Edited version of your written advice

Authorisation Number: 1012822382834

Date of advice: 17 June 2015

Ruling

Subject: Temporary residents and capital gains tax

Questions and answers:

1. Are you a temporary resident of Australia for taxation purposes?

Yes.

2. Is any capital gain or loss from the sale of your property located in another country included in your assessable income in Australia?

No.

This ruling applies for the following period:

1 July 2014 to 30 June 2016.

The scheme commenced on:

1 July 2014.

Relevant facts and circumstances:

You are a citizen of another country.

You are not an Australian citizen.

You do not have a spouse.

You are living and working in Australia for several years under a temporary visa.

You own a property in another country that you will sell.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Section 6-10.

Income Tax Assessment Act 1997 Section 6-15.

Income Tax Assessment Act 1997 Section 10-5.

Income Tax Assessment Act 1997 Part 3-1.

Income Tax Assessment Act 1997 Section 768-910.

Income Tax Assessment Act 1997 Section 768-915.

Income Tax Assessment Act 1997 Section 855-15.

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

Income Tax Assessment Act 1936 Section 6(1).

Reasons for decision

Assessable income and residency for taxation purposes - general

As a general rule, the assessable income in Australia of an individual who is a resident of Australia for taxation purposes will include all the ordinary and statutory income they earn from all sources, in and out of Australia.

Capital gains are a form of statutory income.

Although an individual may be a resident of Australia for taxation purposes he or she may also be a temporary resident for taxation purposes at the same time. Where this is the case, the temporary resident provisions of Australia's tax law may operate to exclude certain foreign source income of the individual from being assessable in Australia.

Residency for taxation purposes

Section 995-1 of the Income tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for income tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

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

• the resides test,

• the domicile (and permanent place of abode) test,

• the 183 day test, and

• the superannuation test.

If any one of these tests is met, an individual will be a resident of Australia for taxation purposes.

The resides test is the primary test for determining the residency status of an individual for taxation purposes. If residency is established under the resides test, the remaining three tests do not need to be considered. If residency is not established under the resides test, an individual will still be a resident of Australia for taxation purposes if they meet the conditions of one of the other three tests.

The resides test

The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'. As the word 'reside' is not defined in Australian taxation law, it takes it's ordinary meaning for the purposes of subsection 6(1) of the ITAA 1936.

In Dempsey and Commissioner of Taxation [2014] AATA 335 (29 May 2014) the Administrative Appeals Tribunal noted that the settled position of the courts (at ultimate appellant level) as to the meaning of the word resides in the ITAA 1936 is that the word:

bears its ordinary English meaning, which 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".

Based on the facts of your case, the Commissioner considers that you have been a resident of Australia for taxation purposes since you arrived in Australia to live and work because you have been residing in Australia according to the ordinary meaning of the word since that time.

As you are considered a resident of Australia for taxation purposes under this test there is no need to consider the application of the other tests of residency to your circumstances.

Temporary residency for taxation purposes

An individual who is a resident of Australia for taxation purposes will also be a temporary resident for taxation purposes if:

• they hold a temporary visa granted under the Migration Act 1958, and

• they are not an Australian resident within the meaning of the Social Security Act 1991, and

• they do not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991.

The Social Security Act 1991 defines an Australian resident as a person who resides in Australia and is an Australian citizen, the holder of a permanent visa, or a Special Category Visa (SCV) holder who was in Australia on or before 26 February 2001.

Only a New Zealand citizen with a valid New Zealand passport can be issued a SCV.

Although you are a resident of Australia for taxation purposes, you are also a temporary resident of Australia for taxation purposes because:

• you hold a temporary visa issued under the Migration Act 1958, and

• you are not an Australian resident within the meaning of the Social Security Act 1991, and

• you do not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991.

Temporary residents and assessable income

Subdivision 768-R of the ITAA 1997 provides an exemption for most foreign income derived by individuals who are temporary residents of Australia for taxation purposes. This exemption is explained in part by the following extract from Paragraph 1.23 of the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006:

This Bill makes ordinary income derived from a foreign source during the period the taxpayer is a temporary resident non-assessable non-exempt income. This measure also applies to all statutory income that has a source other than Australia……… on which the taxpayer would otherwise be taxed.

Income that is non-assessable, non-exempt income is not assessable income under the provisions of subsection 6-15(3) of the ITAA 1997.

Section 768-910 of the ITAA 1997 provides that ordinary and statutory income (with the exception of net capital gains) derived by a temporary resident from sources outside Australia is non-assessable, non-exempt income.

Capital gains (or losses) made by temporary residents are specifically dealt with by section 768-915 of the ITAA 1997. In simple terms, the effect of section 768-915 of the ITAA 1997 is that temporary residents are subject to the same capital gains tax (CGT) rules as foreign residents. This means that if you are a temporary resident, you can disregard (and therefore exclude from your assessable income in Australia) any gain or loss made from a CGT event happening to an asset that is not taxable Australian property.

Taxable Australian property is defined in section 855-15 of the ITAA 1997.

Residential property located outside of Australia is not included in the definition of taxable Australian property.

Conclusion

You are a temporary resident of Australia for taxation purposes and your overseas property is not taxable Australian property. Therefore your assessable income in Australia will not include any capital gain or loss made from the sale of your overseas property.

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