Private ruling: Residency
Published: June 2014
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: 1 July 2013

Ruling: Questions and answers | 1) Are you a resident of Australia for income tax purposes? | Yes | 2) Are you a resident of Country X only under Article 4 of the Double Tax Agreement between Australia and Country X? | No

Relevant facts and circumstances: Your country of origin is Australia and you are a citizen of Australia. You married your spouse in certain month 2013. Your spouse is a citizen of the Country X and has family there. You left Australia to live in Country X to be with your spouse. You live in rental accommodation which is in your spouse's name. You started living in Country X and were issued the relevant working visa. You are a resident of Country X for tax purposes. You are not a citizen of Country X. You and your spouse intend to return to Australia to live within the next two years but this will depend on a family member's health. Your immediate family including siblings, adult children and grandchild all live in Australia. You own a property in Australia which is being rented out. You rent a property on a long term lease with another tenant and stay in the property when you return to Australia. You will continue to lease the property until you return to Australia permanently. You are the sole shareholder and director of a company carrying on a business in Australia. All of the company's clients are located in Australia. Due to the nature of your work you are able to carry out your work remotely regardless of where you are living. You intend to return to Australia at least four times per year to attend quarterly client meetings and to perform scheduled maintenance of your company. You will return to Australia at other times for vacations and to visit relatives and friends. You do not expect to be in Australia for more than 183 days in the 2014, 2015 or 2016 income years. You maintain a bank account in both Australia and Country X. You are the sole member of a self-managed superannuation fund (SMSF) in Australia. All of your assets are located in Australia. Neither you nor your spouse have ever been Commonwealth Government of Australia employees for superannuation purposes.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1936 Subsection 6(1) | International Tax Agreement Act 1953

Reasons for decision: Detailed Reasoning - Residency: The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 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 (ordinary concepts test) • domicile and permanent place of abode test; • 183 day test; and • Commonwealth superannuation fund test. The primary test for deciding the residency status of each individual is whether they reside in Australia according to the ordinary meaning of the word resides. Where it is determined that a taxpayer 'resides in Australia' in accordance with the first test, there is no requirement to consider the other tests. The other three tests operate to broaden the definition of resident beyond the resides test. | Detailed Reasoning - The resides (ordinary concepts) test: The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'. As the word 'reside' is not defined in Australian taxation law, it takes its ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936. The ordinary meaning of the word 'reside', according to the Macquarie Dictionary , 2001, rev. 3 rd edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; having one's abode for a time', and according to the Compact Edition of the Oxford English Dictionary (1987), is 'to dwell permanently, or for a considerable time, to have one's settled or usual abode, to live in or at a particular place.' In considering the definition of 'reside', the court noted in Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 that the term 'reside' should be given a wide meaning for the purposes of section 6(1) of the ITAA 1936. Similarly, in Subrahmanyam v Commissioner of Taxation 2002 ATC 2303, it was stated that the widest meaning should be attributed to the word 'reside'. The question of whether an individual 'resides' in a particular country is a question of fact and degree and not of law. In deciding this question, the courts have consistently referred to and taken into account the following factors as being relevant: (i) Physical presence in Australia (ii) Nationality (iii) History of residence and movements (iv) Habits and "mode of life" (v) Frequency, regularity and duration of visits to Australia (vi) Purpose of visits to or absences from Australia (vii) Family and business ties to different countries (viii) Maintenance of Place of abode. The weight given to each factor varies with individual circumstances and no single factor is necessarily decisive. To determine whether or not you are residing in Australia for taxation purposes, it is necessary for us to examine each of these factors in the context of your circumstances. | Detailed Reasoning - (i) Physical presence in Australia: It is important to note that a person does not necessarily cease to be a resident because he or she is physically absent from Australia. In Joachim v Federal Commissioner of Taxation 2002 ATC 2088 , the Tribunal stated (at 2090): 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 involuntary, 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, together with an intention to return to that place and an attitude that the place remains home. You left Australia to travel to Country X to be with your spouse. You intend to return to Australia permanently within approximately two years. During your time away in Country X you intend to return to Australia more than four times a year for work and personal visits. You do not expect to be in Australia for more than 183 days in the 2014, 2015 and 2016 income years. | Detailed Reasoning - (ii) Nationality: Your country of origin is Australia and you are a citizen of Australia. | Detailed Reasoning - (iii) History of residence: You lived in Australia prior to moving to Country X. You moved to Country X to be with your new spouse who is a citizen of Country X. You intend to move back to Australia permanently with your spouse within two years. | Detailed Reasoning - (iv) Habits and "mode of life": The Commissioner regards a person's habits and daily routines in regard to their domestic and business arrangements as strongly indicative of residency status. This is particularly relevant to determining the residency of a person who enters Australia, but is also relevant in assisting to determine the residency status of a person who leaves Australia. You moved to Country X to be with your spouse who lives there. You live in a rental property with your spouse. You return to Australia for business visits and holiday visits. | Detailed Reasoning - (v) Frequency, regularity and duration of visits to Australia: You plan to return to Australia more than four times a year for business purposes to attend quarterly client meetings and check systems of your company. You will also return to Australia for vacations and to visit relatives and friends. You do not expect to be in Australia for more than 183 days in the 2014, 2015 and 2016 income years. | Detailed Reasoning - (vi) Purpose of visits to or absences from Australia: When you return to Australia it is for business purposes as you are the Director and sole shareholder of a company in Australia. You will also return to Australia at other times to visit relatives and friends when you are on vacation. | Detailed Reasoning - Family: Your spouse and her family live in Country X. Your family members in Australia include your siblings, adult children and grandson. | Detailed Reasoning - Business or economic: Assets in Australia • a residential property that you own • a bank account • self managed superannuation fund • company You have stated all of your assets are in Australia and you do not have any assets in Country X. | Detailed Reasoning - (viii) Maintenance of Place of abode: You rent a property in Australia where you stay when you return to Australia. You rent it out with another tenant and the lease is a long term lease. In Country X you live in your spouse's rented accommodation. | Detailed Reasoning - Summary - resides test: As stated above it is important that not one single factor is decisive and the weight given to each factor depends on individual circumstances. Although you are living with your spouse in Country X there are several factors outlined above which indicate that you have not ceased to be a resident of Australia. Specifically: • you only intend to be in Country X for a temporary time because your father in law is in poor health • you intend to return to Australia within two years depending on the health of your father in law • you plan to return to Australia with your spouse to live here permanently • you are a citizen of Australia and not Country X • all of your immediate family members are in Australia • you own a property in Australia • you rent a property in Australia on a long term lease agreement • you have stronger financial ties to Australia as you have more assets in Australia • you will return to Australia a number of times for business and personal visits Based on a consideration of all of the factors outlined above you are a resident of Australia according to the resides test as you will maintain a continuity of association with Australia for the relevant periods. | Detailed Reasoning - Conclusion - your residency status: As you have passed the resides test we have determined that you are a resident of Australia for tax purposes. It is therefore not necessary to cover the remaining tests. | Detailed Reasoning - Double tax agreement between Australia and Country X: To determine your liability to pay tax in Australia, it is necessary to consider any applicable double tax agreements contained in the International Tax Agreement Act 1953 (the Agreements Act). Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations). Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country X Agreement is listed in section 5 of the Agreements Act. The Country X agreement is located on the Austlii website ( www.austlii.edu.au ) in the Australian Treaties Series database. The Country X agreement operates to avoid the double taxation of income received by residents of Australia and the Country X. Article 4(2) 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. Article 4 (2) provides that if an individual is a resident of both Australia and Country X, the individual shall be deemed to be a resident of the country: (a) in which the individual maintains a permanent home, (b) if the provisions of subparagraph (a) do not apply, in which the individual has an habitual abode if they have a permanent home in both countries or in neither of the countries, or (c) if the provisions of subparagraphs (a) and (b) do not apply, with which the individual's personal and economic relations are closer if they have a habitual abode in both countries or in neither of the countries. Taxation Ruling TR 2001/13 Income tax: Interpreting Australia's double tax agreements (TR 2001/13) discusses the Commissioners views on tax treaties. Paragraph 104 of TR 2001/13 provides that the Organisation for Economic Co-Operation and Development's (OECD) model Tax Convention and Commentary will often need to be considered in interpreting tax treaties. | Detailed Reasoning - Application of the rules in relation to your circumstances: Permanent home The OECD commentaries state at paragraph 12-13 that for a place to be a permanent home, it must be: • a place which the individual owns or possesses. Rented accommodation may also be a permanent home • a permanent home may be a house or an apartment or a furnished room • the place must be available to the individual at all times continuously and not occasionally In your case as you meet the above conditions both in Country X and Australia as you have a house available to you in both countries, this first tie-breaker rule is not conclusive to your circumstances. Habitual abode According to paragraph 17 of the OECD commentaries, where an individual has a permanent home in both countries, his habitual abode is taken to be the place where he stays more frequently. ATO ID 2004/XXX Assessability of directors fees received from a Country X company by a dual resident of Australia and the Country X states in relation to a habitual abode, it is simply not a test of where a person stays more frequently but also whether living in a particular country is normal or customary having regard to the taxpayer's circumstances. In your case you live with your spouse in rental accommodation in Country X and for the income years in question you will spend more time in Country X than in Australia. However it is also normal practice for you to return to Australia and live in a rental property which you have a long term lease. Therefore, as you have a habitual abode in both Australia and Country X, the second tie-breaker test is not conclusive to your circumstances. Therefore your personal and economic relations need to be considered to determine your residency status for the purpose of Country X /Australia Agreement. Economic and personal relations In relation to a taxpayer's personal and economic relations, the OECD Commentary provides that regard should be had to factors such as family and social relations, occupation, political, cultural or other activities and place of business. Furthermore, Article 4 (2) of Country X Agreement states: '…in determining the Contracting State with which an individual's personal and economic relations are closer, regard shall be given to his citizenship (if he is a citizen of one of the Contracting States). In your case your personal and economic relations are closer in Australia due to the following: • you are a citizen of Australia • all of your assets are in Australia • you have family in Australia - siblings, adult children, grandchild • you return to Australia for business purposes as you are a Director and shareholder of your company in Australia | Detailed Reasoning - Conclusion -residency under double tax agreement: You are a resident of Australia under domestic tax law and you are a resident of Australia under Article 4 of the Country X Agreement, because your personal and economic relations are closer to Australia. | Detailed Reasoning - Assessability of income from employment exercised in Country X: Article 15(1) of the Country X Agreement provides that salaries, wages and other similar remuneration derived by an individual who is a resident of Australia in respect of an employment or in respect of services performed as a director of a company shall be taxable only in Australia unless the employment is exercised or the services performed in Country X. If the employment is so exercised or the services so performed, such remuneration as is derived from the exercise or performance may be taxed in the Country X. However, Article 15(2) of Country X Agreement provides that income from an individual who is a resident of Australia in respect of employment exercised in Country X or in respect of services performed in Country X as a director of a company shall be taxable only in Australia if: (a) the individual is present in Country X for a period or periods not exceeding in the aggregate 183 days in the taxable year or year of income of Country X (you will be present in Country X for more than 183 days) (b) the income is paid by, or on behalf of, an employer or company who is not a resident of the Country X (yes, the income is paid by a non resident company of the Country X) and (c) the income is not deductible in determining taxable profits of a permanent establishment or a fixed base or a trade or business which the employer or company has in the Country X (this is not applicable to you) In your case you will be present in Country X for more than 183 days in the US tax year and your income is paid by an Australian company however you do not meet factor (c) above therefore the income may still be taxable in Country X. Article 22(1)(a) of the Country X Agreement provides that the Country X shall allow a resident or citizen of the Country X as a credit against Country X tax the appropriate amount of income tax paid to Australia. | Detailed Reasoning - Mutual agreement procedure: Article 24(1)(a) provides where a resident of one of the Contracting States considers that the action of one or both of the Contracting States results or will result for him in taxation not in accordance with this Convention, he may, notwithstanding the remedies provided by the domestic laws of those States, present his case to the competent authority of the Contracting State of which he is a resident or citizen. The case must be presented within three years from the first notification of that action.