ARTICLE 4

Residence

This Article sets forth rules for determining the residence of individuals, corporations, and other persons for purposes of the Convention. A definition of residence is important because, for the most part, only residents of the Contracting States may claim benefits under the Convention. The Convention definition is of course, exclusively for purposes of the Convention.

Paragraph 1 of this Article describes those persons who, for purposes of the Convention, are residents of Australia or the United States.

Subparagraph (a) provides that a resident of Australia means an Australian corporation and any other person (except a company that is not an Australian corporation) that is resident in Australia for purposes of its tax. However, if such a person is subject to Australian tax on income from Australian sources (but not on income from U.S. sources or other sources outside Australia), that person is not a resident of Australia for purposes of this Convention except to the extent that the income is subject to tax in Australia as the income of a resident or is exempt from Australian tax solely because it is subject to U.S. tax. This provision excludes residents of certain territories included within the definition of Australia in paragraph 1(k) of Article 3 (General Definitions) from claiming any Treaty reductions in United States tax on United States source income under the Treaty; although subject to Australian tax on their Australian source income, such persons are not subject to Australian tax on their United States source income and the reason is not solely because they are subject to U.S. tax. Similarly, a partnership, estate or trust is a resident of Australia for purposes of the Convention only to the extent that the income it derives is subject to Australian tax as the income of a resident either at the level of the partnership, estate or trust or in the hands of a partner or beneficiary, or, if that income is exempt from Australian tax under the Treaty, it is exempt solely because it is subject to U.S. tax. However, an Australian trust will be considered a resident of Australia, notwithstanding that its income is exempt from Australian tax, if the trust qualifies as a tax exempt organization under Australian law because it is established for public charitable purposes or scientific research. Thus, a dividend paid by a U.S. corporation to an Australian partnership comprised equally of an Australian resident partner and an Indonesian resident partner would be treated as paid one half to an Australian resident and that half would enjoy the reduced rate of U.S. tax provided for in Article 10 (Dividends).

Subparagraph (b) provides that a resident of the United States means a U.S. corporation and any other person resident in the United States for purposes of its tax. However, a partnership, estate or trust is a resident of the United States for purposes of the Convention only to the extent that the income it derives either is subject to U.S. tax as the income of a resident (either at the level of the entity or in the hands of a partner or beneficiary), or is exempt from U.S. tax for reasons other than the recipient's not being a U.S. person. Thus, a U.S. person that qualifies as a tax-exempt organization under U.S. law qualifies as a resident, and a recipient of tax-exempt income does not lose its status as a resident with respect to that income. The rule in paragraph 1 that tax-exempt organizations and recipients of tax-exempt income qualify as residents, notwithstanding that the income they derive is not subject to tax, is meant to be a clarification and not to imply that such tax-exempt organizations and other persons are not entitled to Treaty benefits under conventions which do not include this or similar language.

Paragraph 2 provides a series of tie-breakers for assigning a single residence to an individual who, by the criteria of paragraph 1, would be a resident of both countries.

The first test is where the individual has a permanent home. If that test is inconclusive because the individual has a permanent home in both countries or in neither of them, the second test is where he has his habitual abode. If that test also fails to establish a single country of residence, because the individual has a habitual abode in both countries or in neither of them, he is deemed to be a resident of the country with which his personal and economic relations are closer. Citizenship, per se, is not recognized by Australia as a tie breaker, but if the individual is a citizen of one of the Contracting States, that factor will be taken into account in determining where his personal and economic relations are closer. If these tests do not establish a single residence, the competent authorities will attempt to settle the question by mutual agreement under Article 24 (Mutual Agreement Procedure). Once an individual is assigned a residence under this paragraph for a taxable year, he is a resident only of that State for all purposes of the Convention for that year.

The residence of persons other than individuals is determined under the respective laws of the Contracting States. A dual resident company is treated as a resident of neither Contracting State for purposes of the convention. (See paragraph 1(g) of Article 3 (General Definitions).)