Edited version of private ruling

Authorisation Number: 1011626673804

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Ruling

Subject: Residency - Foreign Income - Pilot

1. Will you be an Australian resident for income tax purposes?

No.

2. Will the employment income you derive as a pilot working for Company A in Country B, be assessable income in Australia?

No.

This ruling applies for the following periods:

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

This scheme will commence in:

1 July 2009.

Relevant facts and circumstances

You were born and raised in Country A and became an Australian citizen.

Your occupation is that of a commercial airline pilot.

You have no children.

You are now intending to take up a position with Company A which is a Country B based company. You have been offered a three year contract with Company A in a position based in Country B. You will obtain a Country B specific visa.

Whilst engaged by Company A, you will retain your position at Company B. You are provided with leave without pay for the duration of your contract with Company A. At the expiry of your contract with Company A, you can either extend your contract with Company A, or return to Australia and take up a position with Company B.

You and your spouse intend to leave Australia some time in the 2010-11 income year, and move to Country B permanently. You will dispose of all your personal possessions (furniture, white goods and vehicles), or take them to Country B.

In Australia, you own, and will retain some properties. One is your current main residence, which will be rented out.

Whilst you are in Country B, you will close all bank accounts other than mortgage accounts that relate to your properties.

In Country B, you and your spouse will rent an apartment on a long term lease, open bank accounts and be paid by a Country B company. You would also cancel your Australian private health insurance.

You will not have any person/sporting club memberships in Australia. You would only retain your membership with a certain Australian association for professional reasons only.

You only plan on returning to Australia a few times per year for holidays.

You and your spouse, are not, or were not Commonwealth of Australia Government employees.

Your employment in Country B will require you to fly specific aircrafts on long haul routes from Country B. The first of these routes will be Country B to Australia. Upon arrival in Australia, you would be required to stay overnight due to flight and duty time limitations which are regulated by the Civil Aviation Safety Authority. It is not legal for you to fly Country B to Australia return flights. You would stay for one night in a hotel provided by your employer, then, pilot an aircraft the next day on the return leg to Country B.

At the beginning of the Company A contract, you would be flying the Country B to Australia route very regularly until the Company A network extends to other routes.

In Australia, you would not have your apartment available to you as it would be leased on a long term basis. If you return to Australia after your contact, there is no prospect of you moving back into your apartment.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 995-1(1)

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Subsection 6-5(3)

Reasons for decision

Residency

The terms 'resident' and 'resident of Australia', in regard to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are:

· the resides test.

· the domicile test.

· the 183 day test.

· the superannuation test.

The first two tests are examined in detail in Taxation Ruling IT 2650.

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides. However, where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.

The 'resides' test

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3^rd edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; having one's abode for a time', and according to the Compact Edition of the Oxford English Dictionary (1987), is 'to dwell permanently, or for a considerable time, to have one's settled or usual abode, to live in or at a particular place'.

From some time in the 2010-11 income year, you will be residing with your spouse in an apartment in Country B. You will be residing there for three years and also be working there in a permanent role. You have stated an initial intention to stay there indefinitely.

Therefore, you were will not be considered to be residing in Australia.

The domicile test

If a person is considered to have their domicile in Australia they will be considered an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country.

The expression 'place of abode' refers to a person's residence, where they live with their family and sleep at night. In essence, a person's place of abode is that person's dwelling place or the physical surroundings in which a person lives.

A permanent place of abode does not have to be 'everlasting' or 'forever'. It does not mean an abode in which a person intends to live for the rest of his or her life. An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a permanent place of abode elsewhere.

In your case:

· it is your intention to make your home for at least three years in Country B, but could be indefinite

· you will only maintain an association with Australia through investment properties and bank accounts

· your current residence will effectively be abandoned by it being rented out on a long term lease, and

· you will be residing with your spouse in Country B on a long term lease from some time in the 2010-11 income year.

Therefore, you will not be considered to have maintained your Australian domicile.

However, based on these facts, the Commissioner is satisfied that you would have established a permanent place of abode in Country B.

The 183-day test

This test does not apply to you as it has been identified that your permanent place of abode will be in Country B.

The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person. 

You will not be treated as a resident under this test as you are not a member of the PSS or the CSS, a spouse of such a person, or a child under 16 of such a person.

Your residency status

As you will not be considered to be a resident of Australia under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936, you will not be considered to be an Australian resident under subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). You will be a foreign resident for income tax purposes from the date of your departure from Australia some time in the 2010-11 income year, until you return some time in the 2013-14 income year.

Employment income you will derive from Country B and Country B airspace

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a foreign resident of Australia includes all the ordinary income derived directly or indirectly from all Australian sources during the income year.

A foreign resident is a person who is not a resident of Australia. Salary and wages are regarded as ordinary income.

The source of income derived from employment is generally the place where the duties or services are performed (Federal Commissioner of Taxation v. French (1957) 98 CLR 398; (1957) 11 ATD 288; (1957) 7 AITR 76).

In your case, the employment income you will derive from work as a pilot performing work in Country B, or Country B airspace, will be considered to be sourced out of Australia. Therefore, the income you will derive in relation to such employment will not be assessable in Australia under subsection 6-5(3) of the ITAA 1997 as you will be a foreign resident.

Employment income you will derive from international airspace

In determining the liability to Australian tax on Australian sourced income received by a foreign resident taxpayer, it is necessary to consider not only the income tax laws but also any tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act).

A particular section to the Agreements Act incorporates that Act with the ITAA 1936 and ITAA 1997 so that those acts are read as one.

A particular schedule of the Agreements Act contains the tax treaty between Australia and Country B (the Country B Agreement). Another schedule to the Agreements Act contains the protocol amending the Country B Agreement (the Country B Protocol). The Country B Agreement and the Country B Protocol operate to avoid the double taxation of income received by Australian and Country B residents.

A specific article of the Country B Agreement provides that remuneration derived from employment exercised in Australia may be taxed by Australia and Country B.

A particular paragraph of the above mentioned article of the Country B Agreement states that a resident of Country B shall be exempt from tax in Australia on remuneration from an employment exercised on ships or aircraft in international traffic.

Therefore, the employment income you will derive as a pilot flying in international airspace will not be assessable income in Australia.

Employment income you will derive from Australia and Australian airspace

Another specific article and its paragraph of the Country B Agreement provides that remuneration derived from employment exercised in Australia will be exempt from tax in Australia if:

· you are present in Australia for a period or periods not exceeding in the aggregate 183 days in the Australian year of income

· the remuneration is paid by or on behalf of an employer who is not an Australian resident, and

· the remuneration is not deductible in determining the taxable profits of a permanent establishment which the employer has in Australia.

In your case, the above mentioned article and its paragraph of the Country B Agreement will apply. You will be present in Australia for a period or periods not exceeding in the aggregate 183 days in the Australian year of income. Your employer is not a resident of Australia, and your remuneration will not be deductible in determining the taxable profits of your employer's permanent establishment in Australia. Therefore, the employment income you will derive as a pilot performing work in Australia, or Australian airspace, will not be assessable income in Australia.