Edited version of private advice

Authorisation Number: 1052194750322

Date of advice: 23 November 2023

Ruling

Subject: CGT - residency

Question 1

Are you a resident of Australia for tax purposes from when you departed Australia?

Answer

No.

Question 2

Can you amend your tax return to declare your capital gain/loss from CGT event I1 which happened when you stopped being a resident of Australia for tax purposes?

Answer

Yes, subject to the 2 year amendment time limit which you are still within as at the date of issue of this Notice of private ruling.

Question 3

Are you required to pay tax in Australia on your rental income?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX to Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were born and raised in Country Z.

You are a citizen of Country Z and Australia.

You lived in Australia for several years prior to returning to Country Z.

Your spouse worked for an employer in Australia.

Their Australian employer opened a branch in Country Z and your spouse was tasked with establishing it.

You and your spouse along with your child relocated to Country Z.

Your spouse has a full-time indefinite contract in Country Z.

You estimate you will be in Country Z for at least 5 years.

You rented out your family home in Australia which you own in equal shares with your spouse.

You sold your car and some belongings in Australia.

You and your spouse stayed with family in Country Z for a period before moving into a rental property.

Your second child was born in Country Z.

In Country Z you are a stay at home parent.

You and your spouse have opened bank accounts in Country Z.

Your spouse has purchased a vehicle in Country Z.

Your child attends school in Country Z.

You plan on visiting Australia, possibly once a year, for the purpose of holidaying and checking on your rental property. Each visit will be for less than a week and you will stay in hotel style accommodation.

You will not be in Australia for more than 183 days in any financial year.

You have some social connections in Australia.

All of your family and many friends are in Country Z and you attend social gatherings in Country Z.

You have maintained bank accounts and your share portfolio in Australia.

You lodged your 20XX and 20XX tax returns as an Australian resident, and only declared the realised gains from your share portfolio.

You are a resident of Country Z for their tax purposes.

You and your spouse are not eligible to contribute to the PSS or the CSS superannuation funds.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

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

Income Tax Assessment Act 1997 section 104-160

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

Reasons for decision

Residency

For tax purposes, you are a resident of Australia if you meet at least one of the following tests. You are not a resident of Australia if you do not meet any of the tests.

•         The resides test (otherwise known as the ordinary concepts test)

•         The domicile test

•         The 183 day test

•         The Commonwealth superannuation fund test

We have considered your circumstances, and conclude that you are not a resident of Australia for tax purposes from when you departed Australia as follows:

•         You are not a resident of Australia according to the resides test.

•         You do not meet the domicile test. Although your domicile is in Australia, the Commissioner is satisfied that your permanent place of abode is outside Australia.

•         You do not meet the 183 day test. Although you were in Australia for more than 183 days during the 20XX income year, after you left Australia to live in Country Z on a long term basis, your usual abode was now outside Australia and you didn't have an intention to take up residence in Australia at that time. You do not intend on being in Australia for more than 183 days in the subsequent income years ruled for.

•         You do not fulfil the requirements of the Commonwealth superannuation fund test.

In summary, you are not a resident of Australia for tax purposes from when you left Australia.

For more information about residency, see Taxation Ruling TR 2023/1 Income tax: residency tests for individuals.

CGT event I1

Section 104-160 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that CGT event I1 happens when you stop being an Australian resident. Any resulting capital gain or loss is included in the calculation of your assessable income unless you make a choice under section 104-165 of the ITAA 1997 to disregard the capital gain or loss.

Subject to the 2 year amendment time limit, you can amend your 20XX tax return to include your capital gain/loss from CGT event I1. You are still within this amendment time limit as at the date of issue of this Notice of private ruling.

Income from rental property in Australia

Subsection 6-5(3) of the ITAA 1997 provides (among other things) that a foreign resident taxpayer's assessable income includes the ordinary income derived from Australian sources.

The income from your rental property in Australia is sourced in Australia and is therefore included in your assessable income under subsection 6-5(3) of the ITAA 1997.

However, in determining your liability to pay tax in Australia it is also necessary to consider any applicable double tax agreements. Sections 4 and 5 of the International Tax Agreements Act 1953 (Agreements Act) incorporate that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 and provide that the provisions of a double tax agreement have the force of law. In the event of inconsistent provisions, the Agreements Act overrides the ITAA 1936 and ITAA 1997.

The agreement between Australia and Country Z (Country Z Agreement) operates to avoid the double taxation of income received by residents of Australia and Country Z.

Article X of the Country Z Agreement considers alienation of property and states:

1. Income, profits or gains derived by a resident of a Contracting State from the alienation of real property situated in the other Contracting State may be taxed in that other State.

Applying this article to your circumstances, Australia is permitted to tax the rental income from your property in Australia. The application of Article X of the Country Z Agreement is consistent with the application of subsection 6-5(3) of the ITAA 1997 to your Australian rental income. Therefore, you are required to declare your Australian rental income in your Australian tax return.

While you are a foreign resident for tax purposes you will be taxed in Australia at the foreign resident tax rates.

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