Private ruling: Residency
Published: November 2014
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2011

Ruling: Questions and answers | 1) Under the tiebreaker test in country X double tax agreement (DTA), are you a resident of Australia for the purposes of the DTA? | No | 2) Is your country X sourced employment income assessable in Australia under the DTA? | No

Relevant facts and circumstances: Your country of origin is country X. You studied in country X. You lived in Australia for 25 years. You are a citizen of Australia and country X. You are a resident of Australia for tax purposes. You have extended family in country X. You have a biological child who lives in Australia, who you have no legal responsibilities for. You were offered a permanent position with an employer in country X. You resigned from your job in Australia. You removed yourself from the Australian electoral roll. You partner also moved to country X with you and applied for an indefinite right to remain visa. You intended to relocate to country X permanently. You took furniture, clothes, personal effects including paintings and artworks with you to country X. Your employer provided you with accommodation initially for the first year until you found your own accommodation. You rented your own accommodation during your second year in country X and utilities were connected in your name. You have a house in Australia which you rented out while you were living in country X, you did not sell it as you were waiting for the property market to improve. The house was rented out unfurnished. Your spouse has another property in Australia that was not rented for the time you were in country X. Your other assets in Australia include bank accounts, superannuation. You have a bank account and shares in country X. During your time living in country X you returned to Australia on short visits for holidays and to conduct business for your employer. You spent a maximum of 20 days per annum in Australia. You gave notice to your employer that you would be finishing your employment contract with them. Your employment was officially terminated and you used up some unpaid vacation leave at the end of the notice period. Your decision to leave country X and return back to Australia was due to the following reasons: • you had moved to the country X to see more of your mother and siblings however your mother died suddenly • your partner did not secure any paid employment in country X and was homesick • your new job was very stressful with long working hours and you were offered a senior role with an Australian company. You returned to Australia to live. Neither you nor your spouse have been employees of the Commonwealth.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1936 Subsection 6(1) | Income Tax Assessment Act 1997 Subsection 995-1(1)

Reasons for decision: Detailed Reasoning - Double tax agreement between Australia and country X: In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements. Section 4 of the International Tax Agreements Act 1953 (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 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(3) of the country X Agreement states: Where by reason of the preceding provisions of this Article a person, being an individual, is a resident of both Contracting States, then the status of the person shall be determined as follows: (a) the individual shall be deemed to be a resident only of the Contracting State in which a permanent home is available to the 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) | Detailed Reasoning - Application to your circumstances: In your case you have a permanent home available to you in both Australia (your spouse's dwelling that was not rented out) and your rental property in country X. Therefore, as you have a permanent home available to you in both Australia and country X, we will consider the State in which your personal and economic relations are closer. | Detailed Reasoning - 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. It is clear that your economic relations are greater and stronger in country X due to the following: • You established assets in country X. • You left your job in Australia to move to country X to take up employment. • You were working for the same employer during your time in country X. • You paid tax on your earnings in country X. • You are a citizen of country X. ATO ID xxxx states that the most significant factor in establishing to which state a taxpayer's personal relations are closer is where the taxpayer regularly lives with his family. It is clear that your personal relations are stronger in country X due to the following: • Your spouse moved with you to country X. • All of your extended family live in country X. • Your spouse applied for and received a permanent visa allowing them to remain in country X indefinitely. | Detailed Reasoning - Conclusion: In your case, you are a resident of Australia for income tax purposes. However, under Article 4 of country X Agreement, you are a resident of country X for the purposes of country X agreement because your centre of vital interests are closer to country X. | Detailed Reasoning - Employment income: Article 14 of country X Agreement provides that salaries, wages and other similar remuneration derived by a resident of country X in respect of an employment shall be taxable only in country X unless the employment is exercised in Australia. In your case, you worked in country X and therefore your income from your employment in country X is taxable only in country X.