Private ruling: Residency and assessability of income
Published: March 2015
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2012

Ruling: Questions and answers | 1. Are you treated solely as a resident of Country X under the double tax agreement between Australia and Country X? | Yes. | 2. Is the employment income you derived while working in Country X only taxable in Country X under the double tax agreement between Australia and Country X? | Yes.

Relevant facts and circumstances: You and your family left Australia to travel overseas. You and your family went to Country X so you could take up an employment contract. You lived and worked in Country X for over two years. You leased your own rental accommodation during the period you were in Country X. You did not have a residence in Australia during the period you were in Country X. You were a resident of Country X for tax purposes while you were in that country. You returned to Australia to live.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 6(1) | International Tax Agreements Act 1953 Section 4 | International Tax Agreements Act 1953 Section 5

Reasons for decision: Summary: 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 agreement. Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Tax Assessment Act 1936 (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 agreement with Country X is listed in section 5 of the Agreements Act. The agreement between Australia and Country X (the Country X agreement) operates to avoid the double taxation of income received by residents of Australia and Country X. The Country X agreement states that remuneration derived by a resident of one of the countries in respect of personal services may be taxed only in that country unless the services are performed in the other country. If the services are so performed, the remuneration derived may be taxed in the other country. In your situation, you are a resident of both Australia and Country X under the domestic laws of each country. Therefore, it is necessary to refer to the 'tiebreaker' rules contained in the Country X Agreement to determine whether you will be treated solely as a resident of Australia or of Country X. The Country X Agreement states that where an individual is a resident of both Australia and Country X, residency will be determined in accordance with the following rules: (a) he shall be deemed to be a resident solely of the Contracting State in which he has a permanent home available to him; (b) if he has a permanent home available to him in both Contracting States, or if he does not have a permanent home available to him in either of them, he shall be deemed to be a resident solely of the Contracting State in which he has an habitual abode; (c) if he has an habitual abode in both Contracting States, or if he does not have an habitual abode in either of them, he shall be deemed to be a resident solely of the Contracting State with which his personal and economic relations are the closer. In Taxation Ruling TR 2001/13 Income tax: Interpreting Australia's Double Tax Agreements, the Commissioner accepts that it is appropriate to have reference to the OECD Model Tax Convention and Commentary (OECD Commentary) which provides guidance on the interpretation of the terms used in double tax agreements. In relation to 'permanent home', the OECD Commentary states on page 87 that: ….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 of short duration. 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 … In your case, you lived and worked in Country X and leased your own rental accommodation during this period. You did not have a residence in Australia during this period. Consequently, you only had a permanent home available to you in Country X while you were living and working in that country. Therefore, under the Country X agreement, you are considered to be a resident solely of Country X during the relevant period. As a resident of Country X, Country X has the sole right to tax your employment income and this income will be exempt from tax in Australia.

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