1 Are you a resident of Australian for tax purposes from 1 July 20YY to 30 June 20YY?
1 Yes. Question 2 Are you a resident of Australia under Article 4 of the Double Tax Agreement between Australia and Country A? Answer 2 Yes. This ruling applies for the following periods : Year ended 30 June 20YY Year ended 30 June 20YY Year ended 30 June 20YY Year ended 30 June 20YY Year ended 30 June 20YY The scheme commenced on: 1July 20YY
You were born in Australia and you are a citizen of Australia. You commenced permanent employment with an overseas multinational company on DD MM 20YY. You entered the overseas country on a XXXX visa, renewed to a four year work visa on DD MM 20YY. The visas were sponsored by your employer. You do not have permanent residency in the overseas country. You leased an apartment on DD MM 20YY. The lease period is four years with an option to extend the lease for a further two years. You are listed as the tenant on the lease. Prior to departing, you resided in your family home with your spouse and X children at your Australian property. You own your Australian home. Your spouse and children remain living in your Australian property. Your spouse and children have no intention to move overseas to live with you full time. You travel to Australia on occasion and stay at your Australian property which remains available to you at all times. You are not in Australia more than 183 days in a calendar year. You travelled to Australia for holidays and to visit family. In the 202Y-YY income year you spent a total of XX days in Australia.
In the 20YY-YY income year you spent a total of XX days in Australia. You perform some of your work duties when in Australia. You spent a total of XX days working remotely between DD MM 20YY and DD MM 20YY. You expect to travel to Australia for family visits in: • mid-MM 20YY until mid-MM 20YY • late MM 20YY and early MM 20YY • late MM 20YY to late MM 20YY • mid-MM 20YY to mid-MM 20YY • mid-MM 20YY to late MM 20YY. Your spouse travels to the overseas country on occasion and stays with you at the rented apartment. You use your overseas address on your travel and boarding cards. You are a tax resident of the overseas country and lodge tax returns in that country. You have a bank account in the overseas country. You hold shares in the company provided as an employment incentive. You hold an employment pension plan in the overseas country. You lodged income tax returns in Australia as a resident for the income years ended 30 June 20YY and 30 June 20YY. You intend to return to Australia when you cease employment with the company, but do not have a specified return date.
You did not advise the Australian Electoral Commission of your departure. You maintain your Australian private health cover. You hold an Australian drivers' licence and own a motor vehicle in Australia. You are a member of the Australasian XXXX. You have an Australian bank account. You hold investments in Australia and receive dividends and interest income. You hold and Australian superannuation fund. You and your spouse are not eligible members of a Commonwealth superannuation scheme.
Income Tax Assessment Act 1936 subsection 6(1) Income Tax Assessment Act 1997 Section 6-5 Income Tax Assessment Act 1997 section 995-1 International Tax Agreements Act 1953
Overview of the law Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936). The terms 'resident' and 'resident of Australia', as applied to an individual, are defined in subsection 6(1) of the ITAA 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 (also referred to as the ordinary concepts test) • the domicile test • the 183-day test, and • the Commonwealth superannuation fund test. The resides test is the primary test for deciding the residency status of an individual. This test considers whether an individual resides in Australia according to the ordinary meaning of the word 'resides'.
Where an individual does not reside in Australia according to ordinary concepts, they will still be an Australian resident if they meet the conditions of one of the other tests (the domicile test, 183-day test and Commonwealth superannuation fund test). Our interpretation of the law in respect of residency is set out in Taxation Ruling TR 2023/1 Income tax: residency tests for individuals . We have considered the statutory tests listed above in relation to your situation as follows: The resides test The ordinary meaning of the word 'reside' has been expressed as 'to dwell permanently or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place': See Commissioner of Taxation v Miller (1946) 73 CLR 93 at 99 per Latham CJ, citing Viscount Cave LC in Levene v Inland Revenue Commissioners [1928] AC 217 at 222, citing the Oxford English Dictionary. Likewise, the Macquarie Dictionary defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'. The observations contained in the case of Hafza v Director-General of Social Security (1985) 6 FCR 444 are also important:
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 involuntarily: see Commissioners of Inland Revenue v Lysaght [1928] AC 234 at 248; and Keil v Keil [1947] VLR 383 - 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 - Levene v Inland Revenue Commissioners [1928] AC 217 at 225 and Judd v Judd (1957) 75 WN (NSW) 147 at 149 - together with an intention to return to that place and an attitude that that place remains "home": see Norman v Norman (No 3) (1969) 16 FLR 231 at 235... here the general concept is applicable, it is obvious that, as residence of a place in which a person is not physically present depends upon an intention to return and to continue to treat that place as "home", a change of intention may be decisive of the question whether residence in a particular place has been maintained. The Commissioner considers the following factors in relation to whether a taxpayer is a resident under the 'resides' test:
• period of physical presence in Australia • intention or purpose of presence • behaviour while in Australia • family and business/employment ties • maintenance and location of assets • social and living arrangements. It is important to note that no one single factor is decisive, and the weight given to each factor depends on each individual's circumstances. Because the resides test is about whether an individual resides in Australia, the factors focus on the individual's connection to Australia. Having a connection with another country, or being a resident of another country, does not diminish any connection to Australia. The ordinary meaning of reside does not require an individual to have a principle or usual place of residence in Australia. Application to your situation We have taken the following into consideration when determining whether you meet the resides test: • You departed Australia in MM 20YY to work in an overseas country. • You lodged Australian tax returns as a resident for the years ending 30 June 20YY and 30 June 20YY.
• You lodge tax returns in the overseas country. • You own a home in Australia in which you stay when in Australia. The home is your family's residence. • You stay in a leased apartment while in the overseas country. • You hold a four year work visa granted on DD MM 20YY. • You travel to Australia on occasion and stay with your family. You have not been in Australia greater than 183 days for the 20YY, 20YY and 20YY financial years. • You intend to continue your employment in the overseas country for the foreseeable future. • You have not advised any authorities or bank of your intention to depart Australia on a permanent basis. • You maintain your Australian private health insurance. • You hold an Australian drivers' licence. • You intend to return to Australia once you ceased employment in the overseas country. Having a connection to, or being a resident of, another country does not necessarily diminish any connection to Australia.
While physical presence is an important consideration, physical absence does not necessarily result in non-residence. The question is whether you have maintained a continuity of association with Australia which is established by considering your connections to Australia. Maintaining a home in Australia while travelling between countries indicates you have not abandoned your ties to Australia. In your situation you will be in the overseas country for a period of time during which you will not break your ties to Australia, thereby retaining a continuity of association with Australia. Therefore, you are a resident of Australia under the resides test for the period 1 July 20YY to 30 June 20YY. Although the law only requires you to be considered a resident under one test, for completeness the other tests are also considered. Domicile test Under the domicile test, you are a resident of Australia if your domicile is in Australia unless the Commissioner is satisfied that your permanent place of abode is outside Australia. Domicile Whether your domicile is in Australia is determined by the Domicile Act 1982 and the common law rules on domicile.
Your domicile is your domicile of origin (usually the domicile of your father at the time of your birth) unless you have a domicile of dependence or have acquired a domicile of choice elsewhere. To acquire a domicile of choice of a particular country you must be lawfully present there and hold the positive intention to make that country your home indefinitely. Your domicile continues until you acquire a different domicile. Whether your domicile has changed depends on an objective consideration of all relevant facts. Application to your situation • You were born in Australia and your domicile of origin is Australia. • You are a citizen of Australia. • You hold a visa based on a valid work contract for qualified employment that allows you to reside and work in the overseas country for up to four years It is considered that you did not abandon your domicile of origin in 20yy. You remain a citizen of Australia. Therefore, your domicile is Australia. Permanent place of abode
If you have an Australian domicile, you are an Australian resident unless the Commissioner is satisfied that your permanent place of abode is outside Australia. This is a question of fact to be determined in light of all the facts and circumstances of each case. 'Permanent' does not mean everlasting or forever, but it is to be distinguished from temporary or transitory. The phrase 'permanent place of abode' calls for a consideration of the physical surroundings in which you live, extending to a town or country. It does not extend to more than one country, or a region of the world. The Full Federal Court in Harding v Commissioner of Taxation [2019] FCAFC 29 held at paragraphs 36 and 40 that key considerations in determining whether a taxpayer has their permanent place of abode outside Australia are: • whether the taxpayer has definitely abandoned, in a permanent way, living in Australia • whether the taxpayer is living in a town, city, region or country in a permanent way. The Commissioner considers the following factors relevant to whether a taxpayer's permanent place of abode is outside Australia:
(a) the intended and actual length of the taxpayer's stay in the overseas country (b) whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time (c) whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residence of a person, a family, or a household), outside Australia (d) whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence (e) the duration and continuity of the taxpayer's presence in the overseas country (f) the durability of association that the person has with a particular place in Australia, i.e. maintaining assets in Australia, informing government departments such as the Department of Social Security that he or she is leaving permanently and that family allowance payments should be stopped, place of education of the taxpayer's children, family ties and so on.
As with the factors under the resides test, no one single factor is decisive, and the weight given to each factor depends on the individual circumstances. Application to your situation The Commissioner is not satisfied that your permanent place of abode is outside of Australia because: • You own your Australian home and you reside there when in Australia. • You return to Australia for short periods on occasion and resume residence in your Australian property with your spouse and children. • You lease an apartment in the overseas country. The lease will expire in MM 20YY. You have the option to extend the lease for two years beyond this. • You will return to Australia once your employment ends. • You will resume living at the dwelling on your return to Australia. • You have not disposed of your personal and household possessions in Australia, and they remain in the family home. • You maintain an Australian driver's licence. • You state you are an Australian national on incoming and outgoing passenger cards and provide your overseas residential address.
• You hold a bank account in Australia. • You hold investments with an Australian-based investment platform. • You have not advised any Australian financial institutions that you are a foreign resident for non-resident withholding purposes. If you have an Australian domicile and are living outside of Australia, you will retain your Australian domicile if you intend to return to Australia on a clearly foreseen and reasonably anticipated contingency, such as at the end of your employment contract, even if it is for a substantial period, because you lack the necessary intention to settle in that country indefinitely. Therefore, you are a resident of Australia under the domicile test, as your permanent place of abode remains in Australia based on intention to return and your continued connection. Your move to the overseas country is to undertake employment with no intention to go beyond any period of employment in that country. 183-day test Where a person is present in Australia for 183 days or more during the year of income the person will be a resident, unless the Commissioner is satisfied that both:
• the person's usual place of abode is outside Australia, and • the person does not intend to take up residence in Australia. Application to your situation • you were not present in Australia for 183 days or more in the 20YY to 20YY income years. • you will not be present in Australia for 183 days or more in the 20YY and 20YY income years. Therefore, you are not a resident under this test for the ruling period. Superannuation test An individual is a resident of Australia if they are either a member of the superannuation scheme established by deed under the Superannuation Act 1990 or an eligible employee for the purposes of the Superannuation Act 1976, or they are the spouse, or the child under 16, of such a person. Application to your situation You are not a member on behalf of whom contributions are being made to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS) or a spouse of such a person, or a child under 16 of such a person. Therefore, you are not a resident under this test. Conclusion
You satisfy the resides and domicile test of residency and so are a resident of Australia for income tax purposes for the years ending 30 June 20YY to 30 June 20YY. Question 2: Are you a resident of Australia under Article 4 of the Double Tax Agreement between Australia and the overseas country? Summary You are a resident of Australia during the period 1 July 20YY to 30 June 20YY you will be in the overseas country under the Double Taxation Agreement between Australia and that country because your personal and economic ties are closer to Australia. Detailed reasoning Double Taxation Agreement (DTA) It is possible to be a resident for tax purposes of more than one country at the same time in respect of an income year or part of an income year. If this is the case, in determining your liability to pay tax in Australia it is necessary to consider any applicable double tax agreements. Sections 4 and 5 of the International Tax Agreements Act 1953 (the Agreements Act) incorporate that Act with the ITAA 1936 and the ITAA 1997 and provide that the provisions of a double tax agreement have the force of law.
Taxation Ruling TR 2001/13 discusses the Commissioner's views about interpreting double tax agreements. Paragraph 104 provides that the OECD Model Tax Convention and Commentary will often need to be considered in interpreting double tax agreements. Where a person is a resident of both Australia and another country under the domestic tax law of each country it will be necessary to determine residency for the purposes of the relevant double tax agreement. 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 agreement. The tiebreaker rules do not change a taxpayer's residency status for domestic law purposes. However, to consider the tiebreaker rules, a person must be a 'resident' of each contracting state as specified in the relevant double tax agreement. Broadly, a person is a 'resident of a contracting state' if they are fully liable to tax in that country. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein.
The DTA between Australia and Country A is contained in Schedule 11 of the Agreements Act, being the Convention between the Government of Australia and the Government of the Country A Republic for the Avoidance of Double Taxation with respect to taxes on income and the Prevention of Fiscal Evasion (the Country A DTA). Article 4 of the DTA 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 DTA. Article 4(3) of the DTA states: 3. Where, by reason of the preceding provisions of this Article a person, being an individual, is a resident of both Contracting States, the person's status shall be determined as follows: a) the individual shall be deemed to be a resident only of the 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 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 or citizen. The tiebreaker rules do not change a taxpayer's residency status for domestic law purposes. Application to your situation You are a tax resident of the overseas country and are also viewed as being a resident of Australia for tax purposes during the period you will be in that overseas country as outlined above. Therefore, it is necessary to consider the application of the provisions contained in subparagraphs 3(a) and 3(b) of the DTA as follows: Permanent home Permanent home is not defined in the DTA. Therefore, recourse is be made to supplementary materials in order to aid construction. The OECD commentary to the Model Tax Convention provides that in relation to a 'permanent home':
a) for a home to be permanent, an individual must have arranged and retained it for his or her 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. The dwelling has to be available 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 (e.g. travel for pleasure, business travel, attending a course etc). For instance, a house owned by an individual cannot be considered to be available to that individual during a period when the house has been rented out and effectively handed over to an unrelated party so that the individual no longer has possession of the house and the possibility to stay there b) any form of home may be taken into account, including a house or apartment belonging to or rented by the individual and a rented furnished room. Application to your situation It is viewed that you will have access to a permanent home in both contracting states. Therefore, it is necessary to move onto the habitual abode test. Habitual abode
The OECD commentary provides that determining a taxpayer's habitual abode requires a determination of whether the individual lived habitually, in the sense of being customarily or usually present, in one of the two states but not in the other during a given period. The test will not be satisfied simply by determining in which of the two Contracting States the individual has spent more days during the period (Davies, White and Steward JJ in Pike v Commissioner of Taxation [2020] FCAFC 158 at [29]). The notion of habitual abode refers to the frequency, duration and regularity of stays that are part of the settled routine of an individual's life and are therefore more than transient. It is possible for an individual to have a habitual abode in two states where the individual was customarily or usually present in each State during the relevant period.
It is clear that you have a habitual abode in the overseas country as you will spend the majority of time there during the period you are employed, with several short visits to Australia. However, you will also maintain a property where you would be residing if in Australia and which you consider as your home and is also the home of your spouse and children. Therefore, we will consider your personal and economic ties as follows. Personal and economic ties (centre of vital interests) The OECD commentary states that regard should be had to the taxpayer's family and social relations, their political, cultural or other activities, their place of business, the place from which they administer their property etc. In Commissioner of Taxation v Pike [2020] FCAFC 158 (Pike), the Full Federal Court stated at paragraph 39 that:
39. First, no error is discernible in the approach of the primary judge in examining Mr Pike's personal and economic considerations. Each case must be fact specific. In some cases the personal and economic considerations may be so intertwined that they are not separate considerations, whereas in other cases, they may be quite separate and distinct matters. Further, and contrary to the New Zealand decision in FFF , the clause does not place greater weight on personal factors over economic factors. As the parties agreed, Art 4(3)(c) poses a composite test and in each case it will be a matter of fact and degree as to whether a taxpayer's personal and economic relations, viewed as a whole, support ties closer to one contracting state over the other contracting state. The primary judge correctly looked at Mr Pike's overall circumstances and engaged in a balancing of the significance of those personal and economic considerations as supporting ties closer to one contracting state than the other. Based on Pike, the Commissioner has to balance all personal and economic facts together with no greater weight being placed on personal acts. Application to your situation
As you have a permanent home available in both countries, you will be deemed to be a resident only of the State with which your personal and economic ties are closer. In your case: • You were born in and are a citizen of Australia. • You will only be in the overseas country for the length of your employment and will not become a permanent resident of that country. • You do not have any assets of note in the overseas country, apart from an employer contribution pension fund, with the majority of your assets being located in Australia, such as the property, investments, bank account and superannuation fund. • You continue to be employed by a foreign company receiving your employment income from them while working in the overseas country. • You and your family do not have any personal connections in the overseas country. • Your personal connections are closer to Australia, specifically, your family and the family home. • You maintain private health insurance in Australia. • You hold an Australian drivers' licence and own a motor vehicle in Australia.
On balance, you are taken to be a resident of Australia for the purpose of the overseas country's DTA as your personal and economic ties have greater significance and are closer to Australia. Conclusion We have concluded that the tiebreaker tests in Article 4 of the DTA between Australia and the foreign country apply so that you are deemed to be a resident only of Australia. The provisions of that DTA will therefore apply on the basis that you are a resident of Australia for tax purposes and not of the overseas country.