ATO Interpretative Decision
ATO ID 2012/93
Income Tax
Dual resident of Australia and Malaysia: permanent home availableFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is a home in Australia owned by the taxpayer, a dual resident, a 'permanent home available to him' for the purposes of Article 4.2(a) of the Malaysian agreement (Agreement between the Government of Australia and the Government of Malaysia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income [1981] ATS 15) where the taxpayer entered into a two year fixed term lease agreement with another person in respect of that home while he worked in Malaysia?
Decision
No. The taxpayer's home in Australia is not 'available to him' for the purposes of Article 4.2(a) of the Malaysian agreement for the term of the lease agreement.
Facts
At all material times, the taxpayer owns a house in Western Australia.
After living in that house and working in Australia, the taxpayer contracts with his employer to work in Malaysia for a period of two years. At that time, the taxpayer anticipates that he will return to live in Australia when his employment contract ends.
Under Article 4.1 of the Malaysian agreement, the taxpayer is a resident of Australia and Malaysia for the purposes of Australian and Malaysian tax respectively (a 'dual resident') for the two year period the taxpayer works in Malaysia.
Prior to travelling to Malaysia, the taxpayer leases his house in Australia to another person for a fixed term of two years ('the lease period'), the same period of time the taxpayer expects to be in Malaysia. The terms of the lease agreement are subject to the Residential Tenancy Act 1987 (WA).
For the term of the lease agreement:
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- the lessee has the exclusive right of quiet enjoyment of the property during the lease period: section 44 of the Residential Tenancy Act 1987 (WA) ('RTA')
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- the lessor's right to access the property is limited to emergencies, inspection of the property, collecting rent, carrying out repairs or maintenance, or showing prospective lessees or purchasers: section 46 of the RTA. In order to exercise this right, the lessor must give reasonable notice (except for the case of emergencies), and
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- unless there is a breach of a term of the lease agreement, the lessee's right of occupancy cannot be terminated until the lease period expires.
Reasons for Decision
Article 4.2(a) of the Malaysian agreement provides that a dual resident shall be deemed to be a resident solely of the Contracting State in which he has a permanent home available to him.
The term 'permanent home available to him' in Article 4.2(a) is not defined in the Malaysian agreement.
Article 3.3 of the Malaysian agreement provides for present purposes that, in Australia applying the agreement, any term not otherwise defined shall, unless the context otherwise requires, have the meaning which it has under Australian law.
Neither the composite phrase 'permanent home available to him' nor any part of that phrase is, relevantly, defined in Australian law. The Australian Oxford Dictionary, 2004, rev. 2nd edn, Oxford University Press, defines available as "capable of being used; at one's disposal."
In the present case, the taxpayer has a home in Australia and he continued to own that home while he was living and working overseas.
From the above, the lease agreement does not contain any conditions that allow the taxpayer, as lessor, to terminate the agreement and force the tenant from the home without due notice or process under the Residential Tenancy Act 1987 (WA).
Applying the ordinary meaning to the present case, the taxpayer is not able to occupy his home at any time during the lease period. In this sense, the taxpayer is not capable of using the home in this way nor, in the same sense, is it at the taxpayer's disposal.
Accordingly, based on the rights of the lessee under the lease agreement and the RTA, the Commissioner considers that the taxpayer's home is not 'available to him' for the term of the lease agreement for the purposes of Article 4.2(a).
This result is also consistent with the concept of the 'permanence' of the home set out in paragraphs 12 and 13 of the Commentary on Article 4 of the OECD Model which state:
'12. Subparagraph a) means, therefore, that in the application of the Convention ...it is considered that the residence is that place where the individual owns or possesses a home; this home must be permanent, that is to say, the individual must have arranged and retained it for his permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be a short duration.
13. As regards the concept of home, it should be observed that any form of home may be taken into account (house or apartment belonging to or rented by the individual, rented furnished room). But the permanence of the house is essential; this means that the individual has arranged to have the dwelling available to him at all times continuously, and not occasionally for the purpose of a stay which, owing to the reasons for it, is necessarily of short duration (travel for pleasure, business travel, educational travel, attending a course at a school, etcetera.).'
In the present case, the taxpayer's home does not satisfy the notion of permanence as described in paragraph 13 above in that, for the period of the lease agreement, the taxpayer has not 'arranged to have the dwelling available to him at all times continuously'.
Therefore, the home is not 'available to him' for the term of the lease agreement for the purposes of Article 4.2(a) of the Malaysian agreement.
Date of decision: 9 November 2012Year of income: Year ended 30 June 2010
Legislative References:
International Tax Agreements Amendment Act (No 1) 2011
Article 3.3
Article 4.1
Article 4.2(a)
section 44
section 46
Other References:
Malaysia Agreement [1981] ATS 15
Australian Oxford Dictionary, 2004, rev. 2nd edn, Oxford University Press
Commentary on Article 4 of the OECD Model Tax Convention on Income and on Capital as at 22 July 2010
Keywords
Double tax agreements
Treaties
Tax Treaties and other agreements
Dual residence
International tax
Residence in Australia
Residence of individuals
Malaysia
ISSN: 1445-2782