1: Is the applicant a resident of Australia for income tax purposes pursuant to subsection 6(1) of the Income Tax Assessment Act 1936 for the financial years DD MM YYYY to DD MM YYYY (total x years)?
: Yes. Question 2: If the answer to Question 1 is unfavourable, will the applicant be a resident of Australia for income tax purposes for the financial years DD MM YYYY to DD MM YYYY under the Australia-XXX Double Tax Agreement? Answer: Yes. Question 3: If the answers to Question 1 and Question 2 are unfavourable and the applicant is determined to be a resident of Australia for taxation purposes, how will Articles 15 and 24 of the Australia-XXX Double Tax Agreement be applied to income derived by the applicant while they are in XXX? Answer: Articles 15 and 24 of the Australia-XXX DTA will be applied to income derived by the applicant while in XXX such that the applicant can claim a foreign income tax offset for the tax paid in XXX to prevent double taxation. This ruling applies for the following periods: DD MM YYYY to DD MM YYYY DD MM YYYY to DD MM YYYY The Scheme commences on: DD MM YYYY
Background Facts 1. The applicant was born on DD MM YYYY in XXX, where they lived, completed their education and worked. 2. On DD MM YYYY, the applicant moved to YYY with their spouse and their young child. The applicant's child is now xx years of age. 3. The applicant has another child, born in XXX. The applicant's second child is now xx years of age. 4. The applicant is an Australian citizen. The family have resided in Australia since YYYY. 5. The applicant's parents live in XXX. 6. The applicant is not a citizen of XXX, as XXX does not allow dual citizenship. 7. The applicant is currently an ZZZ cardholder which allows them multiple entry and a multi-purpose lifelong visa to visit XXX. The applicant will rely on this visa to enter XXX upon commencement of employment. Employment in Australia 8. The applicant has been employed by Company X, a company headquartered in Australia. 9. The applicant moved to XXX on DD MM YYYY to live and work for an indefinite period of time. Employment in XXX
10. The applicant has received an offer of employment for a permanent full-time position as a Director with Company X and will move to XXX to work in their XYZ office. This position will be the applicant's only source of employment income and commences in MM YYYY. 11. The applicant's employer will provide them with accommodation in the form of a long-term lease and vehicle for their sole use while they live and work in XYZ. 12. The accommodation and car will be provided to the applicant at no cost to them. The applicant will only pay the driver salary for the car. 13. The applicant's renumeration will be paid into an account in XXX. The applicant will transfer funds to Australia in order to support their spouse and children (estimated at approximately $xxx per month) and to repay the home loans associated with their family's residence and their investment properties. Living and social arrangements 14. The applicant's family, consisting of their spouse, adult child and xx-year-old child, will stay in Australia. 15. The applicant's family will continue to live in the house which the applicant owns, at YYY in 50% ownership with their spouse.
16. The applicant will continue supporting their family financially whilst they are working in XXX. 17. The applicant intends to cancel both their Medicare subscription and their health insurance in Australia when they relocate to XXX. 18. The applicant and their spouse have never been employed by the Australian Commonwealth Government and do not belong to any Commonwealth Superannuation Scheme. 19. The applicant intends to advise the Australian Electoral Office to have their name removed from the electoral roll. 20. The applicant has not lodged tax returns other than in Australia since moving to Australia in YYYY. Assets in Australia 21. The applicant will sell their car before they relocate to XXX. 22. The applicant own investment properties in YYY, and derives rental income from these properties. 23. The applicant's family reside in the family home. 24. The applicant holds Australian bank accounts, some of which will remain active while they are overseas to support their family and finance home loans.
25. The applicant holds other Australian investment assets. They have company shares and a small amount of other shares in their own name, has superannuation and is a discretionary beneficiary of the TTT Trust, which holds Australian investment assets and has been established to provide for the applicant, and their family. 26. The applicant and their spouse are primary beneficiaries of the TTT Trust and are co-directors of the corporate trustee of the Trust. 27. The applicant received approximately $xxx in income from dividends and $xxx in income from trust distributions in the YYYY-YYYY financial year. Assets and economic ties overseas 28. The applicant will take all their personal possessions with them when they leave Australia, including all of their clothing and personal items. The only possessions that will remain in the home will be items like furniture which will continue to be used by the applicant's spouse and children. 29. The applicant may acquire other assets overseas over time and in the course of living in XXX.
30. The applicant does not have anything planned at this stage but may invest outside Australia in the future. The applicant intends to continue to invest in Australia via the TTT Trust, as they would like to ensure that their spouse, children and descendants are well provided for in the future. Long term plans 31. During the applicant's first x years employed in XXX, while their youngest child is still in school, they plan to spend xx days per month in Australia (approximately xx days annually). Whilst in Australia, the applicant will stay with their family at the family property. 32. Once their youngest child finishes school, the applicant's spouse intends to relocate to XXX to live with them. 33. After the initial x-year period, and once their youngest child has finished school, the applicant intends to visit their children every xx months, for approximately xx days each time (approximately xx days annually). Information provided 34. You have provided a number of documents containing detailed information in relation to the applicant's application, including: • Private Binding Ruling ('PBR') Application, dated DD MM YYYY
• Responses to further questions, dated DD MM YYYY and DD MM YYYY 35. We have referred to the relevant information within these documents in applying the relevant tests to your circumstances.
Income Tax Assessment Act 1936 subsection 6(1) Income Tax Assessment Act 1997 section 995-1
All legislative references are to the Income Tax Assessment Act 1936 ('ITAA 1936') unless otherwise stated. These reasons for decision accompany the Notice of Private Ruling for the applicant. While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. SUMMARY - Question 1 The applicant is a resident of Australia for income tax purposes pursuant to subsection 6(1) of the ITAA 1936 for the financial years DD MM YYYY to DD MM YYYY. SUMMARY - Question 2 The applicant is a resident of Australia for income tax purposes under the Australia-XXX Double Tax Agreement for the financial years DD MM YYYY to DD MM YYYY. SUMMARY - Question 3 Articles 15 and 24 of the Australia-XXX Double Tax Agreement will be applied to income derived by the applicant while in XXX such that the applicant can claim a foreign income tax offset for the tax paid in XXX to prevent double taxation. DETAILED REASONING Question 1: Residency for Tax Purposes 36. Subsection 995-1(1) of the ITAA 1997 provides that a person is an 'Australian resident' if that person is a resident of Australia for the purposes of the Income Tax Assessment Act 1936
('ITAA 1936'). 37. The definition of 'resident' is outlined in subsection 6(1) of the ITAA 1936 as follows: (a) a person, other than a company, who resides in Australia and includes a person: (i) whose domicile is in Australia, unless the Commissioner is satisfied that their permanent place of abode is outside Australia; (ii) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that their usual place of abode is outside Australia and that they do not intend to take up residence in Australia; or (iii) who is: (A) a member of the superannuation scheme established by deed under the Superannuation Act 1990; or (B) an eligible employee for the purposes of the Superannuation Act 1976; or (C) the spouse, or a child under 16, of a person covered by sub-subparagraph (A) or (B). 38. The definition in subsection 6(1) of the ITAA 1936 offers 4 tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These statutory tests are commonly referred to as:
i. the 'residence according to ordinary concepts' test (the 'resides test') ii. the 'domicile and permanent place of abode' test (the 'domicile test') iii. the '183 day' test, and iv. the 'Commonwealth superannuation fund' test. 39. 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'. 40. 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, the 183-day test and the Commonwealth superannuation fund test). 41. Consequently, only one of the above four statutory tests needs to be met for an individual to be considered an Australian resident for taxation purposes. The 'Resides'Test 42. The term 'resides' is not defined in either the ITAA 1936 or the ITAA 1997. Taxation Ruling TR 2023/1 Income Tax: Residency test for individuals
(TR 2023/1) provides guidance on the Commissioner's interpretation of the ordinary meaning of the word 'resides' as set out in subsection 6(1) of the ITAA 1936. 43. Paragraph 10 of TR 2023/1 states that the residency status of a taxpayer is a question of fact based on an individual's connection to Australia. 44. To determine the ordinary meaning of the word 'resides', dictionary definitions of the term can be relied on. The following definitions are provided in paragraph 19 of TR 2023/1: The Macquarie Dictionary defines 'reside' 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'. 45. Paragraph 20 of TR 2023/1 provides that the following factors are useful in describing the quality and character of an individual's behaviour: • 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, and • social and living arrangements.
46. Paragraph 25 of TR 2023/1 provides that the physical presence or length of time in Australia alone is not decisive of whether an individual resides in Australia and an individual's behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing in Australia. Similarly, the quality and character of a taxpayer's behaviour while in Australia assists in determining whether the individual resides there, as per paragraph 20 of TR 2023/1. 47. Paragraph 31 of TR 2023/1 states that an individual's intention, purpose or reason for being in Australia assists in determining whether an individual resides here. Paragraph 33 of TR 2023/1 provides that a settled purpose, such as pre-arranged long-term employment or a course of education, may support an intention to reside in Australia.
48. Paragraph 41 of TR 2023/1 explains that when looking at an individual's behaviour, their behaviour relevantly includes the way they live as part of the regular order of their life. If the way they live reflects a degree of continuity, routine or habit, coupled with other factors such as intention, it may be consistent with residing in Australia. 49. The meaning of 'family and business/employment ties' is explained in paragraphs 46 to 50 of TR 2023/1. Paragraph 46 of TR 2023/1 states that the presence of an individual's family is a factor that may indicate that individuals are residing in Australia. The presence (or absence) of your family also informs the nature of your connection to Australia. The presence of immediate family in Australia is often accompanied by increased connections to Australia (including period of physical presence, assets such as a family home and motor vehicles, and an intention to return to a place you consider to be your home) and a settled routine consistent with residing in Australia.
50. Paragraph 49 of TR 2023/1 states that, generally speaking, working overseas but returning to Australia at intervals to an established family and social life, will often mean you are still residing in Australia. This is the case even if you spend more time overseas than in Australia in any given income year. Usually, such an arrangement indicates you are residing in Australia and another country. Having an ongoing, deliberate connection to Australia, even though you have a connection to another country through your work, does not make you a mere visitor to Australia. In such a case, Australia is your home, and you are properly regarded as residing here (held in the case Commissioner of Taxation v Pike [2020] FCAFC 158 ( Pike appeal)).
51. Paragraph 50 of TR 2023/1 states that this can be contrasted with a situation where you leave Australia to work overseas and shift your life overseas. For example, if you, and your family (if you have one), relocate overseas for work for some years establishing a permanent base and a routine overseas consistent with 'living' there, returning only occasionally for short stays while taking leave from work, then, depending on other facts and circumstances, you might not be a resident under the ordinary concepts test. 52. When considering the maintenance and location of assets, paragraph 51 of TR 2023/1 provides that occupying a dwelling in Australia that the individual owns or is purchasing, suggests establishment of a home in Australia. The presence of other assets in Australia, such as motor vehicles, superannuation investments and bank accounts also add further weight to the individual having established behaviour consistent with residing here.
53. Paragraph 53 of TR 2023/1 states that social and living arrangements can also be considered in determining whether an individual resides in Australia for tax purposes. This factor involves the consideration of the way individuals interact with their surroundings, which may include joining sporting or community organisations, or enrolling children in school, during their stay in Australia. 54. 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. 55. 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 the place remains "home": see Norman v Norman (No 3) (1969) 16 FLR 231 at 235... [W]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. 56. The Commissioner also noted various factors commonly inform a connection in Taxation Ruling TR 2023/1 and considers the following factors in relation to whether a taxpayer is a resident under the 'resides' test: • physical presence • intention or purpose of presence • family and business/employment ties
• maintenance and location of assets, and • social and living arrangements. 57. 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. 58. Because the ordinary concepts test is 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: Logan J in Pike v Commissioner of Taxation [2019] FCA 2185 at 57 reminds us that 'it is no part of the ordinary meaning of reside in the 1936 Act that there be a "principal" or even "usual" place of residence. ... It is important that ... "resident" not be construed and applied as if there were such adjectival qualifications.' For this reason, the test is not about dominance or exclusivity. The 'domicile' test 59. An individual is a resident of Australia according to the domicile test if the individual is domiciled in Australia, unless the Commissioner is satisfied that the individual has a permanent place of abode outside of Australia.
60. As set out in paragraphs 56 - 62 in TR 2023/1, 'domicile' is described by the Commissioner as follows: "Domicile" is a legal concept to be determined according to the Domicile Act 1982 and to the common law rules which the courts have developed in the field of private international law. The primary common law rule is that a person acquires at birth a domicile of origin, being the country of his or her father's permanent home. This rule is subject to some exceptions. For example, a child takes the domicile of his or her mother if the father is deceased or his identity is unknown. A person retains the domicile of origin unless and until he or she acquires a domicile of choice in another country, or until he or she acquires another domicile by operation of law... 61. Accordingly, your domicile in Australia is determined by the Domicile Act 1982 and the common law rules on domicile.
62. Paragraph 63 of TR 2023/1 states that an Australian-domiciled person is not a resident where the Commissioner is satisfied that the person's 'permanent place of abode' is outside Australia. A person will have their permanent place of abode overseas where they have retained their Australian identity (as reflected in their Australian domicile), but: • have definitely abandoned their residency in Australia, and • commenced living permanently overseas. 63. Paragraph 64 of TR 2023/1 states that it is not sufficient to have a place of abode outside of Australia; the relevant test is whether your permanent place of abode is outside Australia. 64. Paragraph 65 of TR 2023/1 states that the word 'permanent' does not have the meaning of 'everlasting' or 'forever' but is used in the sense of being contrasted with temporary or transitory.
65. 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. 66. A person acquires a domicile of choice in a country by being lawfully present there with the intention of remaining in that country indefinitely. The 2 elements of physical presence and intention must occur at the same time. 67. Davies and Steward JJ in Harding FFC stated as follows at [29] and [30] with respect to 'domicile':
29. It is appropriate to deal with Mr Harding's appeal first. The primary judge adverted to a tension which he considered seemed to exist between the concepts of "domicile" and that of a "permanent place of abode". On one view, if a person chooses to make her or his permanent place of abode outside of Australia, one might also think that that person had ceased to be domiciled in this country. Some of the criteria for determining a person's domicile may now be found in the Domicile Act 1982 (Cth) (the "Domicile Act"). Section 10 of that Act provides: The intention that a person must have in order to acquire a domicile of choice in a country is the intention to make his or her home indefinitely in that country.
30. Part of the tension observed by the primary judge may be the product of possible differences between the common law concept of a person's domicile and the consequences of the statutory changes made to that common law by the Domicile Act. In Terrassin v Terrassin (1968) 14 FLR 151, Selby J observed that a person alleging a change of domicile had to prove by "clear and cogent evidence that the change has taken place" (at 154-155). His Honour referred to the decision of Lord Curriehill in Donaldson v M'Clure (1857) 20 D. 307, where his Lordship said:
... it is proper to keep in view what is meant by an animus or intention to abandon one domicile for another. It means something far more than a mere change of residence. It imports an intention not only to relinquish those peculiar rights, privileges, and immunities which the law and constitution of the domicile confer on the denizens of the country,-in their domestic relations ... in their purchases and sales and other business transactions ... in their political or municipal status,-and in their daily affairs of common life; but also the laws by which the succession to property is regulated after death. The abandonment or change of a domicile is therefore a proceeding of a very serious nature, and an intention to make such an abandonment requires to be proved by satisfactory evidence. 68. 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 based on all the facts and circumstances of each case. 69. 'Permanent' does not mean everlasting or forever, but it is to be distinguished from temporary or transitory.
70. 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. 71. The Full Federal Court in Harding v Commissioner of Taxation [2019] FCA 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. 72. The Commissioner considers the following factors relevant to whether a taxpayer's permanent place of abode is outside Australia: • the intended and actual length of the taxpayer's stay in the overseas country • 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
• 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 • whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence • the duration and continuity of the taxpayer's presence in the overseas country, and • 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. 73. 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. The '183 day' test 74. 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. The 'Commonwealth Superannuation Fund' test 75. 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. Question 2: International Tax Agreements Act 1953 (Cth) 76. Section 5 of the International Tax Agreements Act 1953 (Cth) ('Agreements Act') gives current Double Tax Agreements the force of law in Australia. Subsection 5(1) of the Agreements Act states: Subject to this Act, on and after the date of entry into force of a provision of an agreement mentioned below, the provision has the force of law according to its tenor. Australia - XXX Double Tax Agreement 77. The Australia - XXX Double Tax Agreement is listed as a current agreement under the Agreements.
78. 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. 79. In determining liability to pay tax in Australia, it is also necessary to consider any applicable double tax agreement. Sections 4 and 5 of the Agreements Act incorporate that Act with the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 and provide that the provisions of a double tax agreement have the force of law. 80. 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. 81. 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.
82. 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 pay 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. 83. The DTA between Australia and XXX is contained in Schedule Y of the Agreements Act, which is the Agreement between the Government of Australia and the Government of XXX for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income. Article 4 DTA - Residence
84. Article 4 of the DTA sets out the tiebreaker rules for residency for individuals to 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. If an individual is a resident of both countries, consideration is first given to which country the individual has a permanent home available in, and secondly to where their personal and economic relations are closer. 85. The tiebreaker rules do not change a taxpayer's residency status for domestic law purposes. Article Y DTA - Permanent Home 86. Taxation Ruling TR 2001/13 - Income tax: Interpreting Australia's Double Tax Agreements discusses the Commissioner's views about interpreting double tax agreements. Paragraph 104 TR 2001/13 provides that the OECD Model Tax Convention and Commentary will often need to be considered in interpreting double tax agreements. 87. 'Permanent home' is not defined in the DTA. Therefore, recourse can be made to supplementary materials in order to aid construction. The OECD commentary to the Model Tax Convention is taken to be a legitimate aid to construction ( Thiel v Commissioner of Taxation
[1990] HCA 37: 171 CLR 338). 88. The OECD Commentary provides at paragraphs 12 and 13, that in relation to a 'permanent home': 12. 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 (eg. 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. 13. 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. Article Y DTA - Personal and Economic Relations
89. Where an individual is deemed to be a resident of both countries, the 'tie-breaker' rule in Article Y of the DTA determines the country of which the person is deemed to be a sole resident. 90. The OECD Commentary also considers the issue of residency and provides the following regarding personal and economic relations at paragraph 15:
15. 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. Question 3: Taxing of income of overseas employee
91. Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident taxpayer includes the ordinary income derived by the taxpayer directly or indirectly from all sources, whether in or out of Australia, during the income year. 92. Employment income is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. 93. In determining the liability to tax on foreign sourced income received by a resident, it is necessary to consider not only the income tax laws, but also any applicable double taxation agreements in the Agreements Act. 94. Section 4 of the Agreements Act incorporates the Agreements Act with the ITAA 1997 so that the 2 Acts are read as one. Articles of the Australia-XXX Double Tax Agreement 95. The Australia - XXX DTA provides the following in relation to the treatment of salary, wages and similar remuneration at Article Z: Dependent Personal Services
...salaries, wages and other similar remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment shall be taxable only in that State, unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in that other State. 96. Article ZZ of the DTA provides the following to address the double taxation issue: Methods of elimination of double taxation Subject to the provisions of the law of Australia from time to time in force which relate to the allowance of a credit against Australian tax of tax paid in a country outside Australia (which shall not affect the general principle hereof), XXX tax paid under the law of XXX and in accordance with this Agreement, whether directly or by deduction, in respect of income derived by a person who is a resident of Australia from sources in XXX shall be allowed as a credit against Australian tax payable in respect of that income. APPLICATION TO YOUR CIRCUMSTANCES Question 1: The 'Resides'Test
97. As noted in paragraph 10 of TR 2023/1, the residency status of a taxpayer is a question of fact based on an individual's connection to Australia. In consideration of the statutory tests detailed above, we consider that the applicant remains an Australian tax resident, following their departure from Australia in MM YYYY. Taking into account the applicant's circumstances, we have concluded that they are a resident of Australia under the 'resides' test. 98. Paragraph 20 of TR 2023/1 provides that the following factors are useful in describing the quality and character of an individual's behaviour: • 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, and • social and living arrangements. 99. The following factors are relevant in reaching this conclusion. When considering the Resides Test, we need to focus on what factors connect the applicant with Australia, rather than those connecting them to XXX:
• the applicant will spend xx days in Australia each year, staying with their family at the family home, as a family unit; this is a considerable period of physical presence in Australia • the applicant's immediate family, including their spouse and dependent children, will continue to reside in Australia at the family home - this is a strong family tie to Australia. The purpose of the applicant's presence in Australia is to spend time with their family, and to function as a family unit • the applicant has both significant family and business ties to Australia, as evidenced by their commitment to spending time with their family, and as evidenced by their significant business ties, such as x investment properties which yield close to $xxx in annual rental income, bank accounts, and shares which yield approximately $xxx in income from dividends • the applicant retains the family home which they are able to reside in whenever they wish to return, as it is always available for their use
• the applicant's living and social arrangements are strongly tied to their family unit, with whom they will spend considerable time throughout the year. 100. Even though the applicant will depart Australia to live/work in XXX, they have stated their intention of returning to and remaining in Australia for xx days every month while they visit their spouse and children (approximately xx days annually). Whilst in Australia, the applicant will stay with their family at the family home. 101. The applicant will have many of their personal possessions in XXX but will maintain the YYY property for their family's use and their x investment properties in Australia. 102. The applicant will have a social arrangement in Australia to visit family. Their social ties in Australia will be strong and focussed on their family. 103. Therefore, the applicant is a resident of Australia under the 'resides' test. The 'domicile' test 104. The applicant was born in XXX in YYYY and resided there until YYYY. On DD MM YYYY, the applicant, their spouse, and child departed XXX for YYY.
105. The applicant and their family have resided in Australia since YYYY. The applicant chose to become an Australian citizen. 106. A person's domicile is their domicile of origin (usually the domicile of their father at the time of birth) unless they have a domicile of dependence or have acquired a domicile of choice elsewhere. The applicant's country of origin is XXX. However, on their election to become an Australian citizen in Australia, they chose to be domiciled in Australia. 107. If a person has an Australian domicile and is living/working outside of Australia, they will retain their Australian domicile if they intend to return to Australia on a clearly foreseen and reasonably anticipated contingency, such as at the end of an employment contract, even if it is for a substantial period, because they lack the necessary intention to settle in that country indefinitely.
108. The applicant does not currently have XXX citizenship. They are a cardholder which allows them multiple-entry and a multi-purpose lifelong visa to visit XXX, noting that the criteria to be eligible for the card is very narrow. The card allows cardholders a lifetime of re-entry to XXX, but they are excluded from having citizenship, and any right to vote in XXX elections or hold public office. Moreover, as discussed in relation to the resides test, the applicant retains significant ties to Australia. These factors indicate that the applicant has not abandoned their Australian domicile and re-acquired XXX domicile by choice. 109. As the applicant is domiciled in Australia, they will be an Australian resident unless the Commissioner is satisfied that they have a permanent place of abode outside Australia. This requires consideration of whether they have definitely and permanently abandoned living in Australia and whether they are living in another country in a permanent way. 110. The applicant's employer has arranged accommodation by leasing a home in XXX, for themself, and a car for their sole use. The applicant intends to live and work there indefinitely.
111. The applicant has, however, retained significant assets in Australia, namely a residential property, x investment properties, and numerous bank accounts and shares. The applicant's x investment properties yield approximately $xxx in rental income annually, and they derive approximately $xxx in dividends. 112. The applicant's choice to maintain their former principal place of residence in YY is not determinative. This is on the basis that: • the applicant's children still live in the property with their parent B • the applicant does not have any financial need to sell the property, and • it is convenient for the applicant to stay at the property on return trips to visit their family. 113. During the applicant's first x years employed in XXX, while their youngest child is still in school, they plan to spend xx days per month in Australia (approximately xx days annually). Whilst in Australia, the applicant will stay with their family at the family home.
114. Once their youngest child finishes school, the applicant's spouse intends to relocate to XXX to live with them, and the applicant intends to visit their children every x months, for approximately xx days each time (approximately xx days annually). 115. The applicant retains their Australian citizenship and substantial social, familial and economic ties to Australia. 116. As such, although while the taxpayer is living overseas in XXX, we do not consider that they have definitely abandoned their residency in Australia, for the reasons mentioned above. Therefore, the Commissioner is not satisfied that your permanent place of abode is outside Australia. 117. Therefore, the applicant is a resident of Australia under the 'domicile' test. The '183 day' test 118. The applicant will not be physically present in Australia for 183 days or more in the year ended DD MM YYYY, or the period DD MM YYYY to DD MM YYYY, and accordingly, the 183-day test is not satisfied. 119. Consequently, the applicant does not satisfy the '183 day' test pursuant to subparagraph 6(1)(a)(ii) of the ITAA 1936. The 'Commonwealth Superannuation Fund' test
120. The applicant, their spouse and children are not members of the Public Sector and Commonwealth Superannuation Scheme. The applicant has not satisfied the Commonwealth Superannuation Test in subparagraph 6(1)(a)(iii) of the ITAA 1936. As such, the 'superannuation' test is not satisfied. Conclusion - 4 statutory tests 121. In conclusion, the definition in subsection 6(1) of the ITAA 1936 offers 4 statutory tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. Only one of the 4 statutory tests needs to be met for an individual to be considered an Australian resident for taxation purposes. The applicant meets 2 of the 4 tests, so is considered a resident of Australia for taxation purposes. Question 2: Australia - XXX Double Tax Agreement DTA 122. 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. 123. Sections 4 and 5 of the Agreements Act incorporate that Act with the
Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 provide that the provisions of a double tax agreement have the force of law. 124. 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. 125. 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. 126. As discussed under question 1, the applicant will be an Australian resident for tax purposes for the relevant years. However, the applicant may also be viewed as a resident for taxation purposes in XXX and may be taxed there in relation to their foreign employment income. Therefore, the tiebreaker test as outlined in the Australia - XXX DTA above needs to be applied.
127. Considering Article Y of the DTA, which sets out the tiebreaker rules for residency for individuals, we first look at Article Y which states that a person is not a resident of a Contracting State for the purposes of the Agreement if the person is liable to tax in that State in respect only of income from sources in that State.The applicant has income in XXX, which will be taxed, as well as rental and dividend income in Australia. 128. Considering Article Y which sets out the Permanent Home provisions, we note that where an individual is a resident of both Contracting States, then the status of that person shall be determined in accordance with the following rules: (a) the person will be deemed to be a resident solely of the Contracting State in which a permanent home is available to the person (b) if a permanent home is available to the person in both Contracting States, or in neither of them, the person will be deemed to be a resident solely of the Contracting State with which the person's personal and economic relations are closer (centre of vital interests).
129. Based on the information provided, it is considered that the applicant has a permanent home in Australia, which is jointly owned by the applicant and their spouse, which is retained for their permanent use during the whole of the XX-XX income years whenever they wish to use it. 130. The accommodation in the form of a long-term lease and vehicle for their sole use while they live and work in XXX has been leased in accordance with the period that the applicant intends to work there, which may be for a finite period. It is not known how long the applicant intends to remain working in XXX. 131. The applicant therefore has a permanent home available in both Australia and XXX, so Article 4(2)(b) of the DTA needs to be considered. 132. For the purposes of the above paragraphs, an individual's citizenship of a Contracting State, as well as that person's habitual abode, are relevant factors in determining the degree of the person's personal and economic relations with that Contracting State.
133. The applicant is an Australian citizen, and they have a permanent residence in Australia, which they will regularly visit to spend time with their family. The applicant has substantial personal and economic ties to Australia - their family, their family home, their x investment properties, in addition to their shares which yield considerable dividends. 134. Their residence in XXX, which is provided by their employer on a lease basis, is not a permanent home. 135. The applicant's permanent family home, is available at all times continuously and not occasionally, as set out in paragraphs 12 and 13 of the OECD commentary to the Model Tax Convention. It is not rented out or handed over to an unrelated party but resided in by their family, and available to them at all times.
136. Considering Article Y which sets out the Personal and Economic Relations provisions, we note that 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 they retain the first in the environment where they have always lived, where they has worked, and where they have their family and possessions, can, together with other elements, go to demonstrate that they have retained their centre of vital interests in the first State. 137. Considering both aspects (Australia vs XXX), even though the applicant will spend a great deal of time in XXX, will perform all their employment duties in XXX, and that is where their personal possessions are held (clothing, etc), their personal and economic ties to XXX are less than those to Australia. 138. The centre of the applicant's vital interests is considered to be in Australia - their spouse and X children are based in Australia, as are their x investment properties which provide significant annual rental income, in addition to substantial shares which provide dividends.
139. We have shown previously that the applicant has significant personal and economic relations to Australia (with their family and investment properties and shares), so we consider the applicant to be a resident of Australia for tax purposes under the Australia - XXX DTA. Question 3: Articles of the Australia-XXX Double Tax Agreement 140. The applicant has been deemed to be a resident of Australia for taxation purposes. As such, their assessable income includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. This includes the income the applicant derives from their employment in XXX. 141. Article Z of the Australia - XXX DTA provides that salaries, wages and other similar remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment shall be taxable only in that State, unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in that other State.
142. As the applicant has been deemed to be a resident of Australia for taxation purposes, the application of Article Z of the DTA will mean that any remuneration derived in the course of the applicant's employment in XXX may be taxed in XXX, as the applicant is present in XXX for more than 183 days per year. 143. However, XXX's taxing right is not exclusive, and Australia may also tax the income derived by the applicant whilst in XXX. Double taxation is avoided by Article ZZ of the DTA which applies to grant the applicant a credit in respect of tax paid in XXX against any Australian tax payable in respect of their employment income. 144. Article ZZ of the DTA outlines that an Australian resident can claim a Foreign Income Tax Offset (FITO) as a credit in relation to tax payable in Australia in relation to the XXX income.
145. Under the DTA, Australia and XXX both have the taxing right on the employment income the applicant derives in relation to their employment contract in XXX. Therefore, the applicant is required to declare the income they have earned in relation to their employment contract in their Australian income tax return. However, to prevent double taxation the applicant can claim a FITO in relation to the tax paid in XXX. 146. Further information about how to report any foreign income and claim a FITO can be viewed at our web site ato.gov.au at the following web pages: • QC 72091 Australian resident foreign and worldwide income • QC 72280 Guide to foreign income tax offset rules 2023 • QC 72205 Claiming a foreign income tax offset CONCLUSION Question 1: On the basis that 2 of the 4 residency tests in subsection 6(1)(a)(ii) of the ITAA 1936 are met after the applicant departs Australia in MM YYYY, the applicant is a tax resident of Australia from DD MM YYYY. Therefore, the applicant is a tax resident of Australia for the purposes of subsection 6(1) of the Income Tax Assessment Act 1936
for the financial years ended DD MM YYYY and DD MM YYYY. Question 2: The applicant is a resident of Australia for income tax purposes under the Australia-XXX Double Tax Agreement for the financial years DD MM YYYY to DD MM YYYY. Question 3: Articles Z and ZZ of the Australia-XXX Double Tax Agreement will be applied to income derived by the applicant while in XXX such that the applicant can claim a foreign income tax offset for the tax paid in XXX to prevent double taxation.