Private ruling: Residency
Date of advice: 14 November 2017
Published: March 2018
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: 1 July 2013

Ruling: Q1: Will you be treated as a resident of Australia for Australian domestic tax purposes in the 2014 to 2017 Australian income years? | A1: Yes. | Q2: Based on the 'tie-breaker' tests contained in the Double Tax Agreement (DTA) between Australia and Country X will you be treated as: (a) a resident of Australia in respect of the 2014 income year ; and (b) a resident of Country X in respect of 2015 to 2017 income years for the purposes of the DTA? | A2: Yes.

Relevant facts and circumstances: According to the ruling application and your agent’s letter: You are an Australian citizen. You are not a citizen of Country X and you do not hold a Country X passport. You are a director of an Australian resident company (Company A). Company A has had a separate CEO who was appointed X years ago. Previously you held (via your family trust) a X% ownership interest in Company A. After a recent corporate restructure your family trust indirectly holds a XX% interest in Company A through two Country X incorporated companies. According to your agent’s letter, the estimated time you have spent on Company A work engagements and management since XXXX is less than X%. You spend an equal amount of time in Australia and in Country X undertaking work for Company A. According to your agent’s letter the revenue generated by Company A as a percentage of total international group revenue was less than X%. You have formerly had longstanding and broad business relationships and connections with your Australian clients and business partners. However, you currently no longer maintain connections in Australia. You only visit family when in Australia and have limited client engagements. You were granted a skilled migrant visa by the Country X authorities which allowed you to live and work in Country X for two years with a right to further extension. Your spouse was granted a Country X visa as a dependent. The main purpose of you living in Country X during this initial period was to expand the business in the foreign market. Company B was incorporated in Country X. This foreign company provides services similar to those provided by Company A. You personally owned a relevant share (non-voting) in Company B prior to a corporate restructure. After the restructure, your family trust indirectly owns less than X% in through two Country X holding companies. You have been actively involved in managing the business operations of Company B. You were a joint trustee of a Family Trust. This trust derived significant taxable income. The income derived by the Family Trust is from distributions made by Trust #1. Although it is indicated below that this trust owns X% of the shares in Country Y entity, the income of Trust #1 has not been characterised in the tax returns for Trust #1 as foreign source income. Based on taxation return details, you have not derived any income from the Family Trust at any time during specific relevant income years. According to your income tax returns for the relevant income years, your only Australian sourced income was from two rental properties and from Australian interest and dividends. Your agent advised that your sources of income for the XXXX income year were: a. Foreign income: i. a salary was paid for the entire XXXX income year wholly from your Country X employer; and ii. a very small amount of interest derived on your Country X bank account. b. Australian income: i. you continued to derive a small amount of interest, Australian dividends and net rental income similar to that derived in previous income years; and ii. you were made presently entitled to a revised trust distribution from your family trust made up as follows: ● Australian sourced income XX% ● foreign sourced income XX%. Your Country X visa was renewed for another three years. At that time you expected to be living in Country X for a maximum period of another two and a half years to continue managing your Country X business operations. You lived in Country X for most of each income year for the last few years mainly because you were required to work on some specific contracts. You intend to stay and work in Country X for another two years. You continued visiting Australia two or three times each year and stayed for four to six weeks each time during this period for both business and family reasons. Your spouse accompanies you for most of the time while you are in Country X. You have family living in Australia. You have maintained most of your assets in Australia including you family home, investment properties, shares and bank accounts. You continue to acquire assets in Australia for you retirement. Your Australian family home is owned by your spouse, and was available to you and your family at all times until mid-XXXX. The Australian home has been rented to an unrelated third party from about mid-XXXX. This property is no longer available for your private use when you visit Australia. You have engaged the services to provide ongoing maintenance of the home while you are in Country X. You have several family holiday properties in Australia which you visit from time to time when you are in Australia. You have retained the services of your Australian accountants and lawyers. You have maintained a life insurance policy and a private health insurance policy in Australia. You have maintained memberships with an Australian university union, schools club and a foundation. You are a member of a self-managed superannuation fund in Australia and have maintained your membership with the fund as you intend to return to Australia as soon as your work commitments in Country X are completed. You (through your related trust) have purchased a property in Australia which will be used as a holiday home by you. You plan to spend about X% of your time in Country X, X% of your time in Australia and X% of your time travelling in other countries in the next one to two years. You intend to continue visiting Australia four to five times each year and stay for a total of two to three months for each of the next two years. You plan to visit family members in Australia and attend to business matters while in Australia. You have no intention to live in the COUNTRY X on a permanent basis and intend to return to Australia on a permanent basis as soon as your work commitments in Country X are completed. You are allowed to stay in Country X for an unlimited period of time under your current visa. You have spent most of your time in Country X in recent years to support the Country X business. You have established business interests in various Country X entities. You received salary and dividends from your Country X employer while working in Country X prior to the restructure. You have a bank account and credit card account with Country X financial institutions for day to day living. Apart from holding some interests in the Country X business, you also own (through Trust #1) a small amount of the shares in a Country Y entity. You personally have Country X lawyers and accountants to manage your personal affairs in Country X. You live in rented accommodation while working in Country X, which is available to you at all times. You intend to purchase a private residence or an investment property in Country X in the foreseeable future. You own a car in Country X. You recently joined Club in Country X The Country X revenue authority recently confirmed that you were treated as an Australian resident under the tie-breaker rules contained in the tax treaty between Australia and the Country X for one particular tax year only. The Country X revenue authority has not provided further advice on how the tie-breaker rules should be applied in relation to later income years. Up until a couple of years ago you were treated as a resident of Australia for Australian domestic tax purposes and you were also treated as a resident of Australia for the purposes of the DTA between Australia and Country X. You and your spouse have been removed from the Australian electoral roll by the Australian Electoral Commission (AEC). You have received a letter from the AEC informing you that you are no longer an Australian resident and therefore are removed from the Australian electoral roll.


Reasons for decision: Detailed Reasoning - Domestic tax residency: As outlined above, it is contended in your ruling application that you continued and will continue to ‘reside’ in Australia for domestic taxation purposes during the relevant Australian income tax years. We agree with the reasoning outlined in the ruling application. As you are considered to ‘reside’ in Australia, it is not necessary to consider the application of the ‘domicile and permanent place of abode’ test. We also agree that the ‘183 day test’ and ‘superannuation test’ are not relevant to your circumstances. We also accept that you were and will be a resident of Country X for domestic taxation purposes during the relevant Australian income years. | Detailed Reasoning - DTA: As a resident of Australia for domestic taxation purposes, you are assessable in Australia under domestic law on both the Australian and foreign-sourced income you derive during an income year. However, the application of Australian domestic taxation law is subject to the operation of international taxation agreement (the Agreement). This international agreement can override the operation of Australian domestic taxation law. Thus, where a taxpayer is a resident of Country X for the purposes of the Agreement, this can limit Australia’s ability to tax any Country X-sourced income. | Detailed Reasoning - Residency in the Agreement: It is accepted that you are, and will be, a resident of both Australia and Country X during the periods to which the private ruling applies. The Agreement provides tests of residency, which are used where an individual is a domestic resident of two countries ('tie-breaker tests'). The tie-breaker tests ensure that the individual is only treated as a resident of one country for the purposes of the DTA, which in turn determines whether Australia and/or Country X have the right to tax Australian or Country X-sourced income. The tie-breaker tests do not change an individual’s residency status for domestic taxation law purposes. The Agreement provides that a person's residency status for the purpose of applying the Agreement shall be determined 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. These tests are applied sequentially. Thus, where the first test can be used to determine residency for the purpose of the Agreement, it is not necessary to apply any of the other tests. | Detailed Reasoning - Permanent home: Taxation Ruling TR 2001/13 Income tax: Interpreting Australia's Double Tax Agreements discusses the Commissioner's views about interpreting tax treaties. Paragraph 104 of TR 2001/13 states that the OECD Model Tax Convention and Commentary (OECD Commentary) will often need to be considered when interpreting tax treaties. The OECD Model Tax Convention (Condensed Version 2014) Commentary states at page 89, paragraph 13 in relation to a 'permanent home' that: 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 home 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 purposes of a stay which, owing to the reasons for it, is necessarily of short duration (eg travel for pleasure, business travel, attending a course etc). As stated both: • by Roland Ismer and Katharina Riemer in Klaus Vogel on Double Taxation Conventions (Updated) (CCH, 2016)(Vogel (2016))in ‘C. Article 4(2) OECD and UN MC' ; and • in the Administrative Appeals Tribunal decision in Tan v. FC of T [2016] AATA 1062 it is not necessary for a taxpayer to personally own or rent a property in order for the property to be available for their permanent use. According to Vogel (2016), it also does not matter if the taxpayer does not live in the home at all times, or if he has another home available to him. As you have residences in both Australia and Country X which are available at all times continuously for your permanent use, you have a permanent home in both countries. | Detailed Reasoning - Personal and economic relations (centre of vital interests): As stated above, where a taxpayer has a permanent home available to them in both countries: …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); In the ruling application, your representative has stated that: …the taxpayer should be treated as an Australian resident under the tie-breaker rules in respect of the xxxx income year based on the fact that the Taxpayer maintained strong economic and business ties to Australian during the period. However, it is our view that the Taxpayer should be treated as Country X resident in respect of the xxxx and later income years under the tie-breaker rules on the basis that the Taxpayer has established much closer business and economic ties to Country X since xxxx. | Detailed Reasoning - Application of the test: Limited judicial consideration has been given to the application of the ‘personal and economic relations’ test. Further, no Australian judicial decisions have been identified which specifically consider the weighting given to a taxpayer’s personal relations compared to their economic relations. International decisions on this question are inconsistent. Some countries have interpreted their equivalent treaty provisions by giving a preference to personal relations others to economic relations. It is arguable that the concept of ‘personal and economic relations’ is objective and does not permit a subjective prioritisation of the two specified categories, and that the two categories should be considered equally at law. ATO ID Dual resident of Australia and the foreign country: centre of vital interests (ATO ID ) provides additional guidance in relation to ‘personal and economic relations’ and thus ‘centre of vital interests’. ATO ID refers to Thiel v Federal Commissioner of Taxation (1990) 171 CLR 338; 90 ATC 4717; (1990) 21 ATR 531, during which all of the members of the High Court accepted that the OECD Model Taxation Convention’s official Commentaries may be relevant to the interpretation of tax treaties based on the OECD Model. The relevant article of the Agreement is based on Article 4(2)(a) of the OECD Model. Consequently the OECD Commentary on Article 4 of the OECD Model can be considered in interpreting the term ‘personal and economic relations (centre of vital interests)’ in Article 4.3(a) of the Agreement. As stated in your ruling application in relation to Article 4(2)(a) of the OECD Model, paragraph 15 of the OECD commentary on the Model Double Tax Convention states that: If the individual has a permanent home in both Contracting States, it is necessary to look at the facts in order to ascertain with which of the two States his personal and economic relations are closer. Thus, regard will be had to his family and social relations, his occupations, his political, cultural or other activities, his place of business, the place from which he administers his property, etc. The circumstances must be examined as a whole, but it is nevertheless obvious that considerations based on the personal acts of the individual must receive special attention. If a person who has a home in one State sets up a second in the other State while retaining the first, the fact that he retains the first in the environment where he has always lived, where he has worked, and where he has his family and possessions, can, together with other elements, go to demonstrate that he has retained his centre of vital interests in the first State. ATO ID goes further with reference to Klaus Vogel on Double Taxation Conventions , Third Edition, Kluwer Law International 1997 (which is also cited by SM Walsh in Tan ), which is stated to be: …consistent with paragraph 15 of the OECD Commentary on Article 4(2)(a) and states that ‘personal relations encompass a taxpayer’s entire way of life ’. This includes family and social, political and cultural relations. At paragraphs 74 and 74a of page 249, Vogel suggests that factors that are part of a person’s personal relations include intention to spend their old age at a certain place; possession of an identity card; enlistment on the electoral roll; and relations to a thing or to an impersonal entity such as a private collection or membership in a club or the exercise of a hobby. (emphasis added). The ATO ID also notes that: However, at page 249, paragraph 74a Vogel states that the most significant factor in establishing to which state an individual’s personal relations are closer is where the individual regularly lives with his family. Where an individual lives alone, the location of any family members will be relevant if the individual maintains relations with them. Further, at paragraph 74b, Vogel states that: Economic relations will primarily exist with activities linked with a locality or with sources of income. ... A permanent home mainly serving the realization or maintenance of economic relations, would be a manifestation of special ties with a place to live. This, will as a rule, be that home from where the individual proceeds to perform his everyday work and from where he manages and controls his capital or income (original emphasis). In Tan , Senior Member Walsh also referred to Vogel (2016), noting the following at paragraph 62 in Tan : …Vogel 2016 states the following in relation to what is meant by "personal and economic relations" in Article 4(2) of the OECD Model Tax Convention (footnotes omitted): 92. (1) Personal and Economic Relations . As already mentioned, many factors from the taxpayer's private and economic sphere are relevant to determine his personal and economic relations. In practice, the courts have, inter alia, based their decisions on an evaluation of facts surrounding the following non-exhaustive list of facts: house; family home; furnishings; rented apartment; owned apartment; passport; sharing a room, no rent, no lease; place where the taxpayer was born and raised; children; country of birth of children; spouse; country of divorce; where spouse seeks employment; family visits; other family members such as parents; partner; friends; acquaintances; memberships; language skills; work; employer; adaption of professional qualifications such as nursing license; temporal dislocation; no relations apart from day-to-day living expenses (renting on yearly basis, bank account only for needs abroad, no car), relocation support, normally granted when an employee has temporarily moved to work in another country than that in which he had his residence; bank accounts; brokerage account; credit card; money transfers; health insurance; driver's license; personal belongings, such as a car, purchase new home; registration of car; future retirement plans; retirement accounts. 93. ...the criteria of personal relations and, to a lesser degree, economic relations are highly subjective . What constitutes personal relations and how much weight is to be attached to such factors is very much in the eyes of the beholder... 94. In our view, all this suggests that the circumstances should be restricted to actual vital interests (contained in the term 'centre of vital interests' )...Vital interests are circumstances in the everyday life of an individual that not only reflect his day-to-day needs but also - in addition - longer-lasting ties. Whereas day-today needs and habits can be shifted quickly and selected by the taxpayer at will, vital interests are characterised by a certain permanence and this cannot be of a sheer temporal nature . Further, as stated in paragraphs 100 and 101 of the Vogel (2016) commentary on Article 4(2): 100. ….Given that Article 4(2)(d) OECD and UN MC obliges the competent authorities to reach mutual agreement as to a taxpayer's residency, rather than just ‘endeavour’ to do so, a taxpayer's position may well be better if the centre of vital interest criterion is not applied at all than if it is applied differently in the two Contracting States. 101. Against this backdrop , any decision as to which State the taxpayer's personal and economic relations are closer must be reasonably clear . Where a court knows several facts about the taxpayer's personal and economic life – some of which point to one State and some of which point to the other – it may be impossible to establish either State as the taxpayer's centre of vital interests. If that is the result, the next tie-breaker test, habitual abode, is triggered. This interpretation agrees with the object and purpose of the tie-breaker criteria as rightly stated in the OECD MC Comm .: The tie-breaker criteria are intended to be of such a nature that there can be no question but that the person concerned will satisfy it in only one State . At the same time, it must reflect such an attachment that it is felt to be natural that the right to tax devolves upon that particular State (see no. 10 OECD MC Comm. on Article 4), which is not the case when doubt surrounds the result of a tie-breaker test.6 (emphasis added). Examining the above it is apparent that you have personal and economic relations with both countries. Personal relations As stated in Vogel: If a person who has a home in one State sets up a second in the other State while retaining the first, the fact that he retains the first in the environment where he has always lived, where he has worked, and where he has his family and possessions, can, together with other elements, go to demonstrate that he has retained his centre of vital interests in the first State. It is arguable that you have maintained your first home in Australia up until recently, notwithstanding you have established a new home in Country X. However, it is acknowledged that this particular factor must be considered in conjunction with ‘other elements’. Further, as stated in ATOID, Vogel is of the view that: …the most significant factor in establishing to which state an individual’s personal relations are closer is where the individual regularly lives with his family. Your spouse has been present with you during times when you were in Australia. While you have spent very little of recent income years in Australia, you have spent around a quarter of the time in Australia. Based on the time which you have spent in Country X during the relevant income years, and the period of time your spouse has also spent with you in Country X during those income years, it could be argued that, on balance, your personal relations are closer to Country X, notwithstanding the presence of your children and other relatives in Australia. Economic relations Per paragraph 74B of Vogel, your economic relations could be considered to be closer to your ‘sources of income’ and: …that home from where the individual proceeds to perform his everyday work and from where he manages and controls his capital or income (original emphasis). Australian economic relations In the submission attached to the ruling application, it is stated that that you retain: … longstanding and broad business relationships and connections with [your] Australian clients and business partners; [and are] …actively involved in the decision making concerning [your] Australian business operations. Based on information available to us, at least one Australian entity with which you are connected derives significant income. However, according to your recent taxation returns, you did not derive significant Australian-sourced income. Your only Australian-sourced income derived in these years was from two rental properties and dividends and interest. Based on the your stated intentions regarding time to be spent in Country X and Australia in these years, this would suggest that most of your income will continue to derived from Country X.. However, you have retained holiday home and self-managed superannuation fund investments in Australia, as well as having Australian bank accounts. Your ruling application also states that you have and will continue to invest in Australia with a view to your retirement. You were also the trustee of the Family Trust until recently This trust derived significant income. However, you were not a beneficiary of income from the trust in these years. Country X economic relations Your agent has stated that you have spent a considerably greater amount of time in the recent years undertaking work for Company A entities in Country X than you have undertaking work for the Australian entity. Your agent has also stated that you spend an equal amount of time in Australia and Country X undertaking work for Company A and that the income derived from the activities undertaken by Company A have progressively formed a significantly lesser amount of the income derived by comparison with overseas income. It is also evident that an increasing amount of your assessable income has been derived from foreign sources in recent years. For a recent income year your income was sourced as follows: a. Foreign income: i. a salary was paid for the entire income year wholly from your Country X employer; and ii. a very small amount of interest derived on your Country X bank account. b. Australian income: i. you continued to derive a small amount of interest, Australian dividends and net rental income similar to that derived in previous income years; and ii. you were made presently entitled to a revised trust distribution from your family trust. You are also a director of a number of (related) Australian and Country X companies, but, based on records available to us regarding your shareholdings in these companies you do not appear to be in a position to directly derive income from an ownership interest in either the Australian or Country X companies. | Detailed Reasoning - Conclusion: It is accepted that, on balance, your economic relations are closer to Country X than to Australia in the relevant income years. On the basis that your personal and economic relations are closer to Country X than Australia in the relevant income years, you will be considered a resident of Country X for the purposes of the DTA.