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Edited version of your private ruling
Authorisation Number: 1012534231193
Ruling
Subject: Residency and capital gains tax
Questions and answers
1. Are you a resident of Australia for taxation purposes from the date you left Australia?
No.
2. Is your Australian source income assessable in Australia from the date you left Australia?
Yes.
3. Is your foreign source income assessable in Australia from the date you left Australia?
No.
4. Did capital gains tax event I1 happen to your Australian dwelling when you ceased to be an Australian resident?
No.
This ruling applies for the following period:
Year ending 30 June 2014
The scheme commenced on:
1 July 2013
Relevant facts and circumstances
You were born in country X.
You are a citizen of both country X and Australia.
You moved to Australia with your children and lived here for over ten years.
You lived with your children in a house you owned in Australia.
You left Australia to live in country X.
You are renting a room from a relative in country X.
You intend to live in country X on a permanent basis.
At this point in time, you have no intention of returning to Australia for a long time.
You resigned from your job in Australia.
Your children will remain in Australia as they do not wish to move to country X.
All your household effects are going to your children.
You have closed all your bank accounts apart from one.
You have a superannuation fund in Australia.
You have had your name removed from the Australian electoral roll and from Medicare records.
You have advised your bank of your non-resident status.
Settlement for the sale of your Australian investment property occurred in this income tax year.
You made a capital gain from the sale of your investment property.
You will sell your former Australian residence as soon as your children are able to find alternative accommodation.
Relevant legislative provisions
Income Tax Assessment Act 1936 Subsection 6(1)
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 104-160
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-135
Income Tax Assessment Act 1997 Section 118-145
Income Tax Assessment Act 1997 Section 855-20
Reasons for decision
Residency
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 (including capital gains) gained from all sources, whether in or out of Australia.
However, where you are a foreign resident, your assessable income includes only income (including capital gains) derived from an Australian source.
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 provides four tests to ascertain whether a 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 an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides. However, where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.
The resides 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'.
In your case, you left Australia to return to country X and reside there on a permanent basis. You are cutting your financial ties with Australia and do not intend to return to Australia to live at this point in time.
Although your children will still reside in Australia, you will not be physically present in Australia and will not be residing here according to the ordinary meaning of the word.
Therefore, you are not a resident under this test from the date you left Australia.
The domicile test
Under this test, a person is a resident of Australia for tax purposes if their domicile is in Australia, unless the Commissioner is satisfied that their permanent place of abode is outside of Australia.
Domicile is a legal concept, determined according to the Domicile Act 1982 and common law rules established by private international law cases. Domicile is the place that is considered by law to be your permanent home. It is usually something more than a place of residence.
A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. In order to show that an individual's domicile of choice has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country.
In your case, your domicile of origin is country X and you have dual citizenship of country X and Australia. You moved to Australia; however, you have now left Australia and intend to live in country X permanently. As country X is your country of origin and you do not intend to return to Australia, your domicile will now revert back to country X.
Therefore, your domicile is not in Australia and you are not a resident of Australia under this test from the date you left Australia.
The 183 day test
Under the 183 day test, a person is a resident of Australia if they are actually physically present in Australia for more than 183 days in an income year unless the Commissioner is satisfied that their usual place of abode is outside of Australia and they have no intention of taking up residence here.
As you will not be physically present in Australia for more than 183 days in any year from now on, you will not be a resident under this test.
The superannuation test
An individual is considered to be an Australian resident for income tax purposes if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person.
You are not a resident under this test as you are not eligible to contribute to the PSS or the CSS.
Your residency status
As you are not an Australian resident under any of the tests of residency, you are not an Australian resident for taxation purposes from the date you left Australia.
Part-year residency and assessability of income
As you are not a resident from the date you left Australia, your assessable income will only include income gained from sources in Australia from that date.
Where a taxpayer is a resident for only part of the year, their income will be taxed entirely at resident rates. In other words, a person is not required to pay tax at resident and non-resident rates in one income year.
As a result, the following will apply to a part-year resident taxpayer:
· the foreign source income received by that person during the non-resident period is not assessable in Australia, and
· the tax-free threshold will be apportioned based on the number of months in the income year that the person was a resident.
In your case, you will be a resident for only part of the current income tax year. Therefore, any foreign source income received by you after you left Australia will not be assessable in Australia. Further, you will be entitled to a tax-free threshold for the period you were a resident.
Capital gains tax (CGT) and ceasing to be an Australian resident
Where you cease to be an Australian resident, a CGT event may be triggered. The relevant CGT event for an individual or company ceasing to be an Australian resident is CGT event I1 (section 104-160 of the ITAA 1997).
Where you cease to be an Australian resident, you are taken to have disposed of all your assets, except those that are 'taxable Australian property', at the time you ceased to be a resident and for their market value at that time.
Taxable Australian property includes 'taxable Australian real property' which includes real property situated in Australia (section 855-20 of the ITAA 1997). Land and houses are examples of real property.
In your case, you own a dwelling (your former residence) in Australia which is real property. As such, your dwelling is taxable Australian property and when you ceased to be an Australian resident, CGT event I1 was not triggered and you were not taken to have disposed of it.
Therefore, section 104-160 of the ITAA 1997 does not apply to you and you may only be liable for capital gains tax when you sell your dwelling in the future.