© Commonwealth of Australia 2016

[2016] AATA 1062

Division TAXATION & COMMERCIAL DIVISION

File Number 2016/2243

Re Beng Tan

APPLICANT

And Commissioner of Taxation

RESPONDENT

DECISION Tribunal Senior Member CR Walsh

Date 21 December 2016

Place Perth

The Tribunal affirms the decision under review.

......[Sgd]..................................................................

Senior Member CR Walsh

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CATCHWORDS

INTERNATIONAL TAX – applicant was an Australian resident for Australian income tax

purposes in the 2015 income year – applicant was a Malaysian resident for Malaysian

income tax purposes in the 2015 income year – application of the residence “tiebreaker”

test in the Australia/Malaysia double taxation agreement – whether applicant had a

“permanent home available to him” in Australia and/or Malaysia – whether the applicant‟s

“habitual abode” was in Australia and/or Malaysia – whether the applicant‟s “personal and

economic relations” were closer to Australia or Malaysia - applicant‟s Malaysian source

“personal services” income and “business income or profits” taxable in Australia -

objection decision affirmed

LEGISLATION

Agreement between the Government of Australia and the Government of Malaysia for the

Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes

Income, done at Canberra on 20 August 1980 – Article 3(1) - Article 4(2) – Article 4(2)(a)

– Article 4 (2)(b) – Article 4(2)(c) - Article 4(3) – Article 5(1) - Article 7 – Article 7(1) -

Article 14

Income Tax Assessment Act 1936 – s 6(1) – s 6(1)(a)(ii)

Income Tax Assessment Act 1997 – s 6-5(2) – s 995-1

Income Tax Act 1967 (Malaysia) – s 2(1) - s 7(1)(a) – s 20

International Tax Agreements Act 1953 – s 16

Taxation Administration Act – s 14ZZK(b) – s 14ZY(1) – s 14ZYA(2) - s 14ZYA(3)

CASES

Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory)

(2009) 239 CLR 27

Dempsey v Commissioner of Taxation [2014] AATA 335

Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 87 ALJR

98; [2012] HCA 55

Federal Commissioner of Taxation v Unit Trend Services Pty Ltd (2013) 87 ALJR 558;

[2013] HCA 16

FFF v Commissioner of Inland Revenue [2011] NZTRA 8

O‟Brien v Quigley [2012] IEHC

Taxpayer and Commissioner of Taxation [2013] AATA 394

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SECONDARY MATERIALS

Ismer, Roland Ismer and Katharina Riemer, „C. Article 4(2) OECD and UN MC‟ in Klaus

Vogel on Double Taxation Conventions (Updated) (CCH, 2016)

Vogel, K, Klaus Vogel on double taxation conventions: a commentary to the OECD, UN,

and US model conventions for the avoidance of double taxation on income and capital,

with particular reference to German treaty practice (3rd ed, Kluwer Law International,

1997)

OECD Commentaries on the Model Tax Convention on Income and on Capital:

Condensed Version (OECD Publishing, 2010) – Commentary on Article 4(2))

REASONS FOR DECISION Senior Member CR Walsh 21 December 2016

INTRODUCTION

1. Mr Tan seeks review of the Commissioner‟s objection decision (taken to have been made

on 29 April 2016) which disallowed Mr Tan‟s objection (dated 28 December 2015) against

an income tax assessment (issued on 9 November 2015) for the income year ended 30

June 2015.

2. The issue for determination in this application is whether, applying the “Agreement

between the Government of Australia and the Government of; Malaysia for the Avoidance

of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on

Income”, entered into in Canberra on 20 August 19801 (the Australia/Malaysia DTA), Mr

Tan is to be treated solely as a tax resident of Australia or Malaysia for the year ended 30

June 2015.

3. It is the Commissioner‟s position that Mr Tan is to be treated as a tax resident of Australia

for the entirety of the income year ended 30 June 2015.

1 As amended by the Malaysia protocol (No 1), entered into in Sydney on 2 August 1999, the Malaysia

protocol (No 2), entered into in the Genting Highlands on 28 July 2001 and the Malaysia protocol (No 3), entered into in Canberra on 24 February 2010.

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4. Mr Tan accepts that for the period 1 July 2014 to 31 December 2014, he is to be treated

as a tax resident of Australia.2 Mr Tan also accepts that, for the period 1 January 2015 to

31 March 2015, he is to be treated as a tax resident of Australia, by reason of the

operation of the DTA.3 However, for the period 1 April 2015 to 30 June 2015, Mr Tan

contends that he ought be treated a tax resident of Malaysia.4

FACTUAL & PROCEDURAL BACKGROUND

Mr Tan’s personal circumstances

5. Mr Tan:

was born in Malaysia, but has lived in Australia since 1998;5

is an Australian citizen6 and holds an Australian passport;7

married Ms Lee in 2011.8 Ms Lee is a Malaysian citizen, and an Australian permanent

resident;9 and

and his wife had a baby earlier this calendar year.10

Property

6. During the year ended 30 June 2015, neither Mr Tan nor his wife owned real property in

Australia.11

7. While in Australia, during the income year ended 30 June 2015, Mr Tan and his wife lived

at his parents‟ home in Kardinya, Western Australia (the Australian address), where Mr

Tan had lived since 2008.12 He retained a key to access the Australian address even

2 Exhibit 1 at p 89. 3 Exhibit 1 at p 89. 4 Mr Tan bears the burden of proving that the assessment issued to him in respect of the income year ended

30 June 2015 was excessive or otherwise incorrect, and what the assessment should have been: s 14ZZK(b) of the Taxation Administration Act 1953 (the TAA). If he is unable to do this, then the assessment must

stand. 5 Exhibit 4 at [2]. 6 Exhibit 4 at [1]. 7 Exhibit 2 at p133. 8 Exhibit 4 at [8]. 9 Exhibit 4 at [9]. 10 Exhibit 1 at p 85. 11 Exhibit 4 at [10]. 12 Exhibit 1 at p 84.

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when staying overseas.13 He also used the Australian address as registered location and

address for service of his business, including during the time he was in Malaysia.14

8. While in Malaysia, during the income year ended 30 June 2015, Mr Tan lived at his wife‟s

parents‟ home in Malaysia (the Malaysian address).

9. On 1 April 2015, Mr Tan entered into a 12 month lease agreement with his wife‟s mother

to rent a room at the Malaysian address, with an option to renew.15 Mr Tan says that he

paid rent of 300 Malaysian Ringgit per month (approximately AUD$100) from 1 April 2015

until at least 1 June 2016.16 Mr Tan has not provided any bank statements evidencing

payment of these amounts.

10. On 27 April 2016, Mr Tan‟s wife bought a residential property in Bull Creek, Western

Australia for $870,000.17

11. Mr Tan listed this address in his income tax return for the year ended 30 June 2016 as his

home address and as the business address of his main business.18

Time spent in Australia and Malaysia

12. During the income year ended 30 June 2015, Mr Tan was in Australia for a total of 279

days, and in Malaysia for a total of 88 days.

13. During the income year ended 30 June 2016, Mr Tan was in Australia for a total of 182

days, and in Malaysia for a total of 187 days.

14. During the 2015 calendar year, Mr Tan was in Australia for 106 days and in Malaysia for

264 days.

15. On each of the Australian immigration “outgoing” passenger cards that Mr Tan completed

13 Exhibit 3 at p176. 14 Exhibit 2 at p 143. 15 Exhibit 2 at pp 113-118. 16 Exhibit 2 at pp 104-112. 17 Exhibit 2 at p 165. 18 Exhibit 2 at p153.

PAGE 6 OF 25

for the 2015 and 2016 income years, he declared that he was an “Australian resident

departing temporarily” and that Western Australia was the state in which he lived.19

16. On each of the Australian immigration “incoming” passenger cards that Mr Tan competed

for the 2015 and 2016 income years, he declared that his intended address in Australia

was the Australian address, and identified himself as a resident returning to Australia, and

that he intended to live in Australia for 12 months.20

Mr Tan’s assets in the year ended 30 June 2015

17. During the income year ended 30 June 2015, Mr Tan:

had a savings account at UBank with an estimated value of $200,000;21

owned a car with an estimated value of $5,000, which was stored at the Australian

address;22

maintained an Australian private health insurance policy with HBF Health Limited;23

held a Western Australian driver‟s licence (and did not hold a licence from any other

state or country);24

was registered on the Australian Electoral Roll;25 and

was entitled to Medicare benefits26

Mr Tan’s income in the year ended 30 June 2015

18. During the income year ended 30 June 2015, Mr Tan:

was self-employed as a professional software development consultant (contractor);27

and

received income from:28

19 Exhibit 2 at p 133, p 135, p 137 and p 140. 20 Exhibit 2 at p 134, p 136 and pp 138-139. 21

Exhibit 2 at p 126. 22 Exhibit 3 at p 175. 23 Exhibit 2 at p 127. 24 Exhibit 2 at p 127. 25 Exhibit 2 at p 127. 26 Exhibit 2 at p 127. 27 Exhibit 4 at [11]. 28 Exhibit 4 at [11]-[13].

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o a US company, pursuant to a contract for professional software development

and consultancy services; and

o worldwide customers who accessed his website and purchased his mobile

app.

Private binding ruling, notice of assessment, and objection

19. On 20 July 2015, Mr Tan applied to the Australian Taxation Office (the ATO) for a private

binding ruling in respect of the period from 1 January 2015 to 31 December 2015, asking

what portion of his non-Australian sourced income was assessable by the

Commissioner.29

20. On 24 August 2015, the Commissioner issued Mr Tan with a private binding ruling which

stated the following:

Questions and answers:

1. Is all of your income from professional software development and consultancy services assessable in Australia?

Yes

2. Is all of your income from web hosting and mobile applications assessable in Australia?

Yes.30

21. On 29 October 2015, Mr Tan lodged his individual income tax return for the year ended 30

June 2015 with the ATO.31

22. On 9 November 2015, the Commissioner issued Mr Tan with a “Notice of assessment –

year ended 30 June 2015” (the Assessment).32

23. On or about 28 December 2015, Mr Tan lodged an objection against the Assessment with

the ATO (the Objection).33

29 Exhibit 1 at pp 8-16. 30 Exhibit 1 at pp 21-36. 31 Exhibit 1 at pp 39-78. 32 Exhibit 1 at pp 79-82. 33 Exhibit 1 at pp 83-94.

PAGE 8 OF 25

24. By letter dated 29 February 2016, Mr Tan issued the Commissioner with a written notice,

pursuant to s 14ZYA(2) of the TAA, requiring the Commissioner to make an objection

decision within 60 days.34

25. The Commissioner did not make an objection decision within 60 days of Mr Tan‟s notice,

so was taken, pursuant to s 14ZYA(3) of the TAA, to have made a decision on 29 April

2016 under s 14ZY(1) of the TAA to disallow the Objection (the Objection Decision).

26. On 29 April 2016, Mr Tan applied to the Administrative Appeals Tribunal (the Tribunal)

for review of the Objection Decision.35

ISSUES

27. The issues for determination in this case are as follows:

(i) whether Mr Tan was an Australian resident for Australian tax purposes in the

income year ended 30 June 2015 pursuant to the relevant provisions of the

Income Tax Assessment Act 1997 (the ITAA 1997) and the Income Tax

Assessment Act 1936 (the ITAA 1936);

(ii) if yes, whether Mr Tan was also a Malaysian resident for Malaysian tax purposes

in the income year ended 30 June 2015; and

(iii) if yes, how does the residence “tiebreaker” test in the Australia/Malaysia DTA

apply in Mr Tan‟s case?

28. Each of these issues is considered, in turn, below.

RELEVANT LAW & ANALYSIS

(i) Was Mr Tan an Australian resident for Australian tax purposes in the income

year ended 30 June 2015 pursuant to the relevant provisions of the ITAA 1997

and the ITAA 1936?

34 Exhibit 1 at p 98. 35

Exhibit 1 at pp 1-7.

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29. It is common ground that Mr Tan was a resident of Australia for Australian tax purposes in

the year ended 30 June 2015 under the relevant provisions of the ITAA 1997 and the

ITAA 1936.36

30. More specifically, it is not in dispute that in the year ended 30 June 2015 Mr Tan was a

resident of Australia under the:

“ordinary concepts” test of residence because he was a “resident or resident of

Australia”, as defined in s 6(1) of the ITAA 1936, such that he was also an “Australian

resident” for the purpose of the definition of that term in s 995-1 of the ITAA 1997, as

used in s 6-5(2) of the ITAA 1997 (which provides that if you are an Australian

resident, your “assessable income includes the ordinary income derived directly or

indirectly from all sources, whether in or out of Australia, during the income year”); and

“183 day test” in s 6(1)(a)(ii) of the ITAA 1936.

(ii) Was Mr Tan also a Malaysian resident for Malaysian tax purposes in the

income year ended 30 June 2015?

31. Section 7(1)(a) of the Income Tax Act 1967 (Malaysia) (the Malaysian ITA) provides that

an individual is a resident in Malaysia for the “basis year” for a particular year of

assessment if he is in Malaysia in that “basis year” for a period or periods amounting in all

to 182 days or more.

32. “Basis year” is defined in s 2(1) of the Malaysian ITA as having the meaning assigned by s

20 of the Malaysian ITA. Section 20 of the Malaysia ITA provides that the calendar year

coinciding with a year of assessment shall constitute the “basis year” for that year of

assessment.

33. Mr Tan contends that he was a resident of Malaysia for Malaysian tax purposes for the

2015 calendar year.37

34. The Commissioner accepts that Mr Tan was in Malaysia for more than 182 days in the

36 Exhibit 4 at [37]; the “Respondent‟s Statement of Facts Issues and Contentions, dated 4 August 2016, at [4.1]-[4.4] and Exhibit 1 at p 86 where Mr Tan states that “It should be uncontroversial that I qualify to be an Australian resident for FY2015”. 37 Exhibit 1 at p 86 and Exhibit 4 at [38].

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2015 calendar year and, therefore, was a resident of Malaysia for Malaysian tax purposes

for that year.

35. Since it is not in dispute that Mr Tan was a resident of both Australia and Malaysia for tax

purposes in the year ended 30 June 2015, the only real issue for determination by the

Tribunal is application of the residence “tiebreaker” test Article 4(2) of the

Australia/Malaysia DTA in Mr Tan‟s case.

(iii) How does the residence “tiebreaker” test in Article 4(2) of the

Australia/Malaysia DTA apply in Mr Tan’s case?

36. Where, a person, like Mr Tan, is a resident for tax purposes of both Australia and

Malaysia, Article 4(2) of the Australia/Malaysia DTA provides for a “tiebreaker” test to

determine the person‟s residency status, and thus the country in which the person is

required to pay tax.

37. Article 4(2) of the Australia/Malaysia DTA provides:

Residence

…

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;

(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.

(emphasis added)

38. Article 4(3) of the Australia/Malaysia DTA provides:

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

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(emphasis added)

39. In his “Statement of Facts, Issues and Contentions”, received on 13 June 2016, Mr Tan

contends the following:

37. The Applicant is a tax resident of Australia for the relevant financial year(s).

38. The Applicant is a tax resident of Malaysia for part of the relevant financial year(s).

39. The Applicant does not have a permanent home in Australia.

40. The Applicant has a permanent home in Malaysia.

41. The Applicant has a habitual abode in Australia.

42. The Applicant is unsure whether he has a habitual abode in Malaysia but considers that this may not be significant.

43. The Applicant is unsure whether his personal and economic relations are closer to Australia or Malaysia but considers that this may not be significant.

44. The Applicant is deemed by the relevant DTA to be a tax resident solely of Malaysia.

45. The DTA limits the amount of tax to be paid in Australia.

46. The relevant mechanism is Section 16 of the International Agreement Act 1953 which entitles the Applicant to a tax rebate.

47. The DTA (via Section 16 of the International Tax Agreements Act 1953) limits the amount of tax to be paid to Australia for the relevant financial year(s) to $22838.74. This entitles the Applicant to a tax rebate of $16163.16.

…

49. To the Applicant‟s best knowledge, when filing an Income Tax return, there is no way that a tax rebate due to Section 16 of the International tax Agreements Act 1953 can be entered. This unfairly disadvantages taxpayers who are entitled to such rebates.38

Did Mr Tan have a “permanent home available to him” in Australia in the year ended

30 June 2015 for the purpose of Article 4(2)(a) of the Australia/Malaysia DTA?

40. As set out above, Mr Tan‟s position is that he did not have a “permanent home available

to him” in Australia in the year ended 30 June 2015 for the purpose of Article 4(2)(a) of the

Australia/Malaysia DTA.

41. In contrast, the Commissioner contends that the documentary evidence before the

38 Exhibit 4.

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Tribunal, and the oral evidence of Mr Tan at the hearing, establishes that Mr Tan had a

“permanent home available to him” in Australia between 1 April 2015 and 30 June 2015

for the purpose of Article 4(2)(a) of the Australia/Malaysia DTA, namely the Australian

address (i.e. Mr Tan‟s parents‟ home in Kardinya, Western Australia): refer to paragraph

7 above.

42. In support of his contention that he did not have a “permanent home available to him” in

Australia in the year ended 30 June 2015, Mr Tan referred the Tribunal to paragraphs 12

and 13 of the “OECD Commentary on the Articles of the Model Tax Convention (2010)”

(the OECD Commentary) which state:

12. Subparagraph a) means, 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.)

(emphasis added)

43. Mr Tan contends that he did not “arrange” to have the Australian address available to him

“at all times continuously” during the 2015 income year and, therefore, he did not have a

“permanent home available to him” in Australia in the 2015 for the purpose of Article

4(2)(a) of the Australia/Malaysia DTA.

44. In support of his position, Mr Tan also referred the Tribunal to paragraph 71a (on p 248) of

“Vogel, K, Klaus Vogel on double taxation conventions: a commentary to the OECD, UN,

and US model conventions for the avoidance of double taxation on income and capital,

with particular reference to German treaty practice (3rd ed, Kluwer Law International,

1997) (Vogel 1997), which states (with citations omitted):

The individual has available to him…a permanent home if he has arranged to have the dwelling available to him at all times continuously...The term „to have available‟, which, in the sense of „possessing‟, presupposes actual power of disposition…encompasses both the right which the master of a house has and the right of its owner or tenant to determine occupancy of the dwelling….In

PAGE 13 OF 25

contrast thereto, the length of the individual‟s stay in the dwelling is of no or of only little importance.

(emphasis added)

45. Based on this extract from Vogel 1997, Mr Tan contends, that he did not have the

Australian address permanently “available” to him in the 2015 year as he had no “actual

power of disposition” in relation to the Australian address.

46. In a document titled “Applicant‟s Response to Respondent‟s Supplementary Written

Closing Submissions”, received on 21 November 2016, Mr Tan states the following in

relation to this issue:

“Moving out”

1. The respondent seems to equate being able to “move out” with power of disposition. Power of disposition is greater than merely being able to “move out”. Power of disposition also includes being able to control who lives in the residence.

2. If I had power of disposition, I could stay at the Perth residence as long as I wished. This is clearly not true. If my parents asked me to move out but I preferred to stay, I would still have to move out.

3. If I had power of disposition, I could control who stays at the Perth residence. This is clearly not true. If I asked my parents to move out, they can just ignore me.

1. If I wished for a friend to stay at the Perth residence with me indefinitely, my parents have the power to prevent this from happening.

4. The applicant submits that being able to “move out” at any time is not sufficient to indicate power of disposition.

47. Vogel 1997, on which Mr Tan places considerable reliance in support of his contention

that he did not have a “permanent home available to him” in the 2015 income year for the

purpose of Article 4(2)(a) of the Australia/Malaysia DTA because he did not have “actual

power of disposition” in relation to the Australian address, is merely an extrinsic aid to

interpretation. The words “actual power of disposition”, which appear in Vogel 1997,

should not be read as replacing or as imposing some kind or gloss on the actual words

used in Article 4(2)(a) of the Australia/Malaysia DTA, namely “permanent home available

to him”.

48. Many recent decisions of the High Court have reiterated the centrality of text to the task of

statutory interpretation: see, for example, Alcan (NT) Alumina Pty Ltd v Commissioner of

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Territory Revenue (Northern Territory) (2009) 239 CLR 27 at [47]; Federal Commissioner

of Taxation v Consolidated Media Holdings Ltd (2012) 87 ALJR 98; [2012] HCA 55 at [39};

and Federal Commissioner of Taxation v Unit Trend Services Pty Ltd (2013) 87 ALJR

558; [2013] HCA 16 at [47].

49. Based on the evidence, Mr Tan had a “permanent home available” in Australia (i.e. the

Australian address) in the 2015 income year within the ordinary meaning of those words.

To place such reliance on the words “power of disposition” referred to in Vogel 1997, as

Mr Tan does, is, in the Tribunal‟s view, misplaced. In any event, the Tribunal considers

that Mr Tan did have the actual power to “dispose” of the Australian address in the 2015

income year, within the ordinary meaning of that word, by simply moving out of the

Australian address. The ordinary meaning of “dispose” is not limited to the sale of

something (here, real property). The word “dispose” is defined in the Macquarie

Dictionary, Sixth Edition (at 429) as follows:

a. to deal with definitely…b. to get rid of; dump…d. to make over or part with (property) as by gift or sale.

50. In further support of his contention that he did not have a “permanent home available” to

him in the income year ended 30 June 2015, Mr Tan referred the Tribunal to the following

decisions:

the decision of the Irish High Court in O‟Brien v Quigley [2013] IEHC 398;

the decision of the Taxation Review Authority of New Zealand in FFF v Commissioner

of Inland Revenue [2011] NZTRA 8 at [48c];

the Tribunal‟s decision in Dempsey v Commissioner of Taxation [2014] AATA 335 at

[129]; and

the Tribunal‟s decision in Taxpayer and Commissioner of Taxation [2013] AATA 394.

51. Suffice it to say, all of the cases relied upon by Mr Tan can either be distinguished on their

facts from this case or are irrelevant to this case.

52. Based on the documentary and oral evidence before it, the Tribunal finds that Mr Tan did

have a “permanent home available” to him in Australia in the income year ended 30 June

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2015 for the purpose of Article 4(2)(a) of the Australia/Malaysia DTA39 (namely the

Australian address) because:

Mr Tan lived with his parents at the Australian address since 2008, including with his

wife since 2011 ;40

although Mr Tan had not entered into a formal rental arrangement with his parents,

there is no evidence to suggest that his stay at the Australian address was intended to

be of short duration. On the contrary, by the 2015 income year, Mr Tan had lived at

the Australian address for nearly 7 years; and

while in Malaysia, Mr Tan kept the majority of his personal effects at the Australian

address (including his car) and retained a key to the Australian address; and the

“permanence” of his Australian home is further evidenced by the fact Mr Tan

consistently referred to the Australian address as his address in official documents,

and as the Australian address as the registered location and address for service of his

business.

53. The documentary and oral evidence before the Tribunal establishes that Mr Tan had

“arranged” with his parents (the owners of the Australian address) to have a room at the

Australian address available to him at all times continuously (i.e. “permanently”) in the

2015 income year. That was so, despite the fact that Mr Tan and his parents did not

document their arrangement in any formal way. During the hearing, Mr Tan described the

arrangement of living with his parents as “the status quo”. Further, Mr Tan had the

relevant actual power of disposition in the sense that he could have moved out of the

Australian address at any time he chose.

54. Even though Mr Tan spent a significant period in Malaysia in the relevant period, he

retained a street address in Australia to which he always intended to return. And he did so

return. Consistently with this, he left his possessions at the Australian address, retained a

key to the Australian address, and lived at the Australian address both before and after his

travels to Malaysia. The fact that the Australian address belonged to his parents, rather

than to Mr Tan, and that they allowed him to live there without requiring rent or a formal

lease, does not prevent the Australian address from being a “permanent home available

to him” in Australia.

39 Exhi8bit 4 at [39]. 40 Exhibit 4 at [6] and [8].

PAGE 16 OF 25

55. Contrary to Mr Tan‟s submission that he did not “arrange and retain” the Australian

address for his permanent use, the Tribunal finds that Mr Tan arranged for the Australian

address to be his home by moving in, by moving his wife in, by retaining a key and by

keeping his personal belongings there.

56. By doing so, it was in his power to stay at the Australian address (that is, have the

Australian address “available to him”) or to move out of there and return the key (that is, to

actually “dispose of” the Australian address) and Mr Tan retained that power even while

not being in occupation of the Australian address.

57. The above conclusions are supported by the latest (2016) electronic version of the

publication of Ismer, Roland Ismer and Katharina Riemer, „C. Article 4(2) OECD and UN

MC‟ in Klaus Vogel on Double Taxation Conventions (Updated) (CCH, 2016) (Vogel

2016), which contains the following commentary on Article 4(2) of the Australia/Malaysia

DTA (footnotes omitted):41

a. Permanent Home and Centre of Vital Interests

…

85. aa. Permanent Home. Under the first tiebreaker test a dual-resident individual is a resident in the State where he has a permanent home available to him. A permanent home is something more than just a place to sleep and keep some belongings on a temporary basis. Rather, the permanent home must be of such quality that it is of vital interest for the individual. The criterion „permanent home‟ solves the conflict where dual residence arises as a consequence of a permanent home in one Contracting State and a stay of some length in the other…In such cases, the permanent home criterion reflects the underlying reasons for using residence as a basis for taxation. The obligation to pay taxes on the basis of residence is based on the principle that persons who benefit from their economic and social affiliation with a State have an obligation to contribute to theta State‟s public finances.

86. (1) Home…Any form or kind of home may be taken into account, be it a house, apartment or furnished room. Even hotel rooms, holiday homes and recreational vehicles can serve as a „home‟ for DTC purposes. It is immaterial whether or not the individual has legal title to the place or whether he owns or rents the place.

87. The taxpayer does not have to live in this home all the time, nor does it matter if he has another home available to him. In cases of doubt, it has to be assessed whether the intensity of the taxpayer‟s use is of such

41 Vogel on Double Taxation Conventions (Updated), C. (Article 4(2) OCED and UN MC (2016, CCH

Incorporated) at [85]-[90].

PAGE 17 OF 25

quality that it has a place in the everyday life of the taxpayer. For that purpose, the taxpayer‟s personal attachment to the home can be taken into account; for this similar criteria can be relied on as for the personal relations under the second part of the Article 4(2)(a) OECD and UN MC test (i.e. where his family lives, where he belongs to a sports or music association or the like). In short the home must be of such quality that it is of vital interest for the individual.

88. (2) Permanent. The „home‟ in question has to be permanent. It is the permanence of the home, rather than its size or the nature of the taxpayer‟s ownership or tenancy, that reflects the individual‟s attachment to the particular State. Thus, the taxpayer must have arranged to retain it for his permanent use as opposed to staying at a particular place occasionally (e.g. travel for pleasure, business travel, educational travel, attending a course at a school, etc…)

89. There is no minimum time period for the home to qualify as permanent. The permanence of a home, according to its object and purpose, is not a purely quantitative measure. A purely quantitative test is incorporated in the subordinate „habitual abode‟ test in Article 4(2)(b)…a stay of more than six months can no longer be considered temporary. However, this does not mean that the taxpayer must spend a certain period of time in the place concerned.

90. (3) „Available‟ to the Taxpayer. As a factual matter, the home must be available to the taxpayer. When an individual does not own or possess a permanent home, this does not necessarily mean that he has no such home available to him. A taxpayer who has no legal title may still have a home – factually – at his disposal and use it accordingly.

58. It is clear from the above passage that the power of “disposition” does not equate to the

power to sell the relevant home. That is, just because a person does not have legal title

to a home they live in, does not mean that that home is not “available” to that person

within the ordinary meaning of that word.

Did Mr Tan have a “habitual abode” in Australia and Malaysia in the income year

ended 30 June 2015 for the purpose of Article 4(2)(b) of the DTA?

59. It is common ground that Mr Tan had a “habitual abode” in both Australia and Malaysia in

the income year ended 30 June 2015, being the Australian residence and the Malaysian

residence respectively.

60. As Mr Tan had a “permanent home available to him” in both Australia and Malaysia in the

2015 income year and a “habitual abode” in both Australia and Malaysia in the 2015

income year, his residence cannot be resolved using the “tie breaker” test in Article 4(2)(b)

of the Australia/Malaysia DTA. Instead, the relevant question becomes whether Mr Tan‟s

PAGE 18 OF 25

“personal and economic relations” are “closer” with Australia or Malaysia in the year

ended 30 June 2015 for the purpose of the “tiebreaker” test in Article 4(2)(c) of the

Australia/Malaysia DTA. This issue is considered below.

Were Mr Tan‟s “personal and economic relations” closer with Australia or Malaysia

for the purpose of Article 4(2)(c) of the Australia/Malaysia DTA?

61. The “OECD Commentaries on the Model Tax Convention on Income and on Capital:

Condensed Version (OECD Publishing, 2010)” provides the following commentary on the

meaning of “personal and economic relations” in Article 4(2) of the OECD Model Tax

Convention:

14. If the individual has a permanent home in both Contracting States, paragraph 2 gives preference to the State with which the personal and economic relations of the individual are closer, this being understood as the centre of vital interests…

15. 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.

62. Similarly, Vogel 2016 states the following in relation to what is meant by “personal and

economic relations” in Article 4(2) of the OECD Model Tax Convention (footnotes

omitted):

92. (1) Personal and Economic Relations. As already mentioned, many factors from the taxpayer‟s private and economic sphere are relevant to determine his personal and economic relations. In practice, the courts have, inter alia, based their decisions on an evaluation of facts surrounding the following non-exhaustive list of facts: house; family home; furnishings; rented apartment; owned apartment; passport; sharing a room, no rent, no lease; place where the taxpayer was born and raised; children; country of birth of children; spouse; country of divorce; where spouse seeks employment; family visits; other family members such as parents; partner; friends; acquaintances; memberships; language skills; work; employer; adaption of professional qualifications such as nursing license; temporal dislocation; no relations apart from day-to-day living expenses

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(renting on yearly basis, bank account only for needs abroad, no car), relocation support, normally granted when an employee has temporarily moved to work in another country than that in which he had his residence; bank accounts; brokerage account; credit card; money transfers; health insurance; driver‟s license; personal belongings, such as a car, purchase new home; registration of car; future retirement plans; retirement accounts.

93. …the criteria of personal relations and, to a lesser degree, economic relations are highly subjective. What constitutes personal relations and how much weight is to be attached to such factors is very much in the eyes of the beholder…

94. In our view, all this suggests that the circumstances should be restricted to actual vital interests (contained in the term „centre of vital interests‟)…Vital interests are circumstances in the everyday life of an individual that not only reflect his day-to-day needs but also – in addition – longer-lasting ties. Whereas day-today needs and habits can be shifted quickly and selected by the taxpayer at will, vital interests are characterised by a certain permanence and this cannot be of a sheer temporal nature.

(emphasis added)

63. As submitted by the Commissioner, the following factors demonstrate Mr Tan‟s “personal

and economic relations” with Australia:

Mr Tan is an Australian citizen;42

Mr Tan holds an Australian passport;43

Mr Tan has lived in Australia since 1998,44 and has not taken any action to cease

residing in Australia;45

Mr Tan‟s wife is a permanent Australian resident,46 and has purchased a home in

Australia;47

Mr Tan‟s baby was born in Australia;

Mr Tan‟s parents live in Perth, Australia;48

Mr Tan described himself as an Australian resident in his income tax returns for the

year ended 30 June 201549 and the year ended 30 June 2016;50

during the 2015 income year, Mr Tan was physically present in Australia for 279 days

42 Exhibit 1 at p 13. 43 Exhibit 2 at p133. 44 Exhibit 4 at [2]. 45 Exhibit 4 at [22]. 46 Exhibit 4 at [9]. 47 Exhibit 2 at p 165. 48 Exhibit 1 at p 84. 49 Exhibit 1 at p 39. 50 Exhibit 2 at p147.

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and in Malaysia for 88 days;

during the 2016 income year, Mr Tan was physically present in Australia for 182 days

and in Malaysia for 187 days;

on each of the Australian immigration “outgoing” passenger cards that Mr Tan filled

out for the 2015 and 2016 income years, he declared that he was an “Australian

resident departing temporarily” and that WA was the state in which he lived;51

on each of the Australian immigration “incoming” passenger cards for the 2015 and

2016 income years, Mr Tan declared that his intended address in Australia was the

Australian address, and identified himself as a resident returning to Australia, and that

he intended to live in Australia for 12 months;52

Mr Tan listed the Australian address in:

o his income tax return for the year ended 30 June 2015, lodged on 29 October

2015, as his home address and as the business address of his main

business53;54

o his application for a private binding ruling, dated 20 July 2015;55

o the declaration submitted with the Objection;56

o his written notice to the Commissioner requesting that he make an objection

decision within 60 days, dated 29 February 2016;57 and

o his application for review filed with the Tribunal, dated 29 April 2016;58

since 27 January 2005, Mr Tan has held an Australian Business Number (20 573 348

425), with the business name “Thinkleft”;59

during the period 25 July 2008 to 4 July 2016, Mr Tan‟s “main business location” was

“WA 6163” (Kardinya). From 4 July 2016 onwards, his main business location has

been “WA 6149” (Bull Creek);60

Mr Tan‟s registered business name, “Thinkleft”, has a “principal place of business” of

“Kardinya, WA, 6163”, and the Australian address as the address for service. The

51 Exhibit 2 at p 133, p 135, p 137 and p140. 52 Exhibit 2 at p 134, p 136 and, p138-9. 53 Exhibit 1 at p 68. 54 Exhibit 1 at p 40. 55 Exhibit 1 at p 8. 56 Exhibit 1 at p 95. 57 Exhibit 1 at p 99. 58 Exhibit 1 at p 2. 59

Exhibit 2 at p 142. 60 Exhibit 2 at p 143.

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business name was registered on 6 May 2008 and has a renewal date of 6 May

2017;61

Mr Tan owns a car with a value of approximately $5,000, which he keeps in Perth,

Australia;62

during the 2015 income year, Mr Tan held a savings account with UBank (a division of

National Australia Bank Limited) with an estimated value of $200,000;63

during the 2015 and 2016 income years, Mr Tan maintained an Australian private

health insurance policy with HBF Health Limited;64

during the 2015 income year, Mr Tan held a Western Australian driver‟s licence (and

did not hold a licence from any other state or country);65

during the 2015 income year, Mr Tan was registered on the Australian Electoral Roll;66

and

during the 2015 income year, Mr Tan was entitled to Medicare benefits 67

64. However, the following factors demonstrate Mr Tan‟s “personal and economic relations”

with Malaysia:

Mr Tan‟s wife is a Malaysian citizen (although a permanent resident of Australia);68

on 1 April 2015, Mr Tan entered into a 12 month lease agreement with his wife‟s

mother to rent a room in her house (being the Malaysian address), with an option to

renew.69 Mr Tan says he has paid rent of 300 Malaysian Ringgit per month

(approximately AUD$100) from 1 April 2015 until at least 1 June 2016;70 and

during the 2015 calendar year, Mr Tan spent 106 days in Australia and 264 days in

Malaysia.

65. Although the Tribunal acknowledged that Mr Tan has some connection with Malaysia, on

balance, the Tribunal considers, as submitted by the Commissioner, that Mr Tan‟s

“personal and economic relations” with Australia are far closer than his “personal and

61 Exhibit 2 at p 145. 62 Exhibit 2 at p 126. 63 Exhibit 2 at p 126. 64 Exhibit 2 at p149. 65 Exhibit 2 at p127. 66 Exhibit 2 at p127. 67 Exhibit 2 at p127. 68 Exhibit 4 at [9]. 69 Exhibit 2 at pp113-118. 70 Exhibit 2 at pp104-112.

PAGE 22 OF 25

economic relations” with Malaysia. His “centre of vital interests” is in Australia. It follows

that the Tribunal finds that Mr Tan is a resident solely of Australia pursuant to the

“tiebreaker” test in Article 4(2)(c) of the Australia/Malaysia DTA.

Mr Tan‟s Malaysian source income is taxable in Australia

66. As the Tribunal finds that Mr Tan is a resident solely of Australia for the purposes of the

Australia/Malaysia DTA, the income derived by him in Malaysia (i.e. his Malaysian source

income) is taxable in Australia (even if it may also be taxed by Malaysia).

67. As previously stated, Mr Tan derived income during the relevant period under his contract

for professional software development and consultancy services, and from his website

and mobile app.

68. Mr Tan contends71, and the Commissioner agrees, that the income Mr Tan derived under

the contract is covered by Article 14 of the Australia/Malaysia DTA (Personal services),

and the income he derived from his website and the mobile app is covered by Article 7 of

the Australia/Malaysia DTA (Business income or profits).

69. Article 14 of the Australia/Malaysia DTA provides:

Personal services

1. Subject to Articles 15, 18, 19 and 20, remuneration (other than a pension) derived by an individual who is a resident of one of the Contracting States in respect of personal (including professional) services may be taxed only in that Contracting State unless the services are performed in the other Contracting State. If the services are so performed, such remuneration as is derived in respect thereof may be taxed in that other State.

2. Notwithstanding the provisions of paragraph 1, remuneration (other than a pension) derived by an individual who is a resident of one of the Contracting States in respect of personal (including professional) services performed in the other Contracting State shall be taxable only in the first-mentioned State if-

(a) the recipient is present in that other State for a period or periods not exceeding in the aggregate 183 days in the basis year or year of income, as the case may be, of that other State;

(b) the remuneration is paid by, or on behalf of, a person who is not a resident of that other State; and

71 Exhibit 1 at p 89.

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(c) the remuneration is not deductible in determining taxable profits of a permanent establishment which that person has in that other State.

70. When Article 14 is applied to Mr Tan‟s circumstances, it must be concluded that Mr Tan‟s

remuneration for his services, whether performed in Australia or Malaysia, may be taxed

in Australia. Even though Mr Tan has performed some of his personal services in

Malaysia, Article 14 of the Australia/Malaysia DTA does not prevent Australia from taxing

this income. Although Malaysia may also tax remuneration from personal services

performed in Malaysia by an Australian resident, nothing in the Australia/Malaysia DTA

prevents Australia from also taxing this income.

71. Consequently, Mr Tan‟s income from the contract for professional software development

and consultancy services that he derived in the 2015 income year, including such income

derived while he was physically present in Malaysia, is taxable in Australia.

72. Article 7 of the Australia/Malaysia DTA provides:

Business income or profits

1. The income or profits of an enterprise of one of the Contracting States shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein.

(emphasis added)

73. An “enterprise of one of the Contracting States” is defined in Article 3(1) of the

Australia/Malaysia DTA as an enterprise carried on by a resident of one of the Contracting

States (that is, Australia or Malaysia).

74. “Permanent establishment” is defined in Article 5(1) of the Australia/Malaysia DTA as a

fixed place of business through which the business of an enterprise is wholly or partly

carried on.

75. Applying Article 7(1) of the Australia/Malaysia DTA to Mr Tan, his income, whether

derived in Australia or Malaysia, will be taxable Australia. Article 7 allows business income

or profits derived in Malaysia by an Australian resident to also be taxed by Malaysia, but

only to the extent that it is attributable to a “permanent establishment” situated in

Malaysia.

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76. Accordingly, Mr Tan‟s income from his website and mobile app that he derived in the 2015

income year is taxable in Australia.

Section 16 of the International Agreements Act 1953

77. Mr Tan contends that the Australia/Malaysia DTA limits the amount of tax to be paid in

Australia and that the relevant mechanism is s 16 of the International Tax Agreements Act

1953.72 This contention is, with respect, misconceived. Articles 7 and 14 of the

Australia/Malaysia DTA do not impose any limit on the amount of tax that can be paid by

Mr Tan. The provisions of the Australia/Malaysia DTA which do impose some limits (being

Article 10 (Dividends), Article 11 (Interest) and Article 12 (Royalties)) have no application

in this case.

DECISION

78. For the above reasons, the Tribunal affirms the Objection Decision.

I certify that the preceding 78 (seventy-eight) paragraphs are a true copy of the reasons for the decision herein of Senior Member CR Walsh

......[Sgd]..................................................................

Administrative Assistant

Dated 21 December 2016

Date of hearing Date final submissions received

15 November 2016 21 November 2016

Applicant

In person

Counsel for the Respondent

Ms HA Tiplady

72 Exhibit 4 at [45]-[50].

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Representative for the Respondent

Mr R McGrade Australian Taxation Office