a Country X source pension.

Article XX Elimination of Double Taxation

Article XX of the Convention provides that: 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 Reasons for decision Page 5 of 5 principle of this Article,Tax paid under the law of the 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 the Country X shall be allowed as a credit against Australian tax payable in respect of that income.

As you may be required to pay income tax in the Country X on the dividends, you can apply for FITO in Australia. Article XX of the Convention states that where you are an Australian resident for tax purposes and you pay tax in the Country X, amounts paid shall be allowed as a credit against Australian tax you pay on that income.

Conclusion

Your assessable income includes the ordinary and statutory income you derived directly or indirectly from all sources whether in or out of Australia (worldwide income).

Your Pension received as income will be taxable in Australia. You can apply under the Convention for relief at source from Country X Income Tax on your Pension.

Any non-real property assets held in Country X that are disposed of will be taxed in Australia.

Dividends you receive may be taxable in Country X, however, this will depend on the company paying those dividends to you. If so, you can apply for a FITO in Australia.