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Edited version of your written advice

Authorisation Number: 1051240404849

Date of advice: 22 June 2017

Ruling

Subject: Residency and Capital Gains Tax (CGT) Main Residence exemption

Issue 1

Question 1

Are you a resident of Australia for taxation purposes?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

Year ending 30 June 2017

Issue 2

Question 1

Are you entitled to the Capital Gain Tax (CGT) exemption on the sale of your main residence?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2017

The scheme commences on:

1 July 2011

Relevant facts and circumstances

Your country of birth is Country X.

You migrated to Australia and became an Australian Citizen.

You purchased an Australian property and lived in this home.

You purchased this property with a relative and are tenants in common.

You recently sold this property and purchased a new Australian residence with the same ownership structure.

Since 201X, you have spent significant time overseas in Country X.

While you are in Country X, you work with your family business.

You do not receive wages from this work. Your family look after your living needs in Country X and Australia as a result of your work with the family business.

You enter Country X with a short term social visa valid for 60 days. Extensions can be granted for this type of visa on a monthly basis for a maximum of six months.

You are not a citizen or resident of Country X.

You do not pay tax in Country X.

You stay with relatives and are given your own room in Country X, which you do not pay rent for.

Your parents and siblings live in Australia.

You have an Australian bank account which you earn interest from.

Most personal belongings are located in Australia, with some clothes and daily living items in Country X.

You have not informed Medicare or the Electoral Commission that you have left Australia.

You have service connected at your residence in Australia. These accounts are listed in your name.

Your mail is delivered to your Australian Address.

You have not used your property for income producing purposes.

The property was your main residence for the entire period of your ownership.

Your Australian property was always available to you to reside in.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 6(1)

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Subdivision 118-B

Reasons for decision

Issue 1 Question 1

Summary

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 offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the:

Under the domicile test, you are considered an Australian resident for income tax purposes for the periods 1 July 2011 to 30 June 2017.

Detailed reasoning

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 derived from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source. This includes employment income, rental income, Australian pensions and annuities and capital gains on Australian assets.

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 offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the:

The primary test for deciding the residency status of each individual is whether they reside in Australia according to the ordinary meaning of the word resides. If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established.

The resides (ordinary concepts) test

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3rd 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'.

The Courts and the Tribunal have generally taken into account the following eight factors in considering whether an individual is an Australian resident according to ordinary concepts in an income year:

The weight to be given to each factor will vary with the individual circumstances and no single factor is necessarily decisive.

Taxation Ruling IT 2650 Income Tax: Residency – permanent place of abode outside Australia, emphasises the intended and actual length of the individual's stay in an overseas country, any intention to return to Australia or travel elsewhere, the establishment or abandonment of any residence, and the durability of association that the individual maintains with a particular place in Australia as the main factors to be considered when determining the residency status of individuals leaving Australia.

Physical presence in Australia

Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia, considers physical presence or length of time by itself is not determinative of residency. An individual's behaviour as reflected by a degree of continuity, routine or habit that is consistent with residing in Australia is relevant.

Frequency, regularity and duration of visits to Australia

Family and business ties with Australia

Maintenance of a place of abode

Based on all the facts, your behaviour is consistent with not residing in Australia and being considered a non-resident for tax purposes under the resides test.

The domicile test

If a person’s domicile is 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 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.

Generally speaking, persons leaving Australia temporarily would be considered to have maintained their Australian domicile unless it is established that they have acquired a different domicile of choice or by operation of law. 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 e.g., through having obtained a migration visa for a substantial period of time.

You have demonstrated that your domicile would be in Australia for the following reasons:

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.

You have been in Australia for varying periods since 201X. In majority of incomes years, you do not meet the 183 test and would not be considered a resident under this test.

The superannuation test

Under section 6(1) of the ITAA 1936, an individual is still considered to be a resident if that person is:

You are not eligible to contribute to the relevant Commonwealth superannuation funds therefore this test is not relevant to your circumstances.

Your residency status

Under the domicile test, you are considered an Australian resident for income tax purposes for the periods 1 July 2011 to 30 June 2017.

Issue 2 Question 1

Summary

You are entitled to the Capital Gains Tax (CGT) exemption on the sale of your main residence property under Subdivision 118-B of the ITAA 1997.

Detailed reasoning

In certain circumstances, there may be an exemption that can apply, which means that the gain or loss created by a CGT event is disregarded. Exemptions from CGT are set out in Division 118 of the ITAA 1997. In particular, Subdivision 118-B of the ITAA 1997 contains the CGT main residence exemption. The exemption disregards a capital gain or capital loss a taxpayer makes from a CGT event that happens to a dwelling, or their ownership interest in a dwelling, which is their main residence.

A capital gain or capital loss you make from a CGT event that happens to your main residence is disregarded if:

The following facts have been taken into consideration in determining whether the property is your main residence:

Therefore you are entitled to the CGT exemption on the sale of your main residence property under Subdivision 118-B of the ITAA 1997.

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