Edited version of private advice

Authorisation Number: 1051593392987

Date of advice: 29 January 2020

Ruling

Subject: Residency

Question

Are you a resident of Australia for income tax purposes from the departure date?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2019

Year ending 30 June 2020

Year ending 30 June 2021

Year ending 30 June 2022

The scheme commences on:

The departure date.

Relevant facts and circumstances

General

You are an Australian citizen. You ceased living In Australia on the departure date. When you departed it was your intention to establish a home and permanent place of abode in a foreign country.

Employment arrangements

You are employed as an airline pilot in a foreign country. You have been on a contract with them for several years.

Your employment is conducted only in the foreign country on flights originating and returning to the foreign country. You have X days off per month with X rostered work-days; both flying and ground duties.

Having just changed aircraft type, you have signed a further contract from. Your arrangement with your employer is indefinite in nature with renewable contracts. Contract renewal it is expected and is only denied in exceptional circumstances.

Following your current contract, you intend to work at your present employer for the next X years and then transition one of the domestic carriers. This will allow you to continue working in a foreign country up to the mandatory retirement age.

Family ties with Australia

Following the breakdown of your marriage, you decided that you would leave Australia and move to a foreign country; which you did on the departure date.

You have children. Your former spouse will have sole custody of your younger child. Your older child has moved to accommodation near a learning institution and will continue to reside there.

Your former spouse is looking for accommodation in another Australian city and plans to relocate to there as soon as an appropriate job is found. This will not have guest accommodation and you will not be staying there.

Your older child will visit you in the foreign country.

While your younger child is a minor, you will visit the child in Australia during the school term and arrange for the child to travel to a foreign country during the school holidays. You intend visiting Australia to maintain contact with your younger child while they are of school age. During school holidays you intention is for your younger child to visit you in a foreign country rather than you returning to Australia; with your former spouse's permission. The duration of your Australian visits will depend on the extent to which your younger child is permitted to travel internationally.

Your parents are Australian and live in Australia. They too will visit you in the foreign country.

Social and living arrangements in a foreign country from the departure date

After a relatively brief period of searching for permanent accommodation, you entered into an arrangement to take over the lease of an apartment in a foreign country. The duration of the lease is X years. You have purchased furniture and whitegoods for the apartment. You were eligible to occupy this apartment from a date and have been living there, since that time. The lease is solely in your name and you have insured the contents of your apartment. You intend to renew the lease at the end of the lease period or to move to another residence in a foreign country.

You have been living in a foreign country with your new partner who has been a resident of a foreign country for the last Z years. Since the departure date, you have also stayed at company provided accommodation as required while undertaking training provided by your employer.

You and your partner live together, either at a residence they own in the foreign country or at the place you have rented. For convenience of commuting times to your respective work locations, you stay together in your partner's residence during the week and at the rented apartment in the foreign country (which is closer to your work) when you are working on weekends. During the Christmas holidays, your children will be coming to stay with you and your partner at the partner's apartment; which has X bedrooms.

You and your partner plan to save a deposit together to purchase a single residence in a central location and retain your partner's property as an investment property. You have had numerous discussions on housing options but this arrangement is working best for you. Key factors are the relative cost of large apartments and your respective work locations. As a result, keeping your partner's property and the larger but cheaper accommodation you rent is the best option.

Your partner works for another employer in the foreign country and has been working in a foreign country for many years and has no intention to cease full time employment even in the event that you have children. Your partner is a permanent resident of the foreign country and meets the requirements to apply for naturalisation but has not done so.

Physical presence in Australia since the departure date

Since departing Australia on the departure date, you have returned briefly a few times for several days

During these trips, you have continued to work on the administrative tasks necessary to separate from your former spouse.

You have has been staying in the guest room when in Australia for convenience and cost reasons.

You have removed all of your clothing and personal articles from the property.

It is envisaged that additional return trips will be required to finalise details of the marital separation. The purpose of these trips will be to:

a.     Prepare the house owned jointly with your former spouse for sale, including engaging real estate agents and tradespeople to make repairs.

b.     Finalise the transfer of residual assets to your former spouse in accordance with the agreed division of assets. As required by law, they will look to have this division legally approved once they have been separated for one full year.

During these visits you will stay at either your parents' house or hotel accommodation. You do not have a permanent room or personal items stored anywhere in Australia.

You have notified the Australian Electoral Commission that you moved overseas on the departure date and will be residing overseas indefinitely.

You will be disposing of all assets located in Australia, apart from some bank accounts in Australia and do not have a residence in Australia.

Maintenance and location of assets

You and your former spouse will be settling your jointly owned house in Australia. The former spouse currently has possession of the house and it will form part of their assets by mutual agreement.

You have cars registered in your name. One car is used by your former spouse. The second is used by your elder child and garaged at the learning institution. In accordance with the mutual separation agreement, you will be transferring both cars out of your name.

You have a bank account in the foreign country.

You have Australian bank accounts with an Australia bank. These accounts will only remain active until the sale of the jointly owned house is finalised.

Your salary from your employer is deposited into a foreign bank account in X dollars and then transferred to an Australian account. You established the account in 20xx after you began living in a foreign country. You use an Australian based company for currency conversion because this arrangement is both flexible and convenient, given your various currency requirements. Hence you intend to continue to operate this account. Additionally, an Australian based credit card is used, as this card has no international currency fees associated with it. Once again, due to the usefulness of this card for international travel, you intend to continue to use this card.

Involvement in community

You have been studying a foreign language with weekly professional tuition in the lead up to permanently moving to a foreign country. You have passed the first of several levels. As you intend to live in a foreign country for the long term, you have obtained a level proficiency at this stage and will look to further this in the near future as you progress.

You are a member of several casual cycling groups in a foreign country and you cycle in a foreign country regularly. This has enabled you to develop ties with the local community and has given you further opportunities to develop your language skills. You are also active in the language exchange community and have developed several friendships in the foreign country through this medium.

You have a driver's licence and phone plan in the foreign country.

Permanent residency in a foreign country

You are in the process of deciding how to obtain permanent residency in a foreign country as you can either seek sponsorship through your employer or you may obtain permanent residency through your partner, who is a permanent resident of a foreign country.

While you investigate the best method of applying for permanent residency, you generally enter a foreign country on business visas in accordance with standard industry practice. For extremely short transits, you use short term entry visas due to you frequent exit end re-entry to a foreign country is an essential component of your job, this arrangement enables you to work and reside in a foreign country.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Section 6-5

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

Reasons for Decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, if you are a foreign resident, your assessable income includes only income derived from an Australian source (subsection 6-5(3) 0f the ITAA 1997).

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. These tests are:

1. the resides test
2. the domicile test
3. the 183 day test
4. the superannuation test

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.

1. The resides test

The ordinary meaning of the word reside, according to the dictionary definition, is to dwell permanently, or for a considerable time, to have ones settled or usual abode, to live in or at a particular place.

In your case, since the departure date you have been living and working permanently in a foreign country where you have been employed as a pilot for several years. Your arrangement with your employer is indefinite in nature with renewable contracts. You have signed a further contract.

Therefore, you are not an Australian resident under the resides test.

2. The domicile test

If a person's domicile is Australia they will be 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 of Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country.

The concept of Domicile was discussed in the Marriage of Emson (1980) 5 Fam LR 662:

A person may abandon his domicile of origin and acquire a domicile of choice but in order to establish a change of domicile there must be clear evidence of an intention to abandon the domicile of origin and to make a new permanent home in the country to which the person has removed. In my view a person cannot be said to acquire a new domicile until there has been a firm intention of establishing a permanent residence in another country and also the confirmation of that intention by actual residence in that country.

Declarations as to intention are rightly regarded in determining the question of a change of domicile, but they must be examined by considering the person to whom, the purposes for which, and the circumstances in which they are made and they must further be fortified and carried into effect by conduct and action consistent with the declared expression:

Ross v Ross [1930] AC 1 at 6-7 per Lord Buckmaster... Where the court finds that at a relevant point of time there is a conflict between the actual conduct of the party concerned and the verbal expression of his intention doubtless the court will in most cases prefer the act to the word - as an ancient proverb puts it: "what you do speaks so loudly that I cannot hear what you say

Further, in Fremlin v Fremlin (1913) 16 CLR 212; [1913] HCA 25 (Fremlin v Fremlin) Per Barton J:

In Winans v. Attorney-General, Lord Halsbury L.C. said:-"Now the law is plain, that where a domicile of origin is proved it lies upon the person who asserts a change of domicile to establish it, and it is necessary to prove that the person who is alleged to have changed his domicile had a fixed and determined purpose to make the place of his new domicile his permanent home." In the much older case of Udny v. Udny Lord Westbury said:-"Domicile of choice is a conclusion or inference which the law derives from the fact of a man fixing voluntarily his sole or chief residence in a particular place, with an intention of continuing to reside there for an unlimited time. This is a description of the circumstances which create or constitute a domicile, and not a definition of the term. There must be a residence freely chosen, and not prescribed or dictated by any external necessity, such as the duties of office, the demands of creditors, or the relief from illness; and it must be residence fixed not for a limited period or particular purpose, but general and indefinite in its future contemplation. It is true that residence originally temporary, or intended for a limited period, may afterwards become general and unlimited, and in such a case so soon as the change of purpose, or animus manendi, can be inferred the fact of domicile is established." Lord Curriehill in the case of Donaldson v. M'Clure says:-"To abandon one domicile for another means something far more than a mere change of residence. It imports an intention not only to relinquish those peculiar rights, privileges and immunities which the law and constitution of the domicile confer on the denizens of the country in their domestic relations, in their business transactions, in their political and municipal status, and in the daily affairs of common life, but also the laws by which the succession to property is regulated after death. The abandonment or change of a domicile is therefore a proceeding of a very serious nature, and an intention to make such an abandonment requires to be proved by satisfactory evidence." Lord Halsbury, in Marchioness of Huntly v. Gaskell, expressed strong approval of Lord Curriehill's judgment, quoting this passage.

Your domicile of origin is Australia as you were born in Australia. Therefore, your domicile is Australia and remains unchanged. However, you are taking steps to adopt a domicile of choice by applying for permanent resident status in a foreign country. You can obtain this by obtaining sponsorship through your employer or you can obtain permanent residency through your partner, who already has permanent resident status in a foreign country.

Permanent place of abode

The expression permanent 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 persons 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 the person intends to live for the rest of his or her life. It should be contrasted with a temporary or transitory place of abode outside of Australia.

Taxation Ruling IT 2650 Income Tax: Residency - permanent place of abode outside Australia (IT 2650) outlines some of the factors considered relevant in determining a person's place of abode. These are summarised at paragraph 23 in the ruling as:

·                 the intended and actual length of the individuals stay in the overseas country (a period of two years or more in a country would generally be regarded as a substantial period)

·                 any intention either to return to Australia at some definite point in time or to travel to another country

·                 the establishment of a home outside of Australia

·                 the abandonment of any residence of place of abode the individual may have had in Australia

·                 the duration and continuity of the individuals presence in the overseas country, and

·                 the durability of association that the individual has with a particular place in Australia.

You have been living with your partner in a foreign country, either in the accommodation you rented yourself or in the one your partner owns. You and your partner plan to save a deposit together to purchase a single residence in a foreign country. Your partner will retain the apartment as an investment property.

As you can live with your partner in the residence they own and you are planning to purchase an apartment in a foreign country together with your partner, you have a permanent home outside Australia.

As you are in the process of adopting a domicile of choice in a foreign country and have established a permanent place of abode outside Australia, you are not resident of Australia for tax purposes under the domicile test.

3. The 183 day test

Where a person is present in Australia for 183 days during the year of income the person will be a resident unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

In your case, as you were not physically present in Australia for more than 183 days in any year of income you are not a resident of Australia under this test.

4. The superannuation test

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

In your case, you are not a member of the CSS or the PSS or a spouse of such a person, or a child under 16 of such a person. Therefore, you are not a resident under this test.

Your residency status

You are not a resident of Australia for income tax purposes from the departure date.