Edited version of private advice

Authorisation Number: 1052322315351

Date of advice: 23 October 2024

Ruling

Subject: Double tax agreement

Question 1

Are you a resident solely of Country X under Article X of the Double Tax Agreement (DTA) between Australia and Country X for the period from XX/XX/20XX to XX/XX/20XX?

Answer

Yes.

Question 2

Are you a resident solely of Australia under Article X of the DTA between Australia and Country X from XX/XX/20XX?

Answer

Yes.

Question 3

Is your employment income subject to tax only in Country X under Article X of the DTA between Australia and Country X from XX/XX/20XX to XX/XX/20XX?

Answer

Yes.

Question 4

Is your employment income only subject to tax only in Australia under Article X of the DTA between Australia and Country X from XX/XX/20XX?

Answer

Yes>.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

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

on XX/XX/20XX, you and your family travelled to Country X to live and work.

The purpose of you and your family travelling to Country X was to spend time with your spouse's family.

You held a temporary work visa to enter Country X which remained valid until your departure back to Australia.

Your spouse and children were Country X citizens from XX/XX/20XX until XX/XX/20XX and hold both Country X and Australian passports.

Your intention was to stay in Country X for a period and return to Australia during 20XX.

The pandemic prevented you from returning to Australia by your planned date, which extended your time in Country X.

You worked for your Australian employer remotely in Country X from XX/20XX until XX/20XX.

Your Australian employer withheld tax from your income until XX/20XX.

You paid tax in Country X on the same income and paid tax twice from XX/20XX until XX/20XX.

From XX/20XX until XX/20XX, your employer did not withhold any tax from your income.

You were required to lodge tax returns in Country X for the Country X tax years of 20XX, 20XX, 20XX and 20XX.

You recommenced working as an XXXX in Australia in XX/20XX.

You did not derive any income between XX/20XX and XX/20XX.

Your property in Australia was rented out for a period that you were in Country X

In XX/20XX, the tenant moved out of the property.

Your property in Australia was looked after by a friend until you returned in XX/20XX.

You sold most of your household affects in Australia.

Your car was with your parents in Australia.

You had a car in Country X.

Your children attended school in Country X.

You rented accommodation in Country X and had all household affects in Country X.

You commenced renting this property on XX/XX/20XX and the lease ended on XX/XX/20XX.

Your spouse worked in Country X until you returned to Australia in XX/20XX.

Your spouse lodged tax returns in Country X for Country X tax years 20XX, 20XX, 20XX and 20XX.

Your spouse commenced working in Australia in XX/20XX.

You are a resident of Country X for the 20XX income year.

You are a resident of Australia for the 20XX income year.

Your residency status, and your spouse's residency status did not change from XX/20XX until XX/20XX.

Your final Country X tax assessment and final payment to the Country X Tax Office was completed in XX/20XX.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1997 subsection 995-1(1)

International Tax Agreements Act 1953

Reasons for decision

Questions 1 & 2

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.

You have advised that you were a tax resident of Country X for the income year ended XX/XX/20XX and were a tax resident of Australia for the income year ended XX/XX/20XX.

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.

Article X of the Country X 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.

Permanent home

Permanent home is not defined in the Double Tax Agreement. 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.

Application to your situation:

From XX/XX/20XX, your living arrangements in Country X and Australia were as follows:

Country X

You had a home that you were renting with your spouse and children available to you until the lease concluded on XX/XX/20XX.

Therefore, you had a permanent home in Country X from XX/XX/20XX until XX/XX/20XX.

Australia

You owned your home in Australia that was being looked after by your friend, therefore it was still available for your own personal use.

You moved back into your home on XX/XX/20XX.

Therefore, you had a permanent home in Australia from XX/XX/20XX onwards.

Conclusion

As you had a permanent home in both Australia and Country X for the period from XX/XX/20XX until XX/XX/20XX, it is necessary to determine whether your personal and economic ties were closest.

Personal and economic ties

The OECD commentary 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. As noted in Pike v Commissioner of Taxation [2020] FCAFC 158 at [39], personal factors do not have greater weight than economic factors. In each case it will be a matter of fact and degree whether a taxpayer's personal and economic relations, viewed as a whole, support ties closer to one contracting state over the other contracting state.

Application to your situation:

During the period from XX/XX/20XX until XX/XX/20XX, your ties to Country X included the following:

•                     Your spouse and children were in Country X.

•                     You carried out your employment and derived income in Country X.

•                     You have family in Country X.

•                     Your spouse was employed in Country X.

•                     Your children attended school in Country X.

We have concluded that your personal and economic ties were closer to Country X than Australia for the period from XX/XX/20XX to XX/XX/20XX.

You are deemed to be solely a resident of Country X for the above period for the purposes of the Country X Agreement.

Conclusion

We have concluded that the tiebreaker tests in Article X of the Country X Agreement apply so that you are deemed to be a resident only of Country X for the period from XX/XX/20XX to XX/XX/20XX.

The provisions of the Country X Agreement will therefore apply on the basis that you are a resident of Country X and not of Australia for tax purposes for the period XX/XX/20XX to XX/XX/20XX.

We have also concluded that the tiebreaker tests in Article X of the Country X Agreement apply, so that you are deemed to be a resident only of Australia for treaty purposes from XX/XX/20XX.

The provisions of the Country X Agreement will therefore apply on the basis that you are a resident of Australia and not of Country X from XX/XX/20XX.

Questions 3 & 4

Taxation of employment income

Article X of the Country X Agreement deals with employment income.

Article X states:

Subject to the provisions of other Articles, salaries, wages and other similar remuneration derived by an individual who is a resident of a Contracting State 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.

In your case, you are a tax resident solely of Country X for the period to XX/XX/20XX.

As you were a resident of Country X under the tie breaker test and your employment was exercised in Country X, the income derived by your Australian employer is only taxable in Country X under Article X.

From XX/XX/20XX, you became a resident of Australia under the tie breaker test as your employment was exercised in Australia. Therefore, the income derived by your Australian employer is only taxable in Australia under Article X of the Country X Agreement.