Case Study 2 – When will an income tax treaty override the Substantial Presence Test?

Consider the similar fact pattern to the one set out in Case Study 1 but rather than John being single he is married with 3 children.  He has leased the home in West Hollywood but he has also retained his primary residence in Melbourne, Australia.  When he travels to the U.S., he travels alone.  His wife remains in Australia to care for their children.  All of his children attend schools in Melbourne.

John’s business in Melbourne is significantly larger than the operation he is trying to establish in the U.S. and most of his financial and economic contacts are located in Melbourne Australia.

While John will be a resident of the U.S. under the Substantial Presence Test, he would also be a resident of Australia as he intends to continue to reside permanently in Australia.

Under the Tie Breaker Test for the U.S. Australia Treaty John would be considered a resident of Australia because his habitual abode would be considered to be in Melbourne rather than West Hollywood.


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