In the last few years the tax residence of companies and individuals has been challenged by the ATO resulting in a large number of reported decisions.

Those decisions are considered, as is the resident status of trusts, and the characterisation of civil law entities as either companies or trusts for Australian purposes.

Certain planning issues are discussed, including the role of offshore trusts, and the use of dual residence “tie breakers”.


2.1               RESIDENCE OF COMPANIES

Section 6 of the ITAA defines an Australian resident company as one “which is incorporated in Australia, or which, not being incorporated in Australia, carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia” (underlining added).

The law in Australia has not yet expressly referred to all the jurisprudential developments in the UK on the central management and control of companies.

The test of residence for companies often depends upon the place of management of the company and/or the place of incorporation of the company.

The United Kingdom and Australia are examples (there are many), of countries which now determine corporate tax residence on the alternative bases of:

(a) place of incorporation; or

(b) place of “central management and control”.

 Malaysia determines corporate residence solely on the basis of “central management and control”. In contrast, the United States simply looks to the place of incorporation.

The classic general law “central management and control” test, which until 1988 was the sole test of company residence in the United Kingdom[1], was set out in the speech of Lord Loreburn in De Beers Consolidated Mines Ltd v Howe[1906] AC 455. Also see Unit Construction Co Ltd v. Bullock[1959] 3 All ER 831.

As can be seen from Swedish Central Railway Co v. Thompson [1925] AC 495, the central management and control of a company can be shared between two countries, such that the company can under the test, be a dual resident.

More recently, both Untelrab Ltd v McGregor (Inspector of Taxes)[1996] STC(SCD) 1 and R v Dimsey; R v Allen[2000] QB 744 referred to below, highlight the need to be fastidious in ensuring that the majority of the board for example, of a Malaysia company, is resident in Malaysia, and do in fact meet for the purpose of considering resolutions, rather than that an individual, for example, in the UK or Australia, whether a director or not, conduct the Malaysian company’s board level decisions, on their own.

In Wood v Holden (HMIT)[2006] EWCA Civ 26, the principle was confirmed, that the place where a board of directors exercises its duties (properly), will be the place of its “central management and control” (in that case, The Netherlands), even where the controlling shareholders, or advisers recommend, or even expect the board to reach certain decisions, and those persons are elsewhere (UK). After reviewing the authorities such as the Australian High Court decision in Esquire Nominees Ltd v FC of T(1973) 129 CLR 177, Lord Justice Chadwick, with whom the other two members of the court, so held.

The High Court of Australia in Esquire Nominees held that a company incorporated on Norfolk Island (part of Australia but then only taxable on income sourced from the mainland), and all of whose board resided on Norfolk Island, indeed had its central management and control on Norfolk Island, notwithstanding the resolutions for board meetings were prepared in Melbourne by the ultimate shareholders’ accountants. This was on the basis that the board meet to consider such resolutions, and it would not have passed them, had they been illegal, or not in the best interests of the company.

In Untelrab, the United Kingdom Inland Revenue asserted that the company incorporated in Jersey, with two Bermudian resident directors, and one director resident in Jersey, was nonetheless resident in the UK, where the parent company was resident. The Special Commissioners held that the company was resident in Bermuda and applied Esquire Nominees. What is interesting about the case is the depth of analysis of the evidence of the activities of the company over a six year period, including cross examination of the offshore directors.

The Inland Revenue had more success in criminal proceedings in R v Dimsey; R v Allen where the defendants unsuccessfully appealed their jail sentences for “conspiracy to cheat the public revenue” and “cheating the public revenue” respectively.

The central allegation in those cases was that companies incorporated in Jersey and other havens, and of which Mr Dimsey, a solicitor, was a Jersey resident director, were in fact centrally managed and controlled in the UK, such that the companies were liable to UK corporations tax. The evidence accepted by the jury was that Mr Dimsey’s client in the UK (Mr Allen), who was not an actual director, was a shadow director, and was in fact actually managing and controlling the companies in respect of board level decisions. The result for the companies was that they were resident in the UK rather than Jersey.

The established principles were applied in UK Tribunal decision in Laerstate BV v Revenue & Customs [2009] UKFTT 209 (TC), where a Dutch company was found to be a tax resident of the UK. Again, the case demonstrated the detailed enquiry into the decision making process of directors (and for a period, a “shadow” director). Esquire Nominees was again referred to with approval. A somewhat more detailed emphasis was on whether the director who did not own the company had sufficient information before him to be able to make an informed decision.

It is contended that the most relevant principles to be gleaned from the authorities are:-

(a) Effective management should be where the board of directors regularly meets to decide the policy, conduct and manage the strategic (“high level”) decisions necessary for the business, and that each of them have sufficient information for that purpose; and

(b) A majority of the board should be residents of the jurisdiction the company is to be resident of.

The Australian Taxation Office has issued a tax ruling TR2004/15 which confirms these principles, and in addition, confirms (at [50]) that if an Australian resident director participates by telephone or electronically, in a majority foreign board meeting overseas, the fact that the Australian resident is in Australia at the time does not upset the outcome[2].

There have recently been a number of cases where the ATO has challenged the tax residence of foreign incorporated companies.

This has mainly happened in relation to companies which have had also had alleged Australia source income, rather than in situations where the company has been trading only internationally, and so would have only foreign source income. The circumstances were also that the foreign incorporated companies had or were likely to have had Australian resident owners[3]. These cases appear to have flowed out of “Project Wickenby” which originally focused on the activities of the advisory firm known as Strachans, in Jersey & Switzerland, but later expanded to cover activities of a number of Vanuatu advisers (particularly Robert Agius who was with PKF, but is now serving a non-parole 6 years & 8 month sentence in Australia) whose clients used offshore bank accounts and companies incorporated in Vanuatu.

It seems that the reduced scope of Australian CGT from the introduction of Div 855 in 2006 has had some impact on these issues. It now subjects to CGT only Australian real property, and shares or units representing 10% or more of entities which are Australian land-rich, and the business asset held by the Australian “permanent establishment” of a non-resident. This has lead to arguments by the ATO that non-resident companies in non-treaty countries, have been dealing with Australian assets such as shares in non-land-rich companies, on revenue account, so as to be taxable in Australia, whereas a capital gain would no longer be taxable[4].

In Crown Insurance Services Limited and FCT [2011] AATA 847, the Commissioner asserted that the Vanuatu incorporated taxpayer was in fact a tax resident of Australia, and that in any event, the source of its funeral benefits insurance premium income was Australia[5].

The AAT held that the taxpayer company was a tax resident of Vanuatu (principally as that is where it held its directors’ meetings, at [74][6]), and that the source of its income was in Vanuatu (as that was where it conducted its insurance business (contracts were entered into and carried out), at [85][7])).

A Mr Pattenden set up Crown Insurance, and was one of its directors. PKF were not used. He was British born and travelled to Vanuatu and New Zealand (where he had a house), but was an Australian tax resident at the relevant times. The decision does not expressly say who the other directors were, but it is implied there were a majority of director’s resident in Vanuatu. The ATO vigorously pursued Mr Pattenden under Project Wickenby, and has come up short[8]. They gave him Departure Prohibition Orders twice, the first was in due course set aside, as referred to in Pattenden v FCT [2008] FCA 1590, and the second given illegally soon after the first was quashed, at which time Logan J remarked in an unreported judgment:

“That sort of scenario I would usually visit, if proved, with a term of imprisonment for the officer concerned and for those who counseled or procured that course”.

The decision of Perram J in Hua Wang Bank Berhad v FC of T [2014] FCA 1392) in the writer’s view, unnecessarily distinguished the long standing decision of Gibbs J in Esquire Nominees, in finding that a number of foreign incorporated companies were tax residents of Australia: The result was affirmed by the Full Federal Court reported as Bywater Investments Ltd v FC of T [2015] FCAFC 176 (11 December 2015) but the authority of Esquire Nominees was not distinguished on appeal.

On the facts as found by Perram J, that Mr Vanda Gould (an Australian tax resident) was the beneficial owner of the companies, and had “usurped” the boards of the companies, there was no need to distinguish Esquire Nominees. His doing so potentially risked the status quo. However, on appeal, the full Federal Court glossed over Perram J’s distinction.

Perram J in Hua Wang Bank  said that Esquire Nominees effectively decided only that suggestions of shareholders or their advisers in relation to a particular trust, are not relevant to the place of residence of the trustee company (at [400]):It has long been considered that the decision of Gibbs J in Esquire Nominees stands for the proposition that the “central management and control” of a foreign incorporated company, which is relevant to its residence, will be determined by the place of residence of the board of directors properly carrying out their duties, notwithstanding the directors receive suggestions from the company’s shareholders or their advisers, as long as they act in the best interests of the company and would not do anything illegal or improper suggested to them. This position was accepted by the Commissioner in TR 2004/15 at [63]. What the Commissioner says in TR 2004/15 is not confined to companies acting as trustees.

“Whilst the accountants could tell the trustee what to do qua trustee they could not tell the directors of the trustee company what to do qua company.”

Accordingly, he concluded that it was not surprising that Gibbs J found that the trustee company in Esquire Nominees was resident on Norfolk Island (as he concluded the influence was only in relation to the assessed trust). Put another way, Perram J appears to have been of the view that the outcome may have been different if the accountants had sought to influence the decisions of the board generally, and not just in relation to particular trusts.

One reason why it was unnecessary to distinguish Esquire Nominees was that Perram J found in relation to Mr Borgas’ activities as a director, at [98]:

“Mr Borgas’ evidence about this persuaded me that he was a witness who was willing to lie on oath in a most discreditable way.”

And at [405] – [406]:

“The role of Mr Borgas was fake. He made no decision of any kind but simply implemented Mr Gould’s instructions after which he generated a false document trail to make it appear otherwise….I reject entirely the idea that Mr Borgas might have declined a transaction which he believed or suspected to be improper. Such an approach would have put him out of business.

In relation to the words underlined above, and based on his Honour’s assessment of the evidence, with respect, the conclusion with respect to Mr Borgas may be correct, but as a general proposition as to directors and boards of subsidiaries relationship with their foreign parents, DTAs are premised on the basis that merely because of the parent / subsidiary relationship, the subsidiary does not represent a permanent establishment of the parent in the country of the subsidiary, let alone make the subsidiary’s place of central management and control the same as that of the parent. Invariably the parent’s expectations in relation to the subsidiaries’ activities will be made known. This will be so whether the local board is constituted by employees of the subsidiary or by independent directors (usually provided by service providers in the country of the subsidiary). The idea that generally an independent director provided by a service provider (that has many clients) is more likely to implement a plan which he believes or suspected to be improper, than would an employee of the subsidiary who may owe his whole living to the subsidiary, is not terribly logical.

The Full Federal Court appeal disregarded Perram J’s distinction of Esquire Nominees and said at [8]-[10]:

The test of residence has been applied in circumstances where the decisions of those in control of the company have been heavily influenced by others [referring explicitly to Esquire Nominees]

“Critical to the outcome in that case, however, was that those exerting influence, albeit strong influence, were not those making the decisions of the company. As observed by Gibbs J at first instance, the compliance of the directors with the wishes of others was because the directors accepted those wishes to be in the interest of the beneficiaries to give effect to the scheme.

“A similar result can be seen in Wood v Holden [2006] 1 WLR 1393;[2006] EWCA Civ 26 and Commissioners for Her Majesty’s Revenue and Customs v Smallwood [2010] EWCA Civ 778. In Unit Construction Co Ltd v Bullock [1960] AC 351 distinctions were drawn between those with an ability to influence others who make the decisions of the company and those who may be usurping that function or who are directing those appearing to act for the company: see Unit Construction at 364–6; Wood v Holden [2006] EWCA Civ 26; [2006] 1 WLR 1393 at [24]–[27]; Smallwood [2010] EWCA Civ 778 at [61]. In Wood v Holden the critical finding of the trial judge was that the effective decisions had been made by the directors and the trial judge specifically rejected the suggestion that their participation was “merely going through the motions of passing and signing documents”: see [36], [40]–[43].

 “His Honour below applied these principles.”


Having failed to establish in the AAT that Crown Insurance was an Australian tax resident, the Commissioner appealed to the Full Federal Court, on the finding that the source of income was not Australia. As the case involved a non-treaty resident, there was no need for the income to be derived above the threshold of a “permanent establishment” in Australia, in order for Australia to have the right to tax.

By a majority, the Court held that there was no issue of law and therefore the Court had no power to deal with the appeal: [2012] FCAFC 153. The dissenting judge (Jessup J) held that there was an issue of law, and that the “indirect” source of the income was Australia. The Commissioner was denied special leave to appeal to the High Court on 6 June 2013[9].

The Commissioner clearly wanted to follow through with comments of Jessup J at [94] in the Full Federal Court, to the effect that the indirect source of insurance premium income of a Vanuatu insurer was Australia, on the basis that the “original source” of the premiums was payments made by members of various funds in Australia. This, with the greatest respect, is clearly wrong[10].

In Bywater Investments Ltd v FC of T [2015] FCAFC 176 (11 December 2015), the source of the income was from trading in shares on the ASX. It was accepted by the parties on appeal, that the source of the income was Australian, and that the profits were on revenue account. However, there was a dispute about the application of the trading stock provisions.

The taxpayer argued that the foreign incorporated companies were not tax residents of Australia, and from the reported decisions, the battleground seems only to have been where the companies had their central management & control. However, in looking at the definition of resident company in s6 extracted above, it is not clear whether the taxpayer conceded that the taxpayer carried on business in Australia. Clearly the taxpayer argued that it was not owned by an Australian resident, but rather that it was owned by Mr Borgas, a Swiss resident.

TR2004/15 rejects the proposition that the High Court decision in the Malayan Shipping case [citation], stands for the general proposition that if a company has its CM&C in Australia, that it thereby carries on business in Australia, and says this is only so in relation to investment companies, but not trading or manufacturing companies. That is, the business of an investment company is to make investment decisions, and that happens were the CM&C is, but the business of a trading or manufacturing company happens where the trading or manufacturing is carried on, which isn’t necessarily the same place as the CM&C.

As the taxpayer argued that it was owned outside Australia, if its CM&C was in Australia, the issue was whether it was conceded it was an investment company, or if it was argued to be a trading company, where the trading activity took place. Perhaps the fact that the share trades were on the ASX meant that it was conceded that it was carrying on a business of share trading in Australia. This is consistent with it being found the shares which were dealt in, were trading stock. However, the answer as to whether concessions were made, is not apparent from the reported decisions.


A non-resident company controlled directly or indirectly by five (5) or fewer Australian residents will be a “controlled foreign company” (CFC) for Australian anti-deferral tax purposes[11]. If the CFC only derives rent and portfolio capital gains, the Australian shareholder(s) will be assessable on the income and gains as it is derived. However, if the CFC has only business (trading) income which is not “tainted”, none of the income is attributable to the Australian shareholder(s), even if the foreign income has not been subject to tax (from 1 July, 2004).

This outcome does not change if all the shares in the offshore company are held by a Transferor Trust in a tax haven, for asset protection reasons or otherwise[12].


3.1 Some of the problems with onshore asset protection trusts[13], are likely to see the emergence of the greater use of such trustees out of Australian jurisdictions[14].

3.2 A trust is a resident of Australia if it has a resident trustee, or its central management and control (CM&C) is in Australia, in either case, at any time during an Australian year of income.[15] A non-resident trust is one that is not a resident trust.[16]

3.3 The concept of CM&C is usually relevant to corporate tax residence, for example to determine the residence of a corporate trustee. When the current definition of resident trust was inserted, it seemed unnatural to use CM&C, as to that date it had not been considered to be relevant to trusts, and it has not yet been considered by an Australian court in relation to trusts.

3.4 However, a recent Supreme Court of Canada case, Fundy Settlement v Canada[17] (commonly referred to as the Garron case), applied the concept. In that case, a Barbados trustee did not save the inter vivos trust formed in Barbados from being a resident of Canada, as the court held the CM&C was in Canada with the trust’s settlor. Garron has not yet been considered in Australia.

3.5 In relation to a trust with all all non-resident trustee(s), it will only be if the trustee acts on instructions from e,g, an Australian resident appointor/protector, rather than to properly exercise its duties as trustee, that there might be a question of CM&C being in Australia.

3.6 In some tax havens, there has been a movement away from some traditional trustee duties, which, for example, has extended to the lessening of trustee liability. This has resulted in some commentators discussing whether the “irreducible core” concepts of a trust, as entrenched in English law, are being left behind in favour of measures to drive new business[18]. Indeed, if the legislature went too far, there is a risk that these special trusts may be considered by onshore courts to be bare trusts, such that the client is regarded as the beneficial owner.

3.7 Professional trustees have generally sought to overcome some of the traditional trustee duties20 by having the trust acquire shares in a company though which the client can carry out the intended activities, rather than though the trust itself21, and ensuring that the trust deed contains an “anti-Bartlett clause”, to absolve the trustee from any duty to interfere with the management of the company. In Bartlett v Barclays Bank Trust Co Ltd22, a trustee was found to be under a duty to act in relation to investee company shares that had dramatically dropped in value.

3.8 Some tax havens have special legislation designed to make it difficult to attack the assets of an offshore trust in their jurisdiction. A good example in our region is Labuan, Malaysia. It is also particularly noteworthy, that unlike Hong Kong and Singapore, there is no reciprocal enforcement of judgement with Malaysia23.

3.9An offshore trust may have nothing to do with Australian or other investor country tax planning[19], e.g. estate or inheritance tax planning in the investee country, with the principal “content” to pay the home country tax attributable to them as “settlor”[20], as long as the assets in the trust are protected, or not to be distributed according to forced heirship rules in their “home” country. Abdel Rahman v. Chase Bank (CI) Trust Company Limited, was a notable example of failure to implement correctly.

3.10 However, as a general philosophy, persons in “at risk” occupations or worried about blackmail or greenmail, should always seek to avoid accumulation of wealth in the own names[21]. Accumulating wealth individually, and belatedly gifting it to trusts is far less desirable than creating trusts and providing them debt funding or guarantying their arm’s length borrowings, which will allow the trust to build wealth. Also, with the recent strengthening of the Australian anti-transfer pricing provisions, it is far better to create a business in a tax haven rather than to seek to transfer it after it has started to become valuable[22].


Section 6(1) of the 1936 Act defines Australian resident as it relates to individuals as follows:

‘”resident” or “resident of Australia” means ‑

(a) a person … who resides in Australia and includes a person –

(i) whose domicile is in Australia, unless the Commissioner is satisfied that his 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 his usual place of abode is outside Australia and that he does not intend to take up residence in Australia; or

(iii) who is [a member, spouse or child under 18 of a member of certain Commonwealth public service superannuation funds]’ (underlining added).


One long standing positive about Australian tax from a taxpayer’s perspective was the absence since 1980 of any State or Federal death or gift duty, so that retirees or other wealthy migrants from countries with inheritance tax may have sought to adopt an Australian domicile of choice, to escape the clutches of their country of origin inheritance tax.

However, it is perhaps the abolition of Australian taxation on the foreign source investment income of “temporary residents” that has excited the imagination of many prospective potential wealthy migrants[23].

The issue of common law residence[24] was considered in Gains-Cooper v HMRC [2006] UKSPC 00568 before the Special Commissioners in the UK, where the law was analysed, and as the stakes were very high, the case was argued with considerable resources[25]. As the appeals were limited to errors or law, and the appeal courts found none, the Special Commissioners decision stood. HMRC also had success in subsequent cases[26]. In recent years cases dealing with residence of individuals in Australia have not moved past the AAT[27].

Mr Gains-Cooper was found by the Special Commissioners to have remained a resident and domicile of the UK[28], whether or not he had become resident in the Seychelles, with which the UK does not have a double tax agreement (DTA).

Whilst Mr Gains-Cooper (and another’s) administrative appeal was dismissed by the Supreme Court of the UK, reported as Davies & Anor v HMRC [2011] UKSC 47, the Supreme Court did say:

13. In the absence to date of any statutory definition of residence taxpayers and their advisers have had to turn to the guidance given by the courts – and, importantly, also by the Revenue – in relation to its meaning. But the courts have not – nor, as we shall see, has the Revenue – found it easy to formulate the guidance. For more than 80 years the leading authority has been Levene v Inland Revenue Comrs [1928] AC 217. Until 1919 Mr. Levene was resident and ordinarily resident in the UK. During the next five years he spent about five months (mainly in the summer) each year, staying in hotels in the UK and receiving medical attention or pursuing religious and social activities. He spent the remaining months staying in hotels abroad. The appellate committee declined to disturb the conclusion of the commissioners that Mr Levene had remained resident and ordinarily resident in the UK during those years. Viscount Cave, the Lord Chancellor, adopted, at p 222, the definition of “reside” given in the Oxford English Dictionary, namely “to dwell permanently or for a considerable time, to have one’s settled or usual abode, to live in or at a particular place”; and, of these three descriptions, the Lord Chancellor chose, no doubt as being the most helpful, that of a “settled or usual abode“.

14. Since 1928, if not before, it has therefore been clear that an individual who has been resident in the UK ceases in law to be so resident only if he ceases to have a settled or usual abode in the UK. Although, as I will explain in para 19 below, the phrase “a distinct break” first entered the case law in a subtly different context, the phrase, now much deployed including in the present appeals, is not an inapt description of the degree of change in the pattern of an individual’s life in the UK which will be necessary if a cessation of his settled or usual abode in the UK is to take place (underlining added).

In recent years there have been several UK cases dealing with the issue of common law residence. Most recently, it was considered in Glyn v Revenue & Customs [2013] UKFTT 645 (TC). Like in Australia, the question of residence in the UK has until 6 April 2013 (when the UK adopted a statutory residence test), been a question of fact, so the analysis of what needs to be considered often took place in a Tribunal rather than the Courts. The UK cases have made considerable reference to concepts of “distinct break” and “settled purpose”, which phrases have not yet been used in the Australian cases.

In Glyn’s case, the Tribunal said:

118. … we should concentrate predominantly on three tests, as follows:

  • first, on and after 5 April 2005, did the Appellant make a distinct break from his former way of life, by which we consider it important to assess whether he commenced a quite different and intended way of life in Monaco, and whether he can demonstrate not only the required substantial loosening of ties with family, friends and former business life, but whether his whole way of life changed;
  •  secondly, having regard to the importance of 50 Circus Road [London] to the Appellant, did 50 Circus Road remain a habitual abode, and more particularly a habitual abode in the UK for a settled purpose, when the Appellant was fundamentally living in Monaco? And thirdly for how long was he in the UK; can those periods of presence realistically be described as “visits”, and were they or were not for a settled purpose” (underlining added).

The Tribunal also said:

117. Since the Supreme Court’s decision in Gaines-Cooper… it is virtually critical to demonstrate a “complete break”, and that this requires it to be shown that the person has not necessarily severed family, social and business ties with the UK, but that at least there has been a “substantial loosening” of such ties. Much of our consideration of the facts in this case will revolve around whether there has been such a “distinct break”, and whether there has been the required “substantial loosening” of ties. (underlining added)

There is no DTA between the UK and Monaco. As there is a DTA between the UK and Australia, with a “tie breaker”, the disposal of a permanent home in the UK and the acquisition of one in Australia would be one of the steps that could be taken by a UK domicile, firstly, to ensure that dual residence is resolved in favor of Australia under the ‘tie breaker”, and secondly, as an assistance on the path to acquiring an Australian domicile of choice for UK IHT purposes.

Ironically, non-domiciles of the United Kingdom, find it attractive to reside but not adopt a domicile of choice in the UK, in order to make use of the remittance basis of taxation applicable to non-UK domiciles. The Finance Act 2008 made reliance on the remittance basis of taxation less attractive, after sevenyears of residence in any nine year period, by requiring the payment of £30,000 tax just for the privilege[29].


A client who wishes to retain tax residence in Australia, but who proposes to spend a lot of time traveling needs to understand the risk of becoming a tax resident of any country where he is not a “mere traveller”. For a client who is carrying on a business or is a director or executive of a corporate taxpayer, it is necessary to understand that the client’s presence in another country be limited so as not to create a “fixed base” for the individual or “permanent establishment” of the company, in the host country.

Estate planning for some wealthy Australians may involve ceasing to be a tax resident of Australia.

Firstly, it should be noted that on ceasing to be an Australian tax resident, the taxpayer triggers CGT event I1 on all his CGT assets other than “taxable Australian property”, unless he elects to pay tax only on realization. Holding assets in discretionary trusts or companies owned by discretionary trusts usually overcomes that issue. Secondly, a non-resident individual has a starting tax rate on Australian source income of 32.5% (if it is not subject to withholding tax, commonly at 10%) i.e. no tax free threshold or graduated rate up to 32.5%.

There is a wide-spread myth that leaving Australia for as short a period as two years, will necessarily suffice to become a non-resident for tax purposes. This has arisen due to para 25 of IT 2650 which actually only says that an absence of 2 years “would generally be regarded by this Office as a substantial period for the purpose of a taxpayer’s stay in another country”[30]. IT 2650 discusses Applegate’s case[31], where the taxpayer was only out of Australia for two years. However, in that case he left the country indefinitely37, and only returned from Vila, in two years, due to ill health.

More certainty of outcome can be achieved for tax planning, by the use of a suitable double tax agreement (DTA)[32], which contains a dual residence “tie-breaker”.

For such a person, there is no point going to be resident in another high tax country, and so a country with a territorial system of taxation which also has a DTA with a “tie-breaker” fits the bill.

In S-E Asia, the more predictable results may follow in Singapore or Malaysia, which countries will also allow reasonable business infrastructure. As Hong Kong does not have a DTA with Australia, it is not suitable. Singapore is well known as an expensive place to live, although the tax position is quite positive. Malaysia is a lot cheaper, and on closer examination, may well be the best choice on the tax front as well[33].


1. Dual residence is often resolved in DTAs. For example, Article 4 “tie-breaker” of the Malaysia/Australia DTA provides:

2. Where by reason of the preceding provisions an individual is a resident of both Contracting States, then his status shall 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;(a) he shall be deemed to be a resident solely of the Contracting State in which he has a permanent home available to him;

(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.

3. In determining for the purposes of paragraph 2 the Contracting State with which an individual’s personal and economic relations are the closer, the matters to which regard may be had shall include the citizenship of the individual” (underlining added).


OECD Commentary

Permanent Home

Under the tie-breaker, the first test to break the dual residence, is where the taxpayer has a “permanent home”. As the terms of the tie-breaker usually follow the OECD model DTA, the Commentary on the model is relevant:

“12…it is considered that the residence is that place where the individual owns or possesses a home; 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.

13. 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 purpose of a stay which, owing to the reasons for it, is necessarily of short duration (travel for pleasure, business travel, educational travel, attending a course at a school, etc.).”

It will be observed that whilst nationality (and indeed dual citizenship) is relevant to the “tie breaker”, it is not directly relevant to the domestic definition of Australian tax residence.

It should also be observed that the ATO is understood to have the view that DTAs don’t deal with attributed income under the CFC or Transferor Trust regimes, and therefore that DTAs don’t affect the operation of the Australian domestic law[34]. The DTA resolution of dual resident is only “for the purposes of the treaty” i.e. is only in relation to items of actual income covered by the treaty, and therefore not for actual income from third countries, unless there is an “Other Income” Article: in Canada most recently, that approach has found favour in relation to third country source income of the taxpayer, in 2002, before the Other Income Article (20A) of the Canada / UK DTA became operative: Conrad Black v The Queen 2014 TCC 12 see particularly at [62]. That the resolution of dual residence is only for “for the purposes of the treaty” explains why in TR97/17 at [66], the Australian Commissioner says a dual resident is entitled to the tax free threshold, to which a “pure” non-resident is not entitled.

The Australian Commissioner’s approach would mean that a dual resident deemed non-resident for the purposes of the treaty, would still be attributed income of a Transferor Trust as the income would be deemed income of the transferor, not actual income. Whilst he might find support for that view by virtue of the High Court denial of special leave from the decision in Russell v FC of T [2011] FCAFC 10, the Canadian decision of The Queen v Sommerer 2012 FCA 207 is more reasoned in its approach, and is to be preferred.[35]

For example, the first tier of the tie-breaker i.e. “permanent home” in Malaysia and no “permanent home” in Australia, then together with the fact that he doesn’t need to be in Malaysia for all of the 183 days in the first calendar year he moves there, as he can travel on business (in the employ of his own Labuan company), so as to be “temporarily absent”[36] and count those days as “in” Malaysia for the 183 day test[37], there is a lot more flexibility in moving to Malaysia to achieve the overall objectives than available with other countries[38].


As the specific tests widen the concept of “residence” beyond whether a person “resides” in Australia in a particular year of income, it only becomes necessary to consider the specific tests if the individual does not “reside” in Australia within the ordinary meaning of that word, in a particular year of income.

It will be observed that whether a person’s residence will be taken into account in deciding their domicile, the reverse is also true. That is, a person’s domicile is taken into account in the first specific test of tax residency.

As noted above, there is a wide-spread myth that leaving Australia for as short a period as two years, will necessarily suffice to become a non-resident for tax purposes. This has arisen due to para 25 of IT 2650 which actually only says that an absence of 2 years “would generally be regarded by this Office as a substantial period for the purpose of a taxpayer’s stay in another country”.

Australian cases decided after IT 2650 issued and before the recent bout of cases starting in 2012

AAT Case 8892 (1993) 27 ATR 1136; Case 11/94 ATC 174 supports the general view taken in Ruling IT 2650. Residency in this regard is, as indicated in Ruling IT 2650, a question of fact, and a mere long absence (3 ½ years in this case) is not enough to divest oneself of resident status. The rule of thumb that an absence of 2 years or more is indicative of non‑resident status (see Ruling IT 2650) should not be adopted as a matter of routine. In all cases, all factors must be considered. Finally, notwithstanding all the discussion on this issue, it must be acknowledged that an absence that is for a fixed and definite period only is a strong indicative factor supporting the conclusion that residency status has been retained even if it is a long‑term contract e.g. 3 years.

In AAT Case 12,551 (1998) 37 ATR 1263 the AAT decided that a physiotherapist did not cease to be a resident of Australia at any time during her lengthy stay overseas on a working holiday. She had not in their view, established a permanent place of abode outside Australia, essentially because she did not put down “roots” in any of the places where she worked.

In Re Wessling and FCT [2002] AATA 670; 50 ATR 1187, the taxpayer moved to Fiji with her husband who had been appointed principal of a school for 3 years. The taxpayer took special leave from her job, the family home was sold, and their belongings were put into storage. The AAT decided she had made her home in Fiji, even if not indefinitely, and therefore her permanent place of abode was outside Australia.

Re Shand and FCT [2003] AATA 279; 52 ATR 1098 concerned a Canadian who lived in Australia for almost 20 years, and then spent the majority of the next 5 years working overseas, predominately in Canada and Kuwait. The years in dispute where 1995 and 1996, in which the taxpayer was working in Kuwait. It was decided by the AAT that he did not have a permanent place of abode outside Australia in 1995 and 1996:

18. The evidence shows that although Mr. Shand spent a significant amount of time in Kuwait during the relevant tax years, he spent almost as much time in Australia. His personal effects and emotional ties were within Australia, whereas the only factor which tied him to Kuwait was his business. [It should be noted that Mr Shand did not in fact have a business in Kuwait, but was an employee. See decision at [7[15]] that he had no shares in his employer, and at [7[98]] although he had some options]

19. … The El-Hoss apartment in Kuwait was a temporary or transitory place of abode …

It is noted that Mr Shand became an Australian citizen at [7(24)]. Mr Shand regarded Kuwait as a “terrible place to live” at [7(63)]. Mr Shand was found to have a domicile of choice in Australia at [17(21)].

General Test – “resides”

In relation to the common law concept of “resides”, as has applied in the UK, and Australia, the recent Glyn case in the UK is relevant. Mr Glyn was a Jewish man who honoured most of the Jewish traditions. In 1993, he purchased a house with his wife in London. On the 5 April 2005, he and his wife departed to live in Monaco, in an apartment that they had acquired. Although the decision to emigrate was influenced by tax considerations, it was also in part to ensure a complete break from his former business life. Between April 2005 and May 2010, he spent approximately 200 days per year in Monaco. In the 2005/2006 year, he made 22 visits to the UK and spent approximately 65 days of the year there, staying (almost) every time at the house he owned. In the same year, he also spent approximately 65 days on foreign holidays. His visits to the UK were for various purposes, which were all non-essential. He never felt “at home” on these short visits. He saw his children and his friends much less frequently than when he lived permanently in London. He applied for a resident’s parking permit and confirmed in that application that he was a resident in the UK. He retained the house in London because he knew that at some point he and his wife would return to live in London. In 2009, his daughter gave birth in London. His wife returned to London soon after. In May 2010, the taxpayer returned to living in London with his wife. It was found that Mr Glyn was not a UK resident in the 2005/2006 tax year.

It was found that Mr Glyn had acquired a habitual abode in Monaco for the settled purpose of living the life, accompanied by his wife, of a relatively rich man, enjoying the relaxation, the walking and swimming, and the countless attractions that Monaco offered. He demonstrated that he had substantially loosened his ties with family, friends and his business life in London.

All of the Australian cases on individual’s tax residence deal with people who are mere employees rather than owners of businesses, usually living in temporary housing provided by their employer.

First Specific Test – domiciled but permanent place of abode outside Australia


The first of the three specific tests refers to the domicile of the individual[39].

Permanent Place of Abode

In relation to permanent place of abode, the most relevant expression of opinion by the Commissioner of Taxation is contained in Income Taxation Ruling IT 2650, which is headed “Residency – Permanent Place of Abode Outside Australia” (underlining added).  That ruling is essentially directed at the question of whether persons absent from Australia for particular periods may become non residents of Australia during the period of absence.

Second Specific Test – in Australia more than 183‑days but usual place of abode outside Australia

After the issue of IT 2650 and TR98/17, a further case was decided: FC of T v Executors of The Estate of Subrahmanyam 2002 ATC 4001 (Full Federal Court), and on remission to the AAT, 2002 ATC 2303. This case didn’t deal with domicile, and a was fought on the basis of the second test. It appears that the evidence was always the taxpayer had intended to return to Singapore, and so it appears to have been conceded by the ATO that she was domiciled in Singapore.

In this case, the deceased, who was a citizen of Singapore, had been in Australia for almost 4 years, essentially for medical treatment, and her lifestyle had been severely restricted by the health problems. She had closed her medical practice in Singapore, sold her house and transferred the proceeds of sale to Australia. However, she had left valued possessions in Singapore and maintained her Singapore medical registration and travelled back there on a few occasions. Ultimately on remission to the AAT, she was found not to have a usual place of abode outside Australia.

More recent cases

The question of residence of individuals in Australia has come into questions several times recently in reported decisions, after many years of little activity[40]. The recent cases have not usually moved past the AAT. More cases would be expected due to the substantive repeal of s23AG, which until 30 June 2009 provided that foreign source employment income was non-assessable non-exempt in relation to foreign continuous service of at least 90 days (where tax was paid at source). Until it was repealed, for many there was not such a great need to argue that the taxpayer had ceased to reside in Australia, although the effect of s23AG was to provide for an “exemption with progression”[41].

Middle East

The recent cases have often involved employees going to work as employees in the Middle East and staying in employer provided accommodation. The result has usually been that whatever their status in the Middle Eastern country[42], they would continue to be regarded as ordinarily residing in Australia[43]. As Australia has no double tax treaties with Middle Eastern countries, the potential dual residence was not resolved by a treaty: Iyengar[44] and FCT [2011] AATA 856; Sneddon[45] and FCT [2012] AATA 516; Boer and FCT [2012] AATA 574; Sully and FCT [2012] AATA 582.  

In one of only two cases involving the Middle East in which the taxpayer was successful, was one in which there was evidence that the taxpayer intended on living in New Zealand when his employment in Abu Dhabi finished; that he had initially occupied employer provided accommodation but subsequently found more permanent accommodation, and that he did not intend to re-occupy a house in Australia which his son had made his home: Mayhew and FCT [2013] AATA 130.

Tie Breaker

Australia’s double tax treaties generally have a “tie breaker” for individuals that provides as its first test, whether the individual has a “permanent home” in one country and not the other. Where an individual has a choice and wishes to be more certain that they will be treated as a non-resident of Australia, they should sell their Australian home, or at least let it out for a number of years so that it is not available to them during that period[46]. At the same time, they should buy or at least take a lease for a number of years of accommodation in a treaty country[47]. Whilst a number of recent cases have involved DTA countries, generally the taxpayer’s accommodation in those countries, and a remaining home in Australia, did not trigger the “tie breaker” in favor of the foreign country: Murray[48] and FCT (No 3) [2012] AATA 557; AAT Case 2012/4009 [2013] AATA 394.

In Mynott and FCT [2011] AATA 539, the taxpayer was able to establish that he was a resident of the Philippines and not Australia, and did not rely on the “tie breaker” even though the Philippines is a DTA country. He established that he was a resident of the Philippines and not a resident of Australia in the 1999, 2000, 2001 and 2002 tax years.

Mr Mynott filled out his immigration passenger cards to indicate that he was an Australian resident, but little weight was given to this evidence, because the information was provided in a non-taxation context55.

In a different case called Murray: Murray v Commissioner of Taxation [2013] AATA 780 (1 November 2013), the taxpayer (David Murray) decided to leave

Australia in 2006 to live with his then partner in Thailand56.The taxpayer was found to be a non-resident in the 2009, 2010 and 2011 income years.

When completing his immigration cards, Mr Murray indicated that he was an Australian resident and he received Medicare benefits which were only payable in respect of services rendered to an Australian resident. The tribunal did not give this evidence any great weight, as he was not turning his mind to the notion of residence according to ordinary concepts when completing the immigration forms, and was unaware that the Medicare benefits were only available to Australian residents.

In relation to residence, firstly, the AAT decision in Murray and FCT (No 3) (not David Murray) was appealed direct to the Full Federal Court, under the taxpayer’s real name, Mulherin v FC of T [2013] FCAFC 115, which dismissed the taxpayer’s appeal on the basis that it was incompetent, as it did not raised any issue of law, but only of fact. The taxpayer came and went regularly from Australia for work purposes. In relation to his raising the tie breaker argument too late, the Full Federal Court said the AAT did not make an error of law in refusing him leave to raise that point.

In Pillay v Commissioner of Taxation [2013] AATA 447, Dr Pillay was employed as a doctor in East Timor. He stayed between 9 and 11 months of the year there, with the remainder of his time spent in Australia and Bali. Dr Pillay was found to be an Australian resident for the 2010, 2011 and 2012 tax years[49].

In Re Nordern and FCT [2013] AATA 271 the taxpayer worked in China, Malaysia and PNG (all treaty countries) for 200 days in the 2011 tax year, but did not become a tax resident of any of them, and so the “tie breaker” was irrelevant.

 In ZKBN and Commissioner of Taxation [2013] AATA 604 the taxpayer failed to persuade the AAT that he was a non-resident of Australian in the 2007 and 2008 tax years and placed some reliance on the way the taxpayer filed out his immigration cards when entering and leaving Australia. In contrast, in the David Murray and Mynott cases, the way the immigration cards were filled out was not regarded as important.

The cases of Browne and Commissioner of Taxation [2013] AATA 866; and Guissouma and Commissioner of Taxation [2013] AATA 875 involved persons from Ireland and France that had come to Australia for about one year, and in both cases they were found to be residents of Australia, which may have been a desirable outcome for them if they did not have foreign source income and they wanted the benefit of graduated rates of tax in Australia, rather than the flat 32.5% that currently applies to non-residents. In contrast to Browne and Guissouma, and without referring to them, in three AAT cases heard together more recently, the ATO successfully argued for backpackers to be taxed as non-residents[50].

In Dempsey and FCT [2014] AATA 335 the taxpayer, a project manager, was employed in Saudi Arabia where he lived in an employer-provided apartment for three years. His employment contract was for an indefinite duration and while he expected that he would move onto another project with the same employer in its group, this did not occur. While in Saudi Arabia, the tax payer holidayed in Thailand and Australia, returning twice yearly to visit his former spouse and two children who lived in Canberra.

Although the taxpayer had significant connections in Australia, including a house on the Gold Coast (where he stored furniture and a car during his period abroad) a bank account and superannuation, he was considered not to have a permanent place of abode in Australia and was deemed a non-resident for the relevant period.

It is particularly noteworthy that the Full Bench of the AAT in Dempsey, composed of the Presidential Member, Deputy President and Senior Member, was critical of earlier decisions and their reliance on a checklist of factors. They noted that a checklist can distract from the real question of whether a person does in fact ‘reside’ in Australia. The taxpayer was employed in Oman was not a resident of Australia notwithstanding his family connections in Perth[51].

In Agius and Commissioner of Taxation [2014] AATA 854 the Tribunal accepted Mr Agius was a mere visitor when he came to Australia from Vanuatu to see his family. Mr Agius was a citizen of Vanuatu and had lived there for many years. He was estranged from his wife and did not stay in the family home when he was in Sydney.

In Hughes and Commissioner of Taxation [2015] AATA 1007 (22 December 2015), Dempsey was cited as was Agius, but found that the Australian citizen airline pilot working for a South Korean airline led a temporary existence in South Korean while he was not flying, and returned to his Australian family at every opportunity, in reaching the conclusion that he was an Australian resident..

Resident nowhere?

From press reports, it appears that the actor Paul Hogan, has an argument with the ATO, where he has asserted that in the relevant years, he was not a tax resident of any country[52]. Clearly the ATO prefer the argument that he was an Australian tax resident[53].

It has been suggested that the cruise liner, “The World” reputedly promotes the possibility of ceasing to be a tax resident anywhere, by selling up in the home jurisdiction, and buying a suite on the liner, which will then cruise the world endlessly[54]!

This idea might not be farfetched. On remission to the AAT in FC of T v Executors of The Estate of Subrahmanyam, the AAT referred (at p445) to the Commonwealth Taxation Board of Review in Case No. 56, (1946) 15 CTBR 443:

The taxpayer took up an appointment on board a ship and placed all of his personal belongings on board with the intention of living on it and without any definite intention of ever returning to Australia to live. The ship was in Australia for short periods during each of the tax years under consideration. The taxpayer had not abandoned his domicile in Australia. Therefore, in view of paragraph (a)(i) of the definition, he was a resident and so subject to taxation unless his permanent place of abode was outside Australia.

28. Mr Gibson considered the dictionary meanings given to “abode” and “place” and formed the view that, in one of its senses, a “place of abode” was a place of habitation or home. The ship was the taxpayer’s place of abode because it was the place where he slept, ate, worked and had his recreation. It was immaterial where the ship was moored. It was his permanent place of abode because he was residing on it for an indefinite time and his presence was not merely fleeting. Mr Gibson also considered that the expression “place of abode” might be given a broader interpretation and that:

“… meaning may be a `person’s home or dwelling-house or other habitation or the village, town, city, district, county, country, or other part of the world in which a person has his home or dwelling-house or other habitation or in which he habitually resides’. In the broader of these senses the taxpayer’s `abode’ at the material times was his ship or on his ship, and his place of abode was the particular part of the world where the ship happened to be at any given time. Even applying that sense it could, I think, be held that the tax-payer’s permanent place of abode was outside Australia.”


Whether advising Australians about suitable structures offshore, or dealing with offshore structures already in place when foreigners come to Australia, it is necessary to be aware of some of the civil law entities that may be encountered.

These entities have characteristics of both companies and trusts. Generally they will have legal personality, and exist in perpetuity, but do not have shareholders or members, and may exist for a purpose, or for persons, or both64. Generally, the founder will not have a property interest in such entities, and so their succession will not be governed by the testator’s will, but will be dealt with in the documentation of the civil law entity itself. The most well-known of the civil law entities are the stiftung (foundation) and the anstalt (establishment)[55], created under the law of Lichtenstein.

The stiftung is similar in many respects to a Purpose Trust[56] although it is incorporated. The stiftung is managed by a Council of Members, which most often is originally appointed by the Founder. At least one person on the Council must be resident in Liechtenstein. The stiftung probably have their greatest use is not in holding significant tangible assets, but rather as acting as the holder of shares in traditional domestic or offshore entities that are used as management companies.

The Liechtenstein anstalt is an entity, which has no members, participants or shareholders, and is a sort of hybrid between a corporation and a stiftung. An anstalt can have beneficiaries. The principal practical difference between an anstalt and a stiftung is that an anstalt can conduct all kinds of business activities[57].

Foundations of the civil law type have also existed for some time in Austria, Cyprus, Italy, Finland, Germany, the Netherlands (Stichting), Netherlands Antilles, Spain, Sweden (Stiftelse), Switzerland, Panama (1975), and more recently in St Kitts (2003), Nevis (2004), Bahamas (2005), Anguilla (2006), Antigua and Barbuda (2006), Malta (2006), Jersey (2009), and Labuan, Malaysia (2010).

Memec Plc v IRC [1998] STC 754 dealt with the UK tax characterisation of a German silent partnership. The approach taken was to analyze the characteristics of the civil law entity, and to equate it as closely as possible to the common law entity that it most closely resembles68.

Dreyfus v CIR [1929] 14 TC 560 held a French “Societe en Nom Collectif” (SNC), to be a company for UK tax purposes[58].

Memec Plc v IRC [1998] STC 754 dealt with the UK tax characterisation of a German silent partnership. This approach taken was to analyse the characteristics of the civil law entity, and to equate it as closely as possible to the common law entity that it most closely resembles[59].

Dreyfus v CIR [1929] 14 TC 560 held a French “Societe en Nom Collectif” (SNC), to be a company for UK tax purposes[60].

Ryall (Inspector of Taxes) v Du Bois Co Ltd [1933] 18 TC 431 held a German “Gesellschaft mit beschraenkter Haftung” (GmbH) to be a company for UK tax purposes[61].

The ATO has shown a marked reluctance to tackle this issue. As far as I can find they have not sought to deal in detail[62] with foreign civil law foundations[63]. In relation to Dutch stichtings, ATO ID 2007/42 reaches the conclusion they are trusts, based on Harmer v FC of T 89 ATC 5180. In relation to Anstalts, there is no ruling available but PS LA 2007/7 says at example 2, that an Anstalt “limited by shares”, will be a company[64].

In Private Ruling 77367 the ATO conclude that a Dutch Co-OP is a corporate entity from which s768-5 (formerly s23AJ) dividends may be available75.

They also note that a German Kommanditgesellschaft (German AG) referred to in ATO ID 2007/47, and a Delaware Revised Uniform Limited Partnership74 referred to inATO ID 2008/80, are “foreign hybrid limited partnerships” under Div 830 of the 1997 Act[65].

The ATO reluctance to deal with foundations may be in the process of changing due to the US Senate investigation: “Tax Haven Banks and US Tax Compliance”, which refers at page 49 to the Liechtenstein foundation alleged to be formed at the request of the Lowy family[66]. The ATO made a submission to the US Senate investigation[67]. Also see “Revealed: How the ATO got lucky with Frank Lowy”, Financial Review, 25 July, 2008, and the reference to “unknown international sources” in Case 25/95, 95 ATC 263. That the issue has not gone away can be seen from an article in The Age, “Give Lowy no help, Tax Office warned US” (November 8, 2010).

Disclaimer: The material and opinions in the paper should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests.

Robert Gordon BA LLB LLM FCPA CTA TEP ADIT was first admitted as a lawyer in 1978, and initially worked as an accountant with Big Four firms in Sydney and Melbourne, then as a solicitor in Sydney and Melbourne, becoming a tax partner at lawyers, Corrs Chambers Westgarth. From 1992 he was a member of the NSW Bar specializing in tax, with a special interest in international tax, including offshore trusts and estates. In 2006 he had a one year sabbatical in London where he studied UK and international tax. In 2007 he moved to Melbourne and became a full member of the Victorian Bar. In Nov 2012, after more than 20 years at the NSW & Vic Bars, he became a consultant at Pointon Partners, Lawyers & Trademark Attorneys. For more articles, see

__________________________________________________________________________________________[1] see SP 1/90[2] This is in contrast to the commentators on the UK position, who now all caution against a UK resident director participating other than physically.[3] Which allowed the ATO to argue that not only was the “central management & control” of the company in Australia (the first test of residency), but also that the company was carrying on business “in Australia and was owed by residents of Australia (the second test of residency).[4] In Re Picton Finance Ltd and FCT [2013] AATA 116, the taxpayer was a Vanuatu incorporated company (managed by PKF), which conducted share trades in one Australian company listed on the ASX. The Commissioner accepted that the company was not an Australian tax resident, but there are interesting comments in the decision which imply the Commissioner probably should have argued that point, at [86].The taxpayer’s share trades were both “on” and “off” market. The AAT found that all trades were on revenue account and the income there from, was Australian sourced. In relation to the “off” market share trades, the evidence showed the transferee signed the share transfer forms in Australia, and that being the place where the contract was entered into, the application of established case law pointed to the source of the profit being Australia, at [82]. In relation to the “on” market share trades, no case law was referred to, but it was held that as those trades on the stock exchange occurred “in Australia”, the source of the profit was Australia, at [90]. There is long standing Privy Council authority to this effect: e.g. CIT Bombay v Chunilal Metha (1938) L.R. 65 India Appeals 332, cited with approval in CIR v Hang Seng Bank Ltd [1991] 1 AC 306.[5] It is not apparent from the decision, but it appears that it was assumed by all concerned, that such insurance, depending on the death of a nominated party, would have been life assurance (or else Div 15 ITAA 36 would have applied. to deem a part of the premium income to have been subject to tax in Australia. The other possibility is that the death in question was not an event which could only happen in Australia.[6] Referring only to Koitaki Para Rubber Estates v FCT (1941) 64 CLR 241 at 248, which is only one of many that could have been referred to.[7] Referring only to Tariff Resinsurances Ltd v C of T (1938) 59 CLR 194, which was by far the most relevant case.[8] Indeed, there are press reports that he may be going to sue them for maladministration.[9] In the light of the High Court decisions in Nathan, Mitchum and Agfa-Gevaert, “that the case was not a suitable vehicle to explore the distinction between questions of fact and issues of law”. The Commissioner issued a Decision Impact Statement saying that the original decision of the AAT did not create a precedent. This is in contrast to his reliance on AAT decisions that suit him, on which he expressly relies in his rulings, ATOIDs, published guidance & instructions to counsel in conducting litigation.[10] In CIR v Hang Seng Bank Ltd [1991] 1 AC 306. Lord Bridge said as to source of profits, at 322-323:” The broad guiding principle, attested by many authorities, is that one looks to see what the taxpayer has done to earn the profit in question.” It is not who or where payments are made for the provision of the goods or services. More specifically, in CIR v HK-TVB International Ltd [1992] 2 AC 397 the Privy Council said at 402: “If a manufacturer in Hong Kong sells his goods to a merchant in Manila the payment which he receives is no doubt sourced in Manila but his profit on the transaction arises in and is derived from his manufacturing operations in Hong Kong.” It is of course, to be remembered, that the UK legislation focuses on the source of profits, whereas the Australian legislation looks to the source of income, but bearing that distinction in mind, the reference to profit and income in the Privy Council cases is directly relevant. The reference to “direct or indirect sources” in s6-5(3)(b) and its predecessors has always been there, and was not previously considered to add anything to the question of source.[11] Section 340 of Part X of the 1936 Act[12] The use of an offshore company owned by a Transferor Trust (TT) will often be administratively simpler, as the Australian resident principal can be a director of the company. The majority of directors will need to be resident where the company is to be resident If the company only has passive or “tainted” income, this will be attributed through the TT to the Australian resident transferor, but the capital of the company should be protected. The use of a tax haven company will usually allow more flexibility. If the Australian tax resident might cease to be an Australian tax resident for instance, if a sufficiently large capital gain was to be made on a tax haven trading company, it might have two (2) classes of shares. To enable tax free dividends to come back to Australia in the years before the sale, one class of share (with 10% of the voting rights) with discretionary dividend entitlement, would be owned by an Australian company in its own right (and entitled to s768-5 tax free dividends), while a TT might hold another class of shares which would also have discretionary dividend entitlement, which would only be used if the Australian (permanent) resident, ceased to be so, in an Australian tax year before the offshore company made the sale. Whilst this is an oversimplification of the concept, it is a workable plan if implemented carefully and there are real asset protection concerns. The use of the TT will also protect value in the non-resident trading company from potential creditors of the Australian resident principal. The Australian company that would hold the shares paying s768-5 dividends, would itself be owned by an Australian discretionary trust, also for asset protection and flexibility reasons.[13]Australian Securities and Investments Commission in the Matter of Richstar Enterprises Pty Ltd (ACN 099 071 968) v Carey (No 6) [2006] FCA 814; Kennon v Spry [2008] HCA 56[14] Australia was a signatory to the Hague Convention On The Law Applicable To Trusts And On Their Recognition (1989), and gave it force of law by the Trusts (Hague Convention) Act 1991. This is important even for Australia, as a common law country, as the Convention specifies that the law chosen for the trust doesn’t have to have a direct connection with the trust (Dicey Morris and Collins op cit at [29-016]), contrary to the position at common law: Augustus v Permanent Trust Co (Canberra) Ltd (1971) 124 CLR 245. It was signed by 13 of the 72 member countries of the Hague Conference on Private International Law, but its scope is wider as it was ratified by the UK on behalf of: the Isle of Man, Bermuda, British Virgin Islands, & Gibraltar, amongst others Crown dependencies (excluding the Bahamas and Cayman Islands). It is particularly important for the civil law countries for which the Convention has entered into force: Italy, Luxembourg, Monaco, Netherlands & Switzerland: see Marco Giacomo Bonalanza, “The Swiss Confederation, the trust and the taxation of immigrants”, Vol   7, Issue 3 TQR (2009). Apparently Panama has now become a signatory.[15] s95(2) of Div 6, ITAA 1936.[16] s95(3) of Div 6, ITAA 1936.[17] [2012] 1 SCR 520.[18] s95(3) of Div 6, ITAA 1936.[19] Commentators referred to by the Hon Anthony Smellie QC in his speech “Balancing the requirements of the trust with fairness and probity – a perspective from the Cayman Islands”, International Trusts & Private Client Conference, Ritz-Carlton Hotel, Cayman Islands, 5 October 2012. See also B Steiner, “A rock, a hard stone and the unknown — trustees duties and liability for operating companies” (2011) 10(4) Trust Quarterly Review 29, p 30.[20] The duties of an onshore trustee are onerous but, in particular, these duties include to:

  • exercise the care, diligence and skill of a prudent person (a higher standard applies to trustees whose profession, business or employment involves them acting as trustees): Trustee Act 1958(Vic), s 6(1). Note that codified duties of trustees are covered by equivalent legislation in other jurisdictions, such as the Trustee Act 1925(NSW), s 14A(2)(a).
  •      keep suitable, accurate and up-to-date records, which beneficiaries can request to inspect; Schmidt v Rosewood Trust Ltd [2005] UKPC 26; Breakspear v Ackland [2008] EWHC 220 (Ch); Read & Chang & Anor [2010] FamCA 876; and
  •     invest funds: Byrnes v Kendle (2011) 243 CLR 253 at [22]–[23], [72]–[73], [119]; in accordance with the terms of the trust: Trustee Act 1958(Vic), s 6(2).

[20] s102AAZD of the 1936 Act.[21] From an Australian tax perspective, where the funds placed offshore are to be invested in an active business, they would normally be subscribed into a controlled foreign company (CFC) to carry on the business and, generally, such income will not be attributed from such a CFC and the CFC does not pay a dividend to the trust. Often, there will be two classes of shares in the CFC with discretionary dividends payable on a class of share held onshore by an Australian resident company, so that the dividend can be received tax free under the participation exemption (Income Tax Assessment Act 1997 (Cth), s 768-5).[21] Persons resident in politically unstable countries may have the same concerns, and worried about being seen to have wealth, due to fear of kidnapping, which is not uncommon in for example, Latin America[22] [1980] 1 All ER 139.[22] Refer draft TD 2014/D3 on reconstructive power under new s815-130, which may be particularly relevant to reorganizations. Whilst the ATO considered themselves as having an effective reconstructive power in TR 2011/1 under Div 13, the new Div 815B-D gives explicit power at least under the domestic law, but as it relates to DTA countries, Div 815A does not: refer “Will your current approach to Transfer Pricing compliance meet the new legislative requirements?”, Paul Balkus, TI 29th Nat Conv. 26-28 March 2014, p7. Supporting documentation to justify the pricing is now particularly important, due to automatic 25% penalty for failure to keep such documentation.[23] From 6 April, 2006 (Div 768-R of the 1997 Act). Note however, that an immigrant that has an Australian citizen spouse will not be entitled to temporary resident status.[23] Although s29(5) of the Bankruptcy Act (Cth) does allow for assistance to be rendered in relation to international bankruptcies, including by virtue of regulations made, with Malaysia . For an example of assistance in relation to a UK bankruptcy, see Dick as Trustee in Bankruptcy v McIntosh [2001] FCA 1008. However, Malaysia is not a signatory to the UNCITRAL Model Law on Cross-Border Insolvency (1997), given effect in Australia by the Cross Border Insolvency Act 2008 (Cth).[24] For a discussion of the relevant matters that the Commissioner will take into account in determining whether a person is resident according to ordinary concepts see Taxation Ruling TR98/17. [worth of note the ruling where the Commissioner accepts that spouses won’t necessarily be resident of the same country] [24] Almost all common law jurisdictions treat the place of residence of the trustees as a test for tax residence of the trust, however, the Supreme Court of Canada in Fundy Settlement v The Queen [2012] SCC 14 has focused on the place of “central management & control” of the trust, without any statutory direction to do so, such as s95(2)(a) of the 1936 Act.[25] Also see Shepherd v HMRC [2005] UKSPC 00484[26] Barrett v HMRC [2007] UKSPC 00639; Grace v HMRC [2009] EWCA Civ 1082; Genovese v HMRC [2009] STC (SCD) 373; Hankinson v HMRC [2009] UKFTT 284 (TC); Tuczka v HMRC [2010] UKFTT 52 (TC); Turberville v HMRC [2010] UKFTT 69 (TC); Broome v HMRC [2011] UKFTT 760 (TC); Ogden v HMRC [2011] UKFTT 212 (TC); Kimber v HMRC [2010] UKFTT 107 (TC); Rumbelow &Anor v HMRC [2013] UKFTT 637 (TC); but not in James Glyn v HMRC [2013] UKFTT 645 (TC).[27] See under heading “Australian Cases”” below.[28] His substantive appeals to the High Court [2007] EWHC 2617 (Ch), and the Court of Appeal were dismissed [2008] EWCA Civ 1502.[29] Increasing to £60,000 tax when resident in at least 12 of the previous 14 years (for 2015-6); now s809H Income Tax Act 2007. For 2015-16 it is proposed to be £90,000 when resident in at least 17 of the previous 20 years. Labour’s platform for the 7 May 2015 general election was to abolish the non-dom rules, while introducing a temporary residence rule for those genuinely in the UK for a short period of time, such as university students. As well as the remittance basis, the “transfer of assets abroad” provisions, which attribute foreign source income, do not apply to non-domiciles.[30] The importance of establishing residence in a particular foreign country can be seen from the case of the physiotherapist on a working holiday for 5 years, who was found to have remained a tax resident of Australia throughout that period: AAT Case 12,511 (1998) 37 ATR 1263.[31] 79 ATC 4307, followed by a statement about an absence of anything less than two years being “transitory” in IT2650 at [27].[32] This will help avoid the result that occurred for the taxpayer in the UK case of Gains-Cooper v HMRC, who unsuccessfully argued that he had established tax residence in the Seychelles, to the exclusion of the UK. The UK does not have a DTA with the Seychelles.[33] There is no CGT in Malaysia, except for real estate (which fades out after 5 years of ownership), but speculative profits are taxed as income. Whilst a Malaysian resident individual will pay a top marginal rate of 26% once taxable income reaches RM100,000, directors fees from a Labuan company are currently not taxed, and there is currently a 65% exemption from tax on managerial salaries from a Labuan company. Further, if the individual controls the Labuan company, there is nothing in the tax law to compel them to pay themselves a taxable salary (although  RM10,000 per month “remuneration” must be specified in an application for a work visa from 1 July 2015, and there is a new requirement that such an employer company must have a minimum paid up capital of RM250,000). The Other Income Article of the Australia / Malaysia DTA, reserves the right to tax third country source income to the state of deemed sole residence: unlike Singapore.[34] So the argument would run, attributed income is “a purely notional sum”, rather than actual income of the attributed taxpayer: there is authority for this proposition in the UK Court of Appeal decision of Bricom Holdings Ltd v CIR [1997] EWCA Civ 2193, although the that case is not referred to on the ATO website nor the argument recorded anywhere on the ATO website. This is in contrast to actual income of a taxpayer whose character is recast by the domestic law of the source country.[35] see “Russell’s case, Sommerer’s case, and CFC Treaty Override”, 24 July, 2012 at:’s case, Sommerer_’s case, and CFC Treaty Override.pdf[36] As to which concept the UK cases should be relevant: Re Young (1875) 1 TC 57, Rogers v Inland Revenue (1879) 1 TC 225, Reed v Clark (1985) 58 TC 528, Shepherd v IRC [2006] STC 1821, Barrett v Revenue & Customs (2007) UKSPC SPC00639, Revenue & Customs v Grace [2008] EWHC 2708 (Ch). Also see FC of T v Jenkins 82 ATC 4098 at 4101[37] s7(1)(b)(i) of the Income Tax Act 1967[38] For seriously wealthy Australians who are not UK domiciled, the UK represents a tax haven for unremitted foreign source investment income, particularly where such income is retained in an offshore “entity”.[39] As to the question of domicile, see the discussion at [8-10] and [21] of IT 2650. Also see Iyengar at [87] -[101].[40] “Establishing Residence for Global Villagers” Ian Stanley , International Masterclass TI NSW Div 18 Sept 2013. “Establishing Residence in the Global Village”, Tony Underhill et al, TI Nat Conv. 26-28 March 2014.[41] so that income other than that the subject of s23AG was taxed at a rate which took into account the s23AG income i.e. the s23AG income pushed the other income into a higher tax bracket than would otherwise apply.[42] Which would often have no or a very low income tax. Section 23AG would usually only be available if some tax was paid in the country of source.[43] And all were Australian domiciles who generally could not establish a “permanent place of abode” outside Australia.[44]Mr Iyengar left Perth in May 2007 to move to Dubai and later Doha to work as a Site Engineering Manager pursuant to a two year contract which contained an option to extend the contract for one year. Since 2003, Mr Iyengar had jointly owned a house in Winthrop, Western Australia, with his wife. Except for the periods he had been absent from Australia, Mr Iyengar had resided at the Winthrop home and he regarded it as the “family home”. Mr Iyengar left Perth with the intention of returning upon the completion of his contract. He did not lease or purchase a property in Dubai. The taxpayer was held to be a resident of Australia for the 2008 and 2009 tax years. Mr Iyengar maintained a place of residence in Australia which at all times remained his “family home”. He maintained an intention to return to Australia when his contract of temporary employment ended. Mr Iyengar did not lease or purchase a property in Dubai (or later Doha), he did not purchase any substantial items of personal property whilst abroad and he returned to Australia upon completion of the contract. Mr Iyengar was a mere employee, working abroad, pursuant to his contract, for a finite period of time. Mr Iyengar was an Australian citizen. Mr Iyengar left many of his personal possessions in Australia, including two motor vehicles, furniture, appliances, clothing and other items.[45] Mr Sneddon who was born in Australia, purchased a property in 2007 in Western Australia. He was offered employment as a health and safety supervisor in Qatar. He was issued with a UAE residence permit and a work visa by the State of Qatar. He left several of his personal items, including a car, at his WA property when he left for Qatar. In Qatar, he lived in an apartment that was rented by Fluor, the company that employed him. During the 2008/2009 year, he returned to Australia on three occasions for a total of approximately seven and a half weeks. On 1 August 2010, he returned to Australia for over 12 months. Mr Sneddon was held to be an Australian resident for the income year ended 30 June 2009. Mr Sneddon left personal items at the property he owned in Australia, including various household items and a car. More than half of his earnings were used to cover expenses in Australia. Mr Sneddon was paid in Australian dollars. Mr Sneddon was born in Australia and is an Australian citizen. Mr Sneddon’s main reason to go to Qatar was for work that was expected to be completed by 31 July 2010. He had no promised future employment in Qatar after that date and was working as an employee in Qatar. All of Mr Sneddon’s personal ties were in Australia in the relevant year, and his only tie to Qatar was his employment.[46] See ATO ID 2012/93 in relation to dual residence resolved in favor of Malaysia. Letting out on a periodic tenancy rather than for a fixed term worked against the taxpayer in Disputant Resident v CIR(NZ) [2013] NZTRA 10 at [40]; [63].[47] Where they would spend sufficient time to be treated as a resident for the purposes of that country[48] Murray raised the “tie breaker” argument under the Singapore DTA too late, and so was not allowed to run  it. However, his family trust maintained a residence in which he stayed when in Australia. In Pillay and FC T [2013] AATA 447 the taxpayer maintained houses in Australia and Bali, but worked in East Timor. He did not argue that he was a resident of Indonesia, but if he did, as he had houses in both countries, the first tie breaker in the Indonesian DTA would not have helped him.[49] When in East Timor, he stayed in a two-bedroom apartment which was supplied by his employer. He and his wife had purchased a 55-year lease on a property in Bali which they called home. Dr Pillay had Australian bank accounts which he used to meet his living expenses. He is an Australian citizen and was present in Australia for between 6 and 8 weeks in each of the relevant years. Dr Pillay did not regard East Timor as home and his connection with East Timor was based almost entirely on his employment relationship. After his employment ended, he intended to divide his time between Bali and Australia. Dr Pillay was an Australian citizen. Dr Pillay and his wife owned a property in Australia which is described as the “family home”. He kept a wardrobe of clothing at this house, and it was only occupied during the few weeks of the year when Dr Pillay was visiting Australia.[50] Clemens and Commissioner of Taxation [2015] AATA 124; Jaczenko and Commissioner of Taxation [2015] AATA 125; Koustrup and Commissioner of Taxation [2015] AATA 126[51] The ATO has accepted since IT2681 (example one) that spouses can reside in different countries.[52] e.g. “Crime body suspects Hogan of travel sham”, The Age, 22 Aug, 2008[53] Due to largely ineffective suppression orders, the first reported decision that refers to Hogan by name is Hogan v ACC (No.4) [2008] FCA 1971 (22 Dec 2008). Whilst the ACC abandoned their claim that certain documents were not subject to legal professional privilege based on the crime/fraud exception, there is still a dispute about the suppression of a document prepared by the applicant referring to inferences that could be drawn from the privileged documents: see Hogan v ACC [2009] FCAFC 71, appeal heard by the High Court on 4 Feb 2010. In the light that the legal professional privilege claim was abandoned by the ACC, it is difficult to see why the press reports that the outcome of the High Court appeal is relevant to whether the ACC will seek to charge Hogan e.g.“Crime body close to charging Hogan andCornell”, The Age 3 Feb, 2010.[54]From Wikipedia entry: “The World” (cruise ship)

The World is a floating residential community owned by its residents. The residents, currently from 40 different countries, live on board as the ship slowly circumnavigates the globe — staying in most ports from 2 to 5 days. Some residents live onboard full time while others visit their floating home periodically throughout the year.

From “The World” website (

The World opens a vast amount of opportunity to travel the world in an exclusive community as either a Resident or vacationing Guest. With 165 private residences located aboard, many Residents call The World home on a consistent basis while others open their doors temporarily for short term rentals that allows others a unique vacation experience unlike any other.

[55] Also see CCH “International Offshore Financial Centres”, (looseleaf) at [LIE1-035] & [1-036].[56] HMRC TDSI mailshot 6- 17 May 2004 says for UK tax purposes, they will be treated as trusts. Also see “Beneficiaries of Trusts and Foundations”, Philip Baker, Vol VII No 3 ITPA Journal (2007).[57] HMRC TDSI mailshot 6- 17 May 2004 says for UK tax purposes, they will be treated as companies. The US has released a letter ruling AM2009-012 on 16 Oct 2009, which says that generally, a Liechtenstein anstalt will be treated as a business entity (corporate), whereas a Liechtenstein stiftung will be treated as a trust.[58] See particularly, pp 576-7. Tax Bulletin, Dec 2000 now treats an SNC as transparent for UK tax purposes.[59] As observed by Prof. Burns “Harmonization of Australian’s Anti-Deferral Regimes”, presented to IFA Melbourne, 12 June, 2007. Also see Dicey Morris and Collins op cit ¶ 30-010. Memec was applied in Swift v Revenue & Customs [2010] UKFTT 88 (TC), to find contrary to HMRC’s long standing position, that a US LLC was transparent for UK tax purposes. The result was reversed on appeal: see sub nom Revenue and Customs v Anson [2013] EWCA Civ 63 again but still citing Memec as the leading authority. Also see Major (Inspector of Taxes) v Brodie & Anor [1998] STC 491, at 498.[60] See particularly, pp 576-7. Tax Bulletin, Dec 2000 now treats an SNC as transparent for UK tax purposes.[61] Which status it is also treated under Tax Bulletin, Dec 2000.[62] By the issue of a public ruling i.e. Taxation Ruling or Determination. They seem to have argued for, and it was accepted by the taxpayer in the Australian case of Mulherin v FC of T [2013] FCAFC 115 at [25] that the Liechtenstein Foundation in that case was a trust (indeed an Australian resident trust), whereas in The Queen v Sommerer 2012 FCA 207 at [42]-[43] the Canadian Federal Court of Appeal doubted that the Austrian Foundation in that case was a trust (but rather was a company), but neither party wished to proceed on that basis.[63] refer generally “The Private Foundations Handbook” M Grundy ed., ITPA, 2007.[64] Whilst the conclusion is the same as HMRC, these days, most anstalts are not “limited by shares”. The BOT identified the characterization of anstalts as an “urgent issue” in 2004, yet 10 years later nothing has been done, and the new government’s recent announcement that they will not be proceeding with many of the previously announced measures, including reform of the anti-deferral measures, will presumably not cause resolution any time soon.[65] In ATO ID 2008/61 the conclusion is reached that an Irish CCF is a trust; in ATO ID 2006/149 that a Bermudan exempted limited partnership was a limited partnership but could not satisfy the requirements to be a “foreign hybrid limited partnership”; and in ATO ID 2006/91reached the conclusion that a Korean Japja Hoesa  was a limited partnership but could not satisfy the requirements to be a “foreign hybrid limited partnership”, and then changed their minds and concluded that it was a company in ATO  ID 2010/27 and withdrew the earlier ruling.[66][67], and has issued two Taxpayer Alerts, TA 2008/2 & TA2009/19.