Edited version of private advice

Authorisation Number: 1052319972568

Date of advice: 17 April 2025

Ruling

Subject: Residency

Issue 1

Residency

Question 1

Are you a resident of Australia for taxation purposes from the date you arrived in Australia?

Answer 1

Yes.

Issue 2

Taxation of working holiday maker income

Question 2

Will the tax rates for working holiday makers listed in section 1 of Part III of Schedule 7 of the Income Tax Rates Act 1986 (ITRA 1986) apply to your 'working holiday taxable income' as defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 2

Yes.

Issue 3

Taxation of foreign source income including capital gains and losses

Question 3

Are capital gains and losses you have made from the disposal of foreign shares included in your assessable income while you were a working holiday maker and a resident of Australia for taxation purposes?

Answer 3

Yes.

Relevant facts and circumstances

You were born in Country A and are a citizen of Country A.

You are also a naturalised citizen of Country B where you lived for a number of years preceding your arrival in Australia.

During the ruling period, you arrived in Australia from Country B on a Working Holiday Maker subclass 417 visa (WHM visa).

You were renting a property in Country B prior to coming to Australia, and do not own any property or vehicles or have any household effects outside of Australia.

You moved to Australia to live with your partner who is an Australian citizen.

When you arrived in Australia you commenced living with your partner.

You rent a property with your partner under a residential tenancy agreement

You applied to register your relationship with the relevant state government authority within three months of arriving in Australia.

You are employed in Australia in a professional role which you have held continuously for most of the ruling period.

You applied for a Partner visa subclass 820 (Partner visa) within 12 months of arriving in Australia.

Your WHM visa remained in effect until your Partner visa was granted.

Since arriving in Australia, you have become a member of several social and sporting clubs.

You have acquired and disposed of foreign shares from through a share broker in Country B.

You intend to reside permanently in Australia.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 6-10(4)

Income Tax Assessment Act 1997 section 10-5

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 Part 3-3

Income Tax Assessment Act 1997 section 855-45

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Rates Act 1986 section 3A

Income Tax Rates Act 1986 subsection 3A(1)

Income Tax Rates Act 1986 Schedule 7

Income Tax Rates Act 1986 section 4 of Part I of Schedule 7

Income Tax Rates Act 1986 section 1 ofPart III of Schedule 7

Income Tax Rates Amendment (Working Holiday Maker Reform) Act 2016

Reasons for decision

Issue 1

Residency

Detailed reasoning

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 a resident of Australia for from 1 December 2023, as follows:

•                     You are a resident of Australia according to the resides test.

•                     You do not meet the domicile test because your domicile is not in Australia.

•                     You meet the 183 day test because you were in Australia for 183 days or more during the 2023-2024 and 2024-2025 income year/s, and the Commissioner is not satisfied that both:

­        your usual place of abode is outside Australia, and

­        you do not intend to take up residence in Australia.

•                     You do not fulfil the requirements of the Commonwealth Superannuation test.

Issue 2

Taxation of working holiday taxable income

Detailed reasoning

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the terms 'Working holiday maker' (WHM) and 'working holiday taxable income' have the meanings given in section 3A of the Income Tax Rates Act 1986 (ITRA 1986):

SECTION 3A - WORKING HOLIDAY MAKERS AND WORKING HOLIDAY TAXABLE INCOME

3A(1)

An individual is a working holiday maker at a particular time if the individual holds at that time:

(a)           a Subclass 417 (Working Holiday) visa; or

(b)           a Subclass 462 (Work and Holiday) visa; or

(c)           a bridging visa permitting the individual to work in Australia if:

(i)             the bridging visa was granted under the Migration Act 1958 in relation to an application for a visa of a kind described in paragraph (a) or (b); and

(ii)             the Minister administering that Act is still to make a decision in relation to the application; and

(iii)             the most recent visa, other than a bridging visa, granted under that Act to the individual was a visa of a kind described in paragraph (a) or (b); or

(d)           a COVID-19 pandemic event 408 visa (as defined by subclause 9204(1) of Schedule 13 to the Migration Regulations 1994 ).

3A(2)

An individual ' s working holiday taxable income for a year of income is the individual ' s assessable income for the year of income derived:

(a)           from sources in Australia; and

(b)           while the individual is a working holiday maker;

less so much of any amount the individual can deduct for the year of income as relates to that assessable income.

3A(3)

However, the individual ' s working holiday taxable income does not include any superannuation remainder, or employment termination remainder, of the individual ' s taxable income for the year of income.

Section 3A of the ITRA 1986 subjects working holiday taxable income to a tax schedule enacted through the Income Tax Rates Amendment (Working Holiday Maker Reform) Act 2016, which replaced resident and non-resident taxation rates for WHMs with the tax schedule provided in section 1 of Part III of Schedule 7 of the ITRA 1986. This schedule applies a 15% flat rate of tax for WHMs on all income earned below the $45,001 threshold in the 2024 and 2025 income years.

The provisions in section 3A of the ITRA 1986 apply to working holiday taxable income for most WHMs regardless of their residency status, however; as a result of the High Court decision in Addy v Commissioner of Taxation [2021] HCA 34 (Addy), some WHMs may be taxed on the same basis as an resident Australian national, rather than the WHM taxation schedule.

The taxation of working holiday taxable income at Australian resident taxation rates only applies where an individual WHM meets all of the following:

•                     holds of a Working Holiday visa or Work and Holiday visa

•                     is a resident of Australia for tax purposes for the whole or part of the income year

•                     is from one of the following countries which has a non-discrimination article (NDA) in its tax treaty with Australia:

­                             Chile

­                             Finland

­                             Germany (for 2017-18 and later income years)

­                             Israel (for 2020-21 and later income years)

­                             Japan

­                             Norway

­                             Turkey; and

­                             United Kingdom.

Working holiday makers from countries other than those listed above are unaffected by the Addy decision, and the WHM provisions of Section 3A of the ITRA 1986 will apply regardless of the individual's residency status.

Application to your situation

You are a citizen of Country A and Country B. Both of these countries do not have an NDA in their tax treaty with Australia, therefore; the Addy decision will not apply to you.

As the Addy decision is not applicable in your case, the provisions of section 3A of the ITRA 1986 will apply to you and any working holiday taxable income you earn will be taxed at the rates published in section 1 of Part III of Schedule 7 of the ITRA 1986.

Issue 3

Taxation of foreign-sourced capital gains and losses

Detailed reasoning

Subsection 6-10(4) provides that for individuals who are residents of Australia, all worldwide sources of statutory income are assessable in Australia. Section 10-5 of the ITAA 1997 confirms that this applies to capital gains. Section 855-45 of the ITAA 1997 provides that when a foreign resident becomes an Australian resident, the CGT provisions contained in Part 3-1 and Part 3-3 of the ITAA 1997 apply to CGT assets from that point in time at as if the owner had acquired the assets at the time they became an Australian resident. This applies to any CGT asset which is not:

•                     taxable Australian property, or

•                     an asset which was acquired prior to 20 September 1985.

As section 3A of the ITRA 1986 imposes WHM taxation rates only on Australian-sourced income, foreign sourced capital gains and losses will be assessed and taxed under the Australian resident taxation rates contained in section 1 of Part I of Schedule 7 of the ITRA 1986.

Section 4 of Part I of Schedule 7 of the ITRA 1986 sets out the method used to calculate the rates of taxation applicable to resident individuals who have both WHM income and non-WHM income:

SECTION 4.

4.

If the resident taxpayer is a working holiday maker at any time during the year of income:

(a)           count the taxpayer ' s working holiday taxable income for the year of income as the first parts (starting from $0) of the taxpayer ' s ordinary taxable income for the purposes of the table in clause 1 that is applicable to the year of income; and

(b)           do not apply the rates in that table to that working holiday taxable income; and

(c)           do not count that working holiday taxable income when working out the taxpayer's taxable income for the purposes of clause 2 or 3.

Where the phrase 'clause 2 or 3' is referring to the 0% and 16% taxation brackets for Australian residents listed in section 1 of Part I of Schedule 7 of the ITRA 1986.

Section 4 of Part I of Schedule 7 of the ITRA 1986 therefore specifies that where an individual has WHM income and non-WHM income, the WHM income will become the "first slice" of the assessable income and the 15% rate of tax will apply to any WHM income earned up to $45,000. Any non-WHM income will form the remaining component of the individual's assessable income, and will be taxed at the applicable rate for a resident taxpayer.

Application to your situation

You are a resident of Australia for taxation purposes and have disposed of foreign shares through a foreign share broker during the ruling period. Section 855-45 applies such that the CGT provisions contained in Parts 3-1 and 3-3 of the ITAA 1997 will apply to your foreign shares as if you had acquired them when you became an Australian resident. As any net capital gain from foreign-source CGT assets is not WHM income it will be taxed at the rates applicable to Australian residents in accordance with Section 4 of Part I of Schedule 7 of the ITRA 1986.

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