Edited version of private advice

Authorisation Number: 1051830752403

Date of advice: 23 April 2021

Ruling

Subject: Residency

Question 1

Are you a resident of Australia for taxation purposes after your departure from Australia on XX XX 20XX?

Answer

No

Question 2

Did you cease to be a temporary resident in XX 20XX when your spouse became a permanent resident of Australia?

Answer

Yes

Question 3

Will the Commissioner exercise his discretion in paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time you have to make a choice under subsection 104-165(2) ITAA 1997 to include a capital gain made on the date you ceased to be an Australian resident?

Answer

Yes, the Commissioner will extend the time to make the choice until 30 June 2021.

This ruling applies for the following periods:

Year ended 30 June 2019

Year ended 30 June 2020

Year ending 30 June 2021

Year ending 30 June 2022

Year ending 30 June 2023

The scheme commences on:

1 July 2018

Relevant facts and circumstances

You were born in Country X.

Prior to re-entering Australia on 20XX, you were residing in:

•         Country X and Country W

•         Country Y

•         Australia

•         Country Z.

You are a Country Y citizen.

You likely held Country X citizenship on the basis of birth there, however this may have been implicitly renounced. You no longer hold a Country X passport.

Your parent's migrated to Country from Country W and obtained Country Y citizenship.

You and your parents never lived in Australia as a family.

Your parents have always lived in Country Y. Your parent's family home remains in Country Y as does one of your siblings. The remaining sibling would also be moving back to Country Y soon.

You understand that your parent's may have qualified for Australian permanent residency in 20XX under the existing rules at the time for person's emigrating from Country W.

However, you do not believe that your parents, or yourself, ever became permanent residents of Australia even if they were granted it initially. This is because your parents never resided in Australia as they moved directly to Country Y instead and have remained there since.

You resided in Country Y until 20XX and started to travel and work abroad.

You consider Country Y as your home.

You have never held any other citizenship.

You were first granted a Country Z passport in 19XX.

You were eligible for a Country Z passport on the basis that both of your parents hold Country Z passports.

You continue to hold a Country Z passport.

You have held a Country Y passport since 20XX.

During the period you were present in Australia from 20XX to 20XX you entered on a temporary visa.

During this period, you were single and did not have a spouse (whether married or de-facto) nor where you a member of an Australian Commonwealth Government Superannuation Scheme.

You do not hold permanent residency in any other country, nor have you applied for permanent residency in Australia at any time.

Family

You met your spouse while working in Country Z.

Your spouse is a Country Z citizen and holds only a Country Z passport.

The spouse accompanied you back to Australia in 20XX

Your spouse applied for, and was subsequently granted permanent residency of Australia in 20XX.

Your spouse accompanied you to Country T on XX XXXX 20XX and resides with you in Country T in a residential property which you lease.

Between 20XX to 20XX when you were residing in Australia, your spouse worked in State Z.

Your spouse ceased working upon departing Australia on XX XXXX 20XX and is not currently working in Country T.

You and your spouse's first and only child was born in Country T in 20XX.

Your child has a Country Z passport and is entitled to a Country Y passport.

Your child is not a Country T citizen.

Your son is attached to your work visa in Country T as a dependent.

Timing of events since entering and departing Australia

While you were in Australia from 20XX to 20XX, you went on approximately 20 international trips.

Employment history

On XX April 20XX, you signed an Employment Agreement with a foreign company.

That foreign company made the decision to locate its Asia Pacific HQ to Country T. Previously the HQ was based in Australia.

When you left Australia on XX XXXX 20XX, you did not leave the company, but moved to the Country T office and was employed by the Country T entity.

You signed a new employment contract with the Country T entity, effective from XX XXXX 20XX.

At the time you moved to Country T you had no plans to move back to Australia and intended to make Country T your permanent home.

Australian resident departing permanently was the reason stated for going overseas when completing the Australian Immigration Outgoing passenger card.

You entered Country T on XX XXXX 20XX on an employment pass which is sponsored by your employer in Country T.

The Employment Pass was originally granted for two years and extended for another two years in XX 20XXX.

The Employment Pass is considered a long term pass and you are a tax resident of Country T.

After arriving in Country T, you are still required to return to Australia regularly to see clients and assist in the Australian team. You did this multiple times.

You have no current plans to relocate from County T back to Australia.

You do not hold a return airline ticket to Australia.

Between 20XX to 20XX when you were living in Australia, you rented units to reside in.

The lease on one of the properties expired in XX 20XX Your spouse remained in this property between XX 20XX to XX 20XX while you prepared their home and affairs in Country T. Your spouse then joined after the lease expired.

You purchased a property in in 20XX in Australia.

The property was intended to be (and is) an investment asset.

You have never, and never intended, to reside in the property.

The purchase was completed in your name.

You attempted to sell the property at the end of 20XX (when construction was completed) prior to leaving Australia however was unable to obtain a reasonable price. Hence the property has been rented out to a third party since XX 20XX

You still rent out the property, however expect that you will sell the property in the future.

Other than the property, you own no other residential property in Australia.

You purchased approximately a X% share in Country Y commercial real estate for approximately $X million in 20XX (i.e. after your departure from Australia).

You own various shares.

You sold all your household goods when you departed Australia, apart from the household contents which were taken with you to Country T. You have an interest in a retail superannuation fund in Australia which you retain.

You derive rental income from the property. The rental income covers the repayments and property expenses.

Other than this rental income, you do not receive any other income from Australian sources.

You maintain an AUD bank account for the purpose of receiving rent and making loan repayments. You do not use his AUD bank account to receive your salary, but rather a Country T bank account.

You do not currently hold any employment in Australia nor have you from your departure from Australia.

You have no social or sporting connections in Australia.

Neither you nor your spouse are or were Commonwealth Government of Australia employees for superannuation purposes.

You are not eligible to vote in Australia and are not on the electoral roll.

You receive global coverage from a health insurer.

Your connection with Country T

You do not own any property in Country T. However you hold a lease of residential property in which you reside with your spouse, child and full time nanny.

You have committed to a lease contract for a 3-bedroom apartment.

Prior to this, you leased a 2-bedroom apartment.

You have lodged personal income tax returns in Country T for the 20XX and 20XX Country T income years.

You have opened a personal bank account in Country Y which is used for your salary and day to day transactions.

You own household goods valued at approximately $X.

You have social and sporting connections in Country T.

You own some cryptocurrency.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 103-25

Income Tax Assessment Act 1997 subsection 103-25(1)

Income Tax Assessment Act 1997 paragraph 103-25(1)(b)

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

Income Tax Assessment Act 1936 subsection 6(1)

Reasons for decision

Question 1: Residency for Australian taxation purposes

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for 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 offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are:

•         the resides test,

•         the domicile test,

•         the 183 day test, and

•         the superannuation test.

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.

Where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be an Australian resident if they meet the conditions of one of the other 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'. These definitions have been highlighted in cases as being definitive observations of the meaning of resides (see Viscount LC in Levene v Commissioners of Inland Revenue [1928] AC 217 and Logan J in Stockton v Federal Commissioner of Taxation [2019] FCA 1679.

Intention is also an important aspect of identifying where a person resides. The case of Hafza v Director-General of Social Security (1985) 6 FCR 444 provides the following analysis

Physical presence and intention will coincide for most of the time. But few people are always at home. Once a person has established a home in a particular place - even involuntarily: see Commissioners of Inland Revenue v Lysaght [1928] AC 234at 248; and Keil v Keil [1947] VLR 383 - a person does not necessarily cease to be resident there because he or she is physically absent. The test is whether the person has retained a continuity of association with the place - Levene v Inland Revenue Commissioners [1928] AC 217 at 225 and Judd v Judd (1957) 75 WN (NSW) 147 at 149 - together with an intention to return to that place and an attitude that that place remains " home ": see Norman v Norman (No 3) (1969) 16 FLR 231 at 235... [W]here the general concept is applicable, it is obvious that, as residence of a place in which a person is not physically present depends upon an intention to return and to continue to treat that place as " home ", a change of intention may be decisive of the question whether residence in a particular place has been maintained.

Recent case law decisions have considered the following non-exhaustive factors in relation to whether the taxpayer was a resident under the 'resides' test:

•         Physical presence

•         Intention or purpose of presence

•         Family and business/employment ties

•         Maintenance and location of assets, and

•         Social and living arrangements

These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in IT 2650 and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia.

It is important to note that not one single factor is decisive, and the weight given to each factor depends on individual circumstances.

Based on the information provided, you are not residing in Australia during the ruling period since departing Australia on XX August 20XX.

You are not a resident under this test.

Domicile test

Domicile

Whether your domicile is in Australia is determined by the Domicile Act 1982 and the common law rules on domicile.

Your domicile is your domicile of origin (usually the domicile of your father at the time of your birth) unless you have acquired a domicile of choice elsewhere. To acquire a domicile of choice in a particular country you must be lawfully present there and you must hold the positive intention to make that country your home indefinitely. Your domicile continues until you acquire a different domicile. Whether your domicile has changed depends on an objective consideration of all relevant facts.

Your domicile of origin is Country Y. You came to Australia on a temporary visa. You however did not pursue permanent residency in Australia.

You came to Australia with the intention of staying there for a period. However due to prior travel between different countries for work, it would be difficult to say you intended to make Australia your home indefinitely. On this basis, you did not acquire a domicile of choice in Australia.

Your domicile therefore is not Australia.

You are not a resident under this test.

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 are not in Australia for more than 183 days for any of the income years in the ruling period.

You are not a resident under this test.

Super Test

An individual is a resident of Australia if they are either a member of the superannuation scheme established by deed under the Superannuation Act 1990 or an eligible employee for the purposes of the Superannuation Act 1976, or they are the spouse, or the child under 16, of such a person.

You are not a contributing member of the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS) 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.

Conclusion

As you do not meet any of the residency tests, you are not a resident of Australia for taxation purposes since your date of departure.

Question 2: Temporary resident

Section 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines temporary resident as:

you are a temporary resident if:

(a) you hold a temporary visa granted under the Migration Act 1958

(b) you are not an Australian resident within the meaning of the Social Security Act 1991; and

(c) your spouse is not an Australian resident within the meaning of the Social Security Act 1991

However, you are not a temporary resident if you have been an Australian resident (within the meaning of this Act), and any of paragraphs (a), (b), and (c) are not satisfied, at any time after the commencement of this definition.

Note: The tests in paragraphs (b) and (c) are applied to ensure that holders of temporary visas who nonetheless have a significant connection with Australia are not treated as temporary residents for the purposes of this Act.

The definition was enacted by Tax Laws Amendment (2006 Measures No. 1) Act 2006 (amending Act) and commenced at the time that the amending Act commenced. As per section 2 of the amending Act it commenced on the day it received Royal Assent, that is 6 April 2006.

Consideration is now given as to whether you are a temporary resident:

(a) Holding of a temporary visa granted under the Migration Act 1958

You have provided as a fact that you held a visa which is considered a temporary visa.

(b) Not an Australian resident within the meaning of the Social Security Act 1991

Subsection 7(2) of the Social Security Act 1991 defines Australian resident to be:

An Australian resident is a person who:

(a) resides in Australia, and

(b) is one of the following:

(i) an Australian citizen;

(ii) the holder of a permanent visa;

(iii) a special category visa holder who is a protected SCV holder

You satisfy this criterion on the basis that you do not satisfy any of the particulars listed in paragraph 7(2)(b), that you are:

•         not a citizen of Australia,

•         not a holder of an Australian permanent visa,

and

•         not a special category visa holder who is a protected SCV holder

(c) Spouse is not an Australian resident within the meaning of the Social Security Act 1991

Your spouse did not satisfy this criterion from XX 20XX as resided in Australia and were the holder of a permanent visa.

Conclusion

As your spouse was a permanent resident from XX 20XX, you ceased to be a temporary resident from that time.

Question 3: Choice

The general rule is that a choice available under the capital gains tax provisions once made cannot be changed. Generally, such a choice must be made by the time the income tax return is lodged or within such further time as the Commissioner allows (subsection 103-25(1) of the ITAA 1997).

Under subsection 103-25(2) of the ITAA 1997, the way you prepare your income tax return is sufficient evidence of the making of the choice. However, if a taxpayer has not considered the choice due to not being aware, then it is considered that no choice has been made. They can make this choice if the Commissioner allows an extension of time (ATO Interpretative Decision ATOID 2003/103 Capital Gains Tax: Choice and the small business roll-over)

In determining if the Commissioner should use his discretion to allow an extension of time the following factors are considered:

•         your explanation for not making the choice by the time it should have been made

•         whether it would be fair and equitable in the circumstances to allow you more time to make a choice

•         if prejudice to the Commissioner of Taxation might result from additional time being allowed to you, however, the absence of prejudice by itself is not enough to justify granting an extension

•         whether it would be fair and equitable to people in similar positions and the wider public interest, and

•         if any mischief is involved.

You want the Commissioner to extend the period to make a choice under subsection 104-165(2) of the ITAA 1997.

You were not aware of the choice that was available to you. You were under a misunderstanding as to your status as a temporary resident which meant that the choice was not considered. There is no mischief involved in exercising the discretion and it would be fair and equitable in the circumstances to provide the extension.

Your situation is in line with the view contained in ATO ID 2003/103. Therefore, the Commissioner has exercised his discretion and granted you an extension until 30 June 2021 to make the choice.

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